Facing the most serious global crisis in the history of the aviation industry let alone within the plane makers 52 year-long existence, Airbus senior management had little choice but to take every conceivable measure that it could to protect the company through what most agree, is going to be a very difficult three to five year period in which the commercial airline industry is likely to suffer a protracted period of 50% capacity and passenger reduction.
The corresponding impact of this on the aerospace manufacturing industry has not be been that hard to judge and the Airbus restructuring announcement last night was confirmation if it was needed not just of precarious state that the company finds itself in but also in respect of the poor health of the aviation industry as a whole. What the company has announced is nothing short of a step change, one that in this case is unfortunately in the wrong direction but one that while necessitated by a situation not of its making is one that now requires a forward strategy based on survival.
The action that the company has taken are unprecedented and will result in a reduction of around 15,000 personnel over the next year. Commercial aircraft business activity has reduced by close to 40% in recent months and of necessity the company is forced to reduce commercial aircraft production accordingly. With air traffic unlikely to recover to pre-COVID levels before 2023 and potentially as late as 2025, following an in-depth analysis of customer demand, the company has been forced to announce that 5,000 positions will be lost in France, 5,100 in Germany, 900 in Spain, 1,700 in the UK plus 1,300 positions at other Airbus international sites.
Support from the four home nation governments (Germany, France, UK, Spain) has certainly helped and these measures have played a key role in limiting the social impact. But they could hardly be enough to mitigate the full extent of the crisis that the company finds itself in.
That France, Germany, Spain and the UK have all implemented various forms of partial unemployment or furlough scheme from the start of the crisis has been very welcome. In addition to furlough measures countries such as Germany have announced a global support package to the aerospace industry that includes increased Research and technology (R&T) spend for sustainable aviation and defence contracts together with incentives for fleet renewal and what is known as the “Kurzarbeit” partial activity scheme.
Meanwhile, the French government presented a €15 billion rescue package aiming to save jobs across the aviation sector of which approximately half has been to support its flag carrier airline Air France KLM together with fast forwarding orders for military aircraft, supporting transformation of SMEs and accelerating the decarbonisation of the industry through R&T funding.
The UK has been supporting the aviation and aerospace industry in various ways such as the Coronavirus Job Retention Scheme, BoE Coronavirus Corporate Finance Facility and R&D increases. The EU is also supporting the crisis with additional research and development funding.
The 1,700 jobs that will be lost in the UK represents around 12% of the total Airbus workforce. By any standards this is a very large figure but it is also one that could have been much worse. To me there is an unwritten message in this for the UK government and one that says it must now step-up to the plate and do more not only in supporting Airbus and the important UK supply chain through the very difficult three to five years that lie ahead but also investing in the future.
Just as France and Germany have already done, the UK must demonstrate that it is also prepared to support the industry by taking a longer-term view in regard of future investment.
The R&D component in support of the transition to decarbonised aviation is but one very important example and with more government help this could serve as a much-needed accelerator that could ensure that the UK remains at the forefront of the commercial aerospace industry.
For Airbus UK the impact of cuts will be seen at both of its commercial aircraft sites in Filton and Broughton. Headquarters roles will also be reduced and while the UK apprenticeship scheme will continue as planned, I understand that start dates have been staggered to reduce class sizes. Airbus is particularly grateful for the help that the Welsh Government has provided supporting apprentices. Graduates on scheme are also secure for the term of the scheme.
To me there is also unwritten message that the UK government must also take from the restructuring announcement from Airbus – one that says it must now step up to the plate not only in supporting Airbus and the important industry supply chain through the difficult three to five years that lie ahead but also one that says if we care about maintaining our lead position in commercial aerospace manufacturing it is imperative that incentives are provide to ensure that no opportunities are lost to invest in the future now.
The Aerospace Growth Partnership has and will undoubtedly continue to play a very important role ensuring that the UK remains at the forefront of the sector and the UK government will I am sure continue to back this. Note too that yesterday in Dudley, the Prime Minister said that the UK would aim to produce the world’s first zero emission long haul aircraft and so it will. But while there is no shortage of ideas and vision we need to go further and faster to ensure we maintain and even increase our lead.
Last year, for example, Airbus unveiled a bird-like conceptual airliner design (Bird of Prey) which had as its aim goal of motivating the next generation of aeronautical engineers – underscoring how they can make a difference by applying technologies researched at the company in hybrid-electric propulsion, active control systems and advanced composite structures. While a theoretical design is a hybrid-electric, turbo-propeller aircraft for regional air transportation. Inspired by efficient mechanics of a bird, it has wing and tail structures that mimic those of a bird of prey, while featuring individually controlled feathers that provide active flight control.
We need to take schemes such as this along with the potential to develop electric aircraft powered by electric motors using batteries, solar cells, fuel cells and other possible technology we need to also look at electric a lot further but moreover, if we are to also lead in look at single aisle aircraft technology development as well. Put simply, with the idea, vision and opportunity already there and with government backing, I believe that the UK should now seize the opportunity and lead in the build of a single aisle zero emissions aircraft.
Airbus has I believe been in discussion with the UK Government on number of areas of industrial strategy support over the past year in order to assist the company and the wider aerospace sector and industry supply chain. Aircraft scrappage schemes as a means to retire older, less environmentally friendly aircraft are some of the things believed to have been discussed along with ongoing R&T support. But, while I am sure that the UK government will step up to the plate and rise to the future challenge, unlike our main continental European competitors, the UK lacks any form of cohesive and realistic industrial strategy. Rectifying this must in my view be an absolute priority now.
Faced with such an appalling short to medium term outlook, Airbus management has done the right thing in downsizing capacity and adapting now to what over the next three to five years, will emerge in my view as a commercial aerospace market halved in size. In doing so, Airbus has shown no favours to any one of the four partner nations and it is to be commended for how it has approached what is after all, the worst situation that the company has ever faced in its 50 year plus history.
Airbus is of course far from being alone in being forced to take all necessary measures to ensure not only its survival but to position itself for an eventual recovery in the longer term. Around 40% of Airbus commercial aircraft business has been impacted and, according to IATA (International Air Transport Association) with the number of commercial airline flights having dropped by 70%, passenger revenue reductions put at around $314 billion, Europe’s largest airports managing 90% fewer flights, the aviation industry is amongst the hardest hit of all from the COVID-19 impact.
Add to this the likely recession impact with many thousands of jobs being lost by companies all over the world as a result of falling revenue expectations together with, for the commercial airline industry, perceived COVID-19 infection risk of air travel and the corresponding damaging done to passenger confidence, it is of little surprise that Airbus and its competitors, along with the majority of those engaged in the aviation industry as a whole do not expect commercial airline traffic to reach pre-crisis levels for 3 years at best, 5 years at worst – all this assuming that there is no second-wave COVID-19 crisis in the months and years ahead.
Bottom line is that while there are bound to be small signs of airline industry recovery over the coming months this will not only be very limited but far fewer new aircraft will be needed to cover it. Globally (over all manufacturers) Airbus now expect short haul size aircraft demand will drop by 15% by the end of 2025 (around 1,500 fewer aircraft out of 10,000) and that long haul size aircraft demand will drop by 30% to 65% by the end of 2025 (around 600 – 1,300 fewer aircraft out of 2,000).
Over to you Prime Minister – will you now rise to the challenge of supporting the UK aerospace industry and ensuring that we maintain our Lead?
CHW (London – 1st July 2020)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785