Ever since the pandemic began, the aerospace industry has been in a perpetual sense of crisis. The strict travel restrictions that have been put in place by many countries have decimated the industry and a number of airlines have been desperately struggling to survive falls in revenue that at times have been in the region of 90%+. Few could survive such turmoil, especially businesses like this with substantial fixed costs and very little revenue coming in. Without government support many more would have gone to the wall and their future economic prospects, although looking brighter thanks to the emergence of viable vaccines, remain uncertain. Some airlines have already taken the bull by the horns and cut back. British Airways has retired its 747 fleet several years earlier than planned.; and in September the International Air Transport Association (IATA) warned that hundreds of thousands of industry jobs were at risk globally and predicted that business would not return to anything like normal before 2024. At around the same time the world’s biggest carrier, American Airlines, said it would cut 19,000 jobs.
If airlines have been hit so too have aircraft manufacturers. This specific industry was already faced with great challenges even before this downturn in airline activity. Airbus's much-vaunted A380, a massive airliner which was launched a decade or so ago as a potential rival to Boeing's 747s, seems to have been an aircraft out of its time as large beasts like this have increasingly been no longer required in the last few years. The A380 is increasingly looking like a very large white elephant – or to take the analogy further even a dinosaur. Instead carriers want smaller, more fuel-efficient workhorses, lacking the glamour of their bigger cousins but much better money-earners. And then there is Boeing which has not had far to look for problems in recent years. The company’s great hope was the 737 Max but after several disastrous accidents which left 346 people dead the fleet was grounded some 20 months ago. Subsequent investigations suggested that Boeing had been less than transparent in their information about the 737 Max. All in all it was a PR disaster for the company.
Last month the 737 Max was cleared to fly again, a welcome relief in a time of huge uncertainty for Boeing in its own right. Then this week came another positive development. The Irish low-cost carrier Ryanair ordered 75 new 737 Max’s from Boeing. If Ryanair paid full whack for these it would be handing over about $8 billion. However, Ryanair's chief executive Michael O'Leary is renowned for his tactical acumen. A favourite story is how when the city of Dublin introduced bus and taxi lanes, Mr O'Leary bought himself a taxi so that he could travel around in it and get around the busy city more quickly. Whatever you might think of him – and he is no doubt an acquired taste with some people being great admirers of his initiative whilst others have a very opposite point of view – it is hard to ignore what he has achieved. Ryanair was the first airline to fly more than 10 million international passengers in a month.
It seems that Mr O'Leary has sensed an opportunity amidst the woes unleashed by the pandemic. Publicly he has conceded only that he had achieved a 'modest' markdown in the list price for the 75 aircraft he plans to buy but industry analysts are sceptical. An industry consultant, Scott Hamilton of Leeham who specialise in matters aerospace, suggested that in reality Mr O'Leary had probably got 'a really screaming good deal'. Of course, we may well never know the truth as these are very sensitive commercial matters. But one thing we can say with confidence is that if there is a good deal to be had, Mr O'Leary will be amongst the first to find it. It is a timely reminder of a truth which to an extent crosses industry boundaries; in a time of crisis such as this there is an increased chance of sniffing out a bargain. My recent work has shown me this in a quite different world, that of private equity dealers who also know how to spot a good deal. Many businesses have suffered terribly as a result of the pandemic; but for those with good cash resources to hand this is also a time of opportunity.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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