The Impact of Covid-19 on Commercial Aviation Supply & Demand - - PowerPoint PPT Presentation

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The Impact of Covid-19 on Commercial Aviation Supply & Demand

Rob Morris – Global Head of Consultancy

22nd September 2020

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Disclaimer of Liability

The material and information contained on this presentation is for general information purposes only. You should not rely upon the material or information on the presentation as a basis for making any business, legal or any other decisions. Whilst we have made every attempt to ensure that the information contained in this presentation has been obtained from reliable sources, Cirium is not responsible for any errors or omissions, or for the results obtained from the use of this information. Whilst we endeavour to keep the information up-to-date or correct, Cirium makes no representation or warranties of any kind, express or implied about the completeness, accuracy, reliability, suitability or availability with respect to the information, products or services or related graphics contained within the presentation for any purpose. Any reliance you place on such material is therefore strictly at your own risk. Cirium disclaims all warranties, express or implied, including but not limited to warranties of performance, merchantability or fitness for a particular purpose. In no event will Cirium, its affiliates or the partners, agents or employees thereof be liable to you, you clients or anyone else for any decision made or action taken in reliance on the information on the presentation or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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Agenda

The impact so far Fleet implications and recovery scenarios Supply side considerations

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The impact so far

The impact on global traffic is like nothing ever experienced before – a one in

• ne hundred year event?
• 80%
• 60%
• 40%
• 20%

0% 20% 40% 60% Year-on-Year Change Traffic (RPK) Capacity (ASK)

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Source: Ascend by Cirium Analysis of IATA Data, IATA 2020 / 2021 forecasts updated June 2020

9 years, 7.2% CAGR 6 years, 6.9% CAGR 10 years, 6.6% CAGR

The June scenario implies that 2021 global traffic volume will be around the same as 2014

IATA original predictions expected slower growth in 2020, but then the Black Swan landed and reliable projections became impossible

• 70%
• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% Africa Asia-Pacific Middle East Latin America North America Europe Global 2020 Predicted / Achieved Growth Predicted Traffic Growth Predicted Capacity Growth Year to Date Traffic Year to Date Capacity

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Source: IATA (forecast is Dec-19, amended to -48% in Apr-20), 2020 to June

2020 global capacity projected to be down 50% cumulatively over 2019 to end September and October

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Source: Cirium Schedules, data filed 20th September 2020, easyJet May 2020 manually adjusted

• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May 20-May 27-May 03-Jun 10-Jun 17-Jun 24-Jun 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 05-Aug 12-Aug 19-Aug 26-Aug 02-Sep 09-Sep 16-Sep 23-Sep 30-Sep 07-Oct 14-Oct 21-Oct 28-Oct Cumulative capacity change year-on-year IATA’s December 2019 forecast for 2020 global capacity growth was +4.7%, revised in June 2020 to -40.4%

Global capacity down around 60%-80% April-August on a daily basis over 2019, recovering through September to around -58% by end month, October indicating strong recovery but likely to worsen due to short-term adjustments

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• 90%
• 80%
• 70%
• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May 20-May 27-May 03-Jun 10-Jun 17-Jun 24-Jun 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 05-Aug 12-Aug 19-Aug 26-Aug 02-Sep 09-Sep 16-Sep 23-Sep 30-Sep 07-Oct 14-Oct 21-Oct 28-Oct Daily capacity change year-on-year End September outlook deteriorated from - 39% six weeks ago to -59% this week, note end October is impacted by airport slot issues where waiver is not agreed for winter season yet

Source: Cirium Schedules, data filed 20th September 2020, easyJet May 2020 manually adjusted

China domestic schedule recovers to positive year-on-year growth in September, US domestic schedule stable for October, other regions showing recovery but impacted by slot issues so will decline once waivers are restored

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• 100%
• 80%
• 60%
• 40%
• 20%

0% 20% 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May 20-May 27-May 03-Jun 10-Jun 17-Jun 24-Jun 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 05-Aug 12-Aug 19-Aug 26-Aug 02-Sep 09-Sep 16-Sep 23-Sep 30-Sep 07-Oct 14-Oct 21-Oct 28-Oct Daily capacity change year-on-year (rolling 7-day average) US Domestic Trans-Atlantic Intra-Europe Intra-Asia China Domestic

Source: Cirium Schedules, data filed 20th September 2020, easyJet May 2020 manually adjusted

Single-aisle aircraft tracked broadly stable on a weekly basis, twin-aisle edging up, respectively at 68% and 46% of fleet tracked at start of year

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Source: Cirium utilisation data, commercial passenger jets, utilisation data for aircraft tracked on a daily basis only

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May 20-May 27-May 03-Jun 10-Jun 17-Jun 24-Jun 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 05-Aug 12-Aug 19-Aug 26-Aug 02-Sep 09-Sep 16-Sep Global aircraft tracked daily Single-Aisle Twin-Aisle 9,599 single-aisle aircraft tracked on 18th September vs 14,083 on 3rd January 1,861 twin-aisle aircraft tracked on 18th September vs 4,070 on 3rd January

Utilisation still down significantly over start of year, single-aisle declining marginally again and now around 7.0 hours per day globally, twin-aisle stable at just under 10 hours globally

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4 5 6 7 8 9 10 11 12 13 14 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May 20-May 27-May 03-Jun 10-Jun 17-Jun 24-Jun 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 05-Aug 12-Aug 19-Aug 26-Aug 02-Sep 09-Sep 16-Sep Fleet average daily flight hours Single-Aisle Twin-Aisle Twin-aisle down on average 26% since start of year Single-aisle down on average 25% since start of year

Source: Cirium utilisation data, commercial passenger jets, utilisation data for aircraft tracked on a daily basis only

Recovery in China to exceed 85% of daily flight hours, but other regions lagging significantly

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0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 01-Jan 08-Jan 15-Jan 22-Jan 29-Jan 05-Feb 12-Feb 19-Feb 26-Feb 04-Mar 11-Mar 18-Mar 25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May 20-May 27-May 03-Jun 10-Jun 17-Jun 24-Jun 01-Jul 08-Jul 15-Jul 22-Jul 29-Jul 05-Aug 12-Aug 19-Aug 26-Aug 02-Sep 09-Sep 16-Sep 2020 Daily Flight Hours (rolling seven-day average, indexed to 1st January) USA Europe China Asia ex China

Source: Cirium utilisation data, commercial passenger jets, utilisation data for aircraft tracked on a daily basis only

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Fleet implications and recovery scenarios

Parked fleet fallen to just under 6,800 aircraft, 31% of overall fleet, clear divergence between single-aisle (28%) and twin-aisle (42%)

0% 10% 20% 30% 40% 50% 60% 70% 80% 2000 4000 6000 8000 10000 12000 14000 16000 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Share of overall passenger fleet Stored passenger jets Single-Aisle Twin-Aisle Share of Fleet Stored

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Source: Cirium Fleets Analyzer, passenger jets in service / stored, September 2020 as at 21st September

4,702 single-aisle (28%) 2,078 twin-aisle (42%) In-service fleet of 15,262 is about same size as that

• perated in June 2013

Stored commercial passenger jet fleet evolution

2000 4000 6000 8000 10000 12000 14000 16000 18000 Passenger jets in storage Single-aisle Twin-aisle Regional Jets

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Source: Cirium Fleets Analyzer, passenger jets only

Three alternative demand recovery scenarios

• 100%
• 80%
• 60%
• 40%
• 20%

0% 20% 40% 60% 80% 100% 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 2019 2020 2021 2022 2023 Y-o-y changes RPK (bn) RPK S1 RPK S2 RPK S3 RPK change S1 RPK change S2 RPK change S3

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Source: Cirium schedules, Ascend by Cirium analysis, IATA (Load Factor)

Ascend by Cirium constructed three recovery scenarios (in April 2020), and intends to monitor traffic, capacity and fleet developments against these over the months ahead. Scenarios may be modified if developments proceed along different paths, diverging from any of the scenarios. Ascend will review progress when July 2020 traffic data is published around the end of August We have not labelled any as a ‘baseline’ at this point, as it is impossible to assign probabilities to each scenario at present. S1: a 2+ year recovery to 2019 traffic levels, with 2019 traffic levels being reached by August 2021. Decline of around 50% in RPKs in 2020 relative to 2019. S2: a more rapid V-shaped recovery, with 2019 traffic levels being reached by February 2021. S3: A longer time to recover to 2019 traffic levels, with around a 4-year loss of traffic. 2019 traffic levels reached by Q2 2023. 2020 traffic down

• ver 60% compared to 2019.

Description of global recovery scenarios

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S1 (2-yr) S2 (V-shaped) S3 (4-yr)

Demand recovery

Late summer 2021 Spring 2021 2023

Covid-19 scenario

Limited recurrence of Covid-19 in winter 2020-21 Quick reduction in global cases of Covid- 19 with only local, manageable, recurrence of Covid-19 in winter 2020-21 Possibility of recurrence of Covid-19 in late 2020, with lockdowns in some countries being renewed

Economic forecast

Global recession in 2020, with recovery in 2021 Global recession in 2020, but strong rebound in 2021 Recession continues into 2021, with slow recovery from H2/21

Travel restrictions

Widespread easing of intra-regional over coming months, followed by intercontinental Multilateral approach to reopening borders Gradual easing of domestic travel restrictions, but international agreement slower

Airline environment

Steady return in demand, led by domestic. Some bankruptcies Sharp recovery in international traffic, given reduction in Covid-19 cases, and confidence in safety measures Slower return in demand, led by domestic markets (China, SE Asia, US, Canada). Many airline exits.

Fleet surplus

Largely eliminated by mid-late 2021 Largely eliminated by early 2021 Large surplus fleet, even with lower deliveries and increased retirements, continuing into 2022

OEM production

OEMs maintain production at minimum viable rates, before slow recovery in deliveries from 2022 Recovery in OEM deliveries from H2 2021 OEM production rates may see further cuts in 2021, with no significant ramp-up in production until 2023 or 2024

Source: Ascend by Cirium analysis

Implications of delivery scenario by end 2023

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 Aircraft in airline passenger service Actual Single-Aisle fleet Actual Twin-Aisle fleet Projected Single-Aisle Projected Twin-Aisle

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Source: Cirium Fleets Analyzer, Ascend by Cirium analysis

Twin-aisle fleet has declined ~100 aircraft despite 800 deliveries, so net 900 removals from service over four years 440 twin-aisle and 1,370 single-aisle aircraft (inc 380 Max) stored at end

• f 2019

Single-aisle fleet has increased by 1,500 aircraft with 3,400 deliveries, so net 1,900 removals from service over four years Requires around 600 retirements annually and assumes similar volume of stored at end 2023 as at end 2019

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Supply side considerations

Unlike prior crises, the OEMs moved rapidly to reduce production in the face of the fundamental demand impact

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2017 2018 2019 2020 2021 2022 Comment A220 4 5-6 Will stay at 4-6, rather than ramp to 7-10 A320 family 50 (Q1) 60 (mid-19) 40 Was due to go to 63 in 2021 A330 7 6 5 2 Original plan was 4 per month in 2020 A350 9 (mid) 10 6 - 5 5 Rate cut to 5 A380 1.7 1 8/year 6/year End 737 47 52 42 Slow restart 31 Increase to 31 now 30 not 2021 747 0.5 End Confirmed end in 2022 767 2.5 (Q4) 3 (Q1) Majority are military tankers; 18/yr freighter 777 5 (Q3) 3 2 Cut to 2/month and 777-X delay to 2022 787 12 14 126 6 Cut to 6 from planned 10 by late-2020, 7 in 2021

New delivery projection assumes some 4,400 fewer Airbus and Boeing deliveries through 2024 in the base case

500 1000 1500 2000 2500 2018 2019 2020e 2021e 2022e 2023e 2024e Deliveries Airbus SA Airbus TA Boeing SA Boeing TA Potential Upside 2019 Cirium Fleet Forecast

Upside in 2023-24?

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Source: Cirium Fleets Analyzer and estimates of deliveries due from backlog

2019 forecast inc.1,004 Max Inc.710 Max c40 737 Max (pre-built) c430 737 Max (290 pre-built) c480 737 Max (110 pre-built)

Significant additional near-term used aircraft availability from operating lessors via scheduled lease returns – may be inflated further by unscheduled returns due to lessee default

100 200 300 400 500 600 700 800 900 1000 50 100 150 200 250 300 350 400 450 500 Available 2020-H2 2021-H1 2021-H2 2022-H1 2022-H2 2023-H1 2023-H2 Cumulative Availability Lessor Availability / Known Scheduled Lease Expiries A320 Family 737NG/Max Other SA A330-200/300 777-300ER Other TA Cum A320 Family Cum 737 Family

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Source: Cirium Fleets Analyzer, passenger single-aisle and twin-aisle jets only

Other twin-aisle includes 4 x 787-9 and 2 x A350-900

Despite Max issues 2019 retirements significantly exceeded 2018

5 10 15 20 25 30 35 40 100 200 300 400 500 600 700 800 Average Age at Aircraft Retirement Aircraft retired <15 Years Old at Retirement >15 Years Old at Retirement Average Age at Retirement Average Age at Economic Retirement

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Source: Cirium Fleets Analyzer, single-aisle and twin-aisle aircraft only

2019 retirements included 59 737NG at average 19.5 years and 125 A320 family at average 20.6 years

212 single-aisle and twin-aisle aircraft retired in 2020 to date, 67 A320 family at average 19.6 years of age vs 18 737NG at average 20.0 years of age

100 200 300 400 500 10 20 30 40 50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cumulative Retirements Retirements Single-Aisle Twin-Aisle 2020 Cumulative 2019 Cumulative

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Source: Cirium Fleets Analyzer 21st September 2020, note data is subject to retrospective adjustment as researchers may reclassify aircraft from retired to stored

Selected Types Type 2020 Retirements Average Age (Yrs) 737-600 1 21.1 737-700 11 19.5 737-800 6 20.7 A318 6 14.2 A319 28 18.0 A320 25 22.4 A321 8 20.8 A330-200 8 19.4 A330-300 3 24.6 A380-800 1 12.6 777-300ER 1 12.5 All SA & TA 212 23.1

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Summary & conclusions

Covid-19 is creating a stress scenario beyond anything we could ever have imagined in the industry Demand outlook for 2020 & 2021 (and beyond) is unclear as second waves dent passenger confidence Realistic recovery scenario suggests airline fleet in service will remain below end 2019 levels until 2022 at least, and possible later Airbus and Boeing delivery projections are sensitive to a number of key assumptions, but current most likely scenario is consistent with 3,380 single-aisle (2,050 Airbus, 1,330 Boeing) and 800 twin-aisle (320 Airbus, 480 Boeing) deliveries cumulatively through 2023 Current Market Values & Lease Rates seeing significant negative pressure – many adjustments already made and more to come…

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Rob Morris Global Head of Consultancy +44 (0)20 8564 6735 +44 (0)7730 213189 rob.morris@cirium.com