Chairman of Avia Solutions Group Gediminas Ziemelis: 10 big challenges for passenger aviation sustainability for the next 3 years
DUBLIN, Ireland, May 17, 2023 (GLOBE NEWSWIRE) -- Ensuring sustainable operations has become a primary driver for aviation businesses in recent years. Nonetheless, this dynamic industry faces a multitude of challenges that can impede companies' efforts to enhance profitability. While several factors contribute to the aviation industry's struggles, certain key issues merit highlighting as primary culprits.
High market $ interest rates for heavily leveraged and drowning-in-debt airlines will be even higher
In recent years, the aviation industry has experienced a significant drop in demand for air travel, resulting in many airlines facing financial losses. To stay afloat during this time, airlines have taken on additional debt. However, this increased debt has resulted in higher risk for lenders, leading to higher market interest rates for the airlines.
In addition to the impact of the pandemic on the industry, other factors such as rising fuel costs and increased competition have also contributed to the financial struggles of many airlines. These factors have made it increasingly challenging for heavily leveraged airlines to generate profits and pay off their debt, leading to concerns about the sustainability of their business models.
The combination of these factors has led to a situation where heavily indebted airlines are now facing even higher market interest rates, which can exacerbate their financial difficulties.
Much higher insurance costs — worsening war risks could push insurance premiums higher
The aviation industry is grappling with rising insurance costs due to worsening geopolitical risks. This is highly influenced by the fact that, as stated by leading insurance companies, around 500 aircraft leased to Russian operators remain trapped in Russia. Insurers are facing potential liability issues due to the uncertain situation created by the Russian government's refusal to release the aircraft.
As a result, insurers are struggling to assess the level of risk involved, leading to a wide range of potential losses estimated to be up to $30 billion, according to industry sources. This uncertainty is likely to drive up insurance premiums for airlines, impacting the industry as a whole.
Passengers will remember compensations for flight delays, and it will impact airlines' unplanned costs
The EU regulation 261/2004 provides compensation for passengers who experience delays, cancellations, overbooking, or denied boarding. Depending on the specific circumstances and subject to certain conditions, affected passengers may be eligible for a compensation claim ranging from €250 to €600 per person. Before the COVID-19 pandemic, the rate of flight delays in the EU that fell under compensation was 1.5% of all flights, with an average compensation amount of €375 per delayed flight.
In 2019, EU airlines carried a total of 1.12 billion passengers, with 1.7 million flights experiencing delays and resulting in a total compensation pay-out of €6.3 billion. Only 10% of affected passengers currently file complaints directly with the airlines or via specialised service companies, such as Skycop or Airhelp.
However, this number is expected to increase significantly, as after COVID-19 the industry faces capacity shortages and other challenges. As a result, the number of claimable flights that experience delays could increase from 1.5% to 5%, potentially leading to a total compensation pay-out of €20 billion.
LEAP engines challenges will impact more aircraft on the ground and shortage of capacity;
According to our internal research, presently, the aviation industry operates a fleet of 1397 A320neo aircraft with LEAP-1A engines, totalling 3080 engines with an average of 2.2 engines per aircraft, and 1043 Boeing 737 MAX aircraft with LEAP-1B engines, totalling 2338 engines with an average of 2.2 engines per aircraft. To maintain these engines, there are 21 locations globally for LEAP-1A overhaul and maintenance and 22 locations for LEAP-1B engines.
However, the grounding of 16,000 aircraft (equivalent to 60% of the total fleet) in 2020-2021 has led to a staggering 60% postponement of LEAP engine maintenance. Consequently, there is now a significant maintenance gap across 43 locations, resulting in wait times of 9-10 months for engine maintenance, which could potentially disrupt airline operations.
OEM production and supply chain disrupted during 2023-2025 will cause a shortage of aircraft capacity;
The COVID-19 pandemic has had a profound impact on the aerospace industry. Original Equipment Manufacturers (OEMs) such as Boeing and Airbus have experienced significant disruptions in their production and supply chains. In response to the global economic slowdown and reduced demand for air travel, OEMs have cut their production levels by around half compared to pre-COVID levels. However, this has led to a shortage of aircraft capacity, which is hindering the industry's recovery efforts.
The production cuts have affected over 5,000 suppliers in the supply chain, all of whom have had to reduce their volumes during the pandemic. Consequently, the recovery of the aerospace industry is projected to take 2.5-4 years to return to pre-COVID production levels. This prolonged period of disruption is likely to have significant consequences for the industry and its stakeholders.
In 2020-2021, the cancellation of pilot cadet programs and planned retirements caused a pilot shortage in 2023-2024 and a rapid increase in costs for airlines;
The aviation industry faces a constant demand for new pilots, as approximately 3% of pilots retire annually. However, the COVID-19 pandemic has caused a major setback in the industry, with all cadet programs being either postponed or cancelled.
Hence, there is now a significant pilot shortage issue, leading to rapid cost increases. It is estimated that industry will experience a shortage of 300,000 pilots within a decade. This shortage is expected to create significant challenges, particularly in India, which is anticipated to have the largest pilot shortage.
Challenges to book MRO slots after COVID-19, because scheduled maintenance events were postponed
Another issue caused by the COVID-19 pandemic is a significant accumulation of MRO services for aircraft worldwide. As a result of the unprecedented reduction in air travel and the grounding of many aircraft, scheduled maintenance was delayed or deferred.
Nonetheless, as air travel demand begins to recover and airlines return to full operations, the challenge of booking MRO slots to perform necessary maintenance on these aircraft has emerged. Many airlines are finding that MRO facilities are already operating at full capacity, resulting in long wait times and potential disruptions to airline operations. This accumulation of maintenance is expected to persist for some time, creating obstacles to the aviation industry's recovery efforts.
Challenge to find engines maintenance slots for V2500, and RR engines due to deferred maintenance
Airlines that operate aircraft with V2500 and RR engines are also encountering difficulties in scheduling maintenance for their engines due to high demand and limited availability. This has created a challenging situation, particularly for airlines with large fleets of such aircraft.
The lack of available maintenance slots has forced airlines to ground some of their aircraft, leading to operational disruptions and revenue losses. In addition to the financial impact, the situation also poses safety concerns as delayed maintenance can compromise the safety and reliability of the engines, potentially leading to more significant problems in the future.
ESG requirements for greener aviation didn’t disappear in the medium term
The International Civil Aviation Organisation's (ICAO) 41st Assembly, held in Montreal in October 2022, marked a significant milestone for the aviation industry's commitment to sustainability. The assembly committed to a Long Term Aspirational Goal (LTAG) to achieve net zero CO2 emissions by 2050, which has brought Environment, Society, and Governance (ESG) issues to the forefront of the sustainable aviation conversation.
The LTAG's ambitious target is challenging, but it has the potential to encourage airlines to accelerate the development and adoption of greener jet fuels and other technical improvements to decarbonise flying. This will require a significant shift in industry-wide mindset, investment in research and development, and collaboration between airlines, manufacturers, and governments to achieve the long-term goal.
After COVID-19, debts for spare parts, MRO services, and aircraft leasing will impact that some aircraft will still be grounded, which will cause capacity demand
The challenging situation in the industry has pushed airlines to take on additional debt to finance various aspects of their operations, such as spare parts, MRO services, and aircraft leasing. However, the increase in outstanding debt for the industry could have significant implications, with some airlines potentially struggling to pay off their debts, which could result in a reduction in capacity as airlines are forced to ground some of their aircraft or cut routes to minimise costs.
Insider data shows that the industry's outstanding debt has jumped over 20% since 2020, reaching more than $300 billion. To raise capital, global air carriers have sold $63 billion in bonds and loans so far this year.
Chief Communications Officer
Avia Solutions Group
+370 671 22697
To view this piece of content from ml-eu.globenewswire.com, please give your consent at the top of this page.
About GlobeNewswire by notified
One Liberty Plaza - 165 Broadway
NY 10006 New York
GlobeNewswire by notified is one of the world's largest newswire distribution networks, specializing in the delivery of corporate press releases financial disclosures and multimedia content to the media, investment community, individual investors and the general public.
Subscribe to releases from GlobeNewswire by notified
Subscribe to all the latest releases from GlobeNewswire by notified by registering your e-mail address below. You can unsubscribe at any time.
Latest releases from GlobeNewswire by notified
QPR Software Plc: Managements’ Transactions (Veijola)2.6.2023 08:00:00 CEST | Press release
OPR SOFTWARE PLC STOCK EXCHANGE RELEASE 2 June 2023 at 9 am EET Transaction notification under Article 19 of the EU Market Abuse Regulation. QPR Software Oyj - Managers' Transactions ____________________________________________ Person subject to the notification requirement Name: Heikki Veijola Position: Chief Executive Officer Issuer: QPR Software Oyj LEI: 7437003V4S76KM56UW70 Notification type: INITIAL NOTIFICATION Reference number: 32734/5/4 Reference number: 32735/5/4 ____________________________________________ Transaction date: 2023-05-31 Outside a trading venue Instrument type: FINANCIAL INSTRUMENT LINKED TO A SHARE OR A DEBT INSTRUMENT Name of the instrument: QPR Software Oyj:n optio-oikeus 2019B Nature of transaction: ACCEPTANCE OF A STOCK OPTION (X) Linked to stock option programme Transaction details (1): Volume: 135000 Unit price: 0 EUR Aggregated transactions (1): Volume: 135000 Volume weighted average price: 0 EUR ____________________________________________________ Trans
Sampo plc’s share buybacks 01/06/20232.6.2023 07:30:00 CEST | Press release
SAMPO PLC STOCK EXCHANGE RELEASE 02/06/2023 at 08:30 am Sampo plc’s share buybacks 01/06/2023 On 01/06/2023 Sampo plc (business code 0142213-3, LEI 743700UF3RL386WIDA22) has acquired its own A shares (ISIN code FI0009003305) as follows: Sampo plc’s share buybacksAggregated daily volume (in number of shares)Daily weighted average price of the purchased shares*Market (MIC Code)8,03543.21AQEU35,42743.10CEUX13,66043.19TQEX62,87843.11XHELTOTAL120,00043.13 *rounded to two decimals On 29 March 2023, Sampo announced a share buyback programme of up to a maximum of EUR 400 million in compliance with the Market Abuse Regulation (EU) 596/2014 (MAR) and the Commission Delegated Regulation (EU) 2016/1052. The programme, which started on 3 April 2023, is based on the authorisation granted by Sampo's Annual General Meeting on 18 May 2022. After the disclosed transactions, the company owns in total 4,295,623 Sampo A shares representing 0.84 per cent of the total number of shares in Sampo plc. Details o
Aedifica NV/SA: Aedifica divests portfolio of 10 buildings in Finland2.6.2023 07:30:00 CEST | Press release
Please find below a press release from Aedifica (a public regulated real estate company under Belgian law, listed on Euronext Brussels and Euronext Amsterdam), regarding the divestment of a portfolio of 10 child day-care centres in Finland. Attachments Press release ENCommuniqué de presse FRPersbericht NL
Seafood “Canton Fair” Brings New Business Opportunities to Seize the China Seafood Market2.6.2023 04:17:37 CEST | Press release
GUANGZHOU, China, June 01, 2023 (GLOBE NEWSWIRE) -- The Global Seafood Trade Fair will be held in Guangzhou, China, from June 28th to 30th, 2023. It is organized by the China Aquatic Products Processing and Marketing Alliance and the China Aquatic Production Chamber of Commerce and managed by Wuhan Shihedao Network Technology Co., Ltd. With over 800 exhibitors and a 40,000 ㎡exhibition area, the Global Seafood Trade Fair will showcase a wide range of aquatic products, frozen goods, processed seafood, and related equipment, covering the entire industry chain of production, processing, and seafood trade. In addition, the exhibition will hold more than 20 onsite events, providing exhibitors with multiple opportunities for business exchange and collaboration, focusing on matching supply and demand, and promoting an efficient one-stop procurement and communication platform. This exhibition will provide you with a unique opportunity to explore the global catering market as well as go deeper i
Webull Australia avails Cboe US Options2.6.2023 01:00:00 CEST | Press release
SYDNEY, Australia, June 02, 2023 (GLOBE NEWSWIRE) -- Webull Securities (Australia) Pty. Ltd. ("Webull AU"), an Australian brokerage firm licensed by the Australian Securities Investment Commission that operates on the popular Webull trading platform, has announced the launch of a suite of Cboe Global Markets (Cboe) US index options on 23 April 2023. This new offering allows Australian retail investors access to cash-settled index options trading through Cboe’s popular US options suite, including the S&P 500 Index (SPX) options, Cboe Volatility Index (VIX) options and Mini-S&P 500 Index (XSP) options. The addition is an extension to Webull AU's existing US options offering and furthers Cboe’s and Webull’s commitment to offering new and innovative products and education resources to retail investors across the globe. The S&P 500 Index is the global benchmark of large-cap US equities and the VIX Index is the world's premier gauge of expected US equity market volatility. The introduction o