COVID-19: Burden or Opportunity for Aerospace Companies?
Home > Aerospace > Analysis

COVID-19: Burden or Opportunity for Aerospace Companies?

Photo by:   Image by Bilal EL-Daou from Pixabay
Share it!
Alicia Arizpe By Alicia Arizpe | Senior Writer - Mon, 11/30/2020 - 09:39

Years of unimpeded growth for the aerospace industry ground to a halt as the COVID-19 outbreak paralyzed aviation and disrupted global supply chains. Under these circumstances, Mexico’s aerospace industry has suffered from the slowdown in production but it is also looking for opportunities to recover and grow further.

COVID-19 led the global aviation industry into its worst crisis in history. MBN reported governments across the globe closed their borders and urged their citizens to stay home to control the spread of the virus. These policies costed airlines billions and led the aviation industry to a crisis from which it has not recovered. Trouble quickly spilled over to the aerospace industry. As airlines were suddenly forced to ground large parts of their fleets, they found themselves in a poor position to receive the aircraft they had ordered when demand surpassed capacity. Many airlines deferred or outright canceled orders placed during greener times, putting commercial aircraft manufacturers against the ropes.

The largest manufacturers in the world felt the impact of the outbreak fast. Both Airbus and Boeing shrank their manufacturing capabilities to face shrunken demand. French aerospace giant Airbus, for instance, cut down its production by one third to address the new reality, saying that the sector was undergoing an unprecedented crisis. “We are now in the midst of the gravest crisis the aerospace industry has ever known,” said Guillaume Faury, CEO of Airbus. US aircraft manufacturer Boeing, the largest aerospace company in the world by revenue, also faced a troubled 1H20. Just in March, it saw 150 cancellations for the 737 Max, its best-selling airplane. To address the shrunken demand, Boeing cut down production of the controversial plane at the beginning of 2020. The OEM even cancelled a new plant in North Charleston in April and stepped back from the acquisition of Embraer’s commercial jet division. "The COVID-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability," said David Calhoun, President and CEO of Boeing.

The industry’s problems were only compounded as government-enforced social-distancing policies led numerous plants across the globe to close temporarily or limit their capabilities. For example, in Spain, Airbus had to temporarily stop operations for two weeks as the government closed non-essential manufacturing plants. Even after operations returned to normal, the French OEM reported it was “bleeding cash at an unprecedented speed” so it furloughed thousands across its plants in the EU, according to The Guardian.

The trouble faced by planemakers quickly seeped through the entire aerospace supply chain. Many countries reported that their aerospace production was impeded by the halt in non-essential activities. A survey by Verdict indicated that 79 percent of aerospace companies believed that the outbreak was disruptive for the global aerospace supply chain. Disruptions started in China as the country-imposed lockdowns to control COVID-19 but they quickly spread as other countries followed suit.

Numerous aerospace suppliers saw their operations affected by the outbreak. For example, engine manufacturer Safran reported shrunken demand in services and aircraft interiors retrofitting caused by the drop in air traffic and cash-saving policies from airlines. Safran also reported a hit from deferred airplane orders. GE, another top engine supplier through its Aerospace division, also pointed to the outbreak as the reason behind a fall in revenue and warned that the worst was yet to come.

Mexico’s aerospace industry was also hit. When the first lockdowns started, the Mexican government had not classified the sector as “essential,” so production stopped at the country’s 300-plus aerospace companies. To avoid production stops, FEMIA called on the federal government to classify the sector as essential due to its importance in the production of aerospace components for the Army, the National Guard and Civil Protection and for the maintenance of commercial and cargo fleets. In its call to get the Mexican aerospace industry labelled as “essential,” the local aerospace industry found an unexpected ally: the US’s aerospace sector. “Halting operations in Mexico affected the US’s aerospace manufacturing chain,” said Carlos Robles, Vice President of the Central Region at FEMIA, to MBN. The aerospace supply chain is highly interconnected so stopping manufacturing operations in one country will invariably affect manufacturing in others.

Mexico’s aerospace industry is closely linked to the US. Mexico is the 14th aerospace exporter in the world and has managed to place its products in numerous countries. However, 80.7 percent of its aerospace products are exported to the US, which helped bring both countries closer together. “During the COVID-19 pandemic, we strengthened our association with the US Aerospace Industries Association (AIA) and we pushed alongside them to get the Mexican aerospace industry classified as an ‘essential’ sector,” added Robles.

While the sector did get the essential label that allowed it to continue operating in lockdown conditions, the local industry was unable to simply bounce back. “We are now operating normally even though production has decreased as demand is 30-50 percent lower than at the start of the year,” said Juan Carlos Corral, President of Queretaro Aerocluster, to MBN. Altogether, Mexico’s aerospace industry suffered a significant setback from the COVID-19 outbreak, with FEMIA reporting a 30-40 percent drop in projected demand for 2020. Moreover, the sector might not be able to recover swiftly. FEMIA adds that demand is not expected to recover to previous levels until late 2021 or 2022, according to an article by A21.

The industry is not staying still, however. It is actively looking for ways to recover and stay ahead. “While COVID-19 brought troubles, it also brought new opportunities. We are seeing that major aerospace OEMs are now relocating their supply chains and Mexico is a good alternative,” said Rene Espinosa, President of Chihuahua Aerospace Cluster, in an article by MBN. Bringing manufacturing chains closer to home is growing increasingly popular in light of the COVID-19 pandemic. “The outbreak has highlighted that it is time to develop regional content and for Mexico to strengthen partnerships with the US and Canada,” said Robles.

While globalization and the incessant search for cheaper manufacturing costs led supply chains to spread across continents, the pandemic brought to light the weaknesses of such an approach. For many years, companies in highly industrialized countries turned to those that offered cheap labor, tax incentives and looser regulations. Now, the emergence of trade wars and COVID-19 have highlighted the benefits of bringing production closer. This trend, called nearshoring, has been gaining strength in light of the pandemic, explained Robles. “The COVID-19 pandemic is further strengthening nearshoring trends,” he said.

This might mean more opportunities along the line for Mexico’s beleaguered aerospace industry.

“At this point, we are seeing new opportunities. The first is a global shift among major manufacturers from a global supply chain to regional blocs,” said Felipe Sandoval, President of FEMIA, to MBN. “The US is pushing to develop its supply chain in North America to better integrate its manufacturing practices. Mexico is the ideal candidate to replace remote countries such as China and strengthen the US supply chain.”

While the COVID-19 outbreak threw the global aerospace industry into disruption, some are seeing opportunities ahead. By capitalizing on its ideal location, qualified workforce and a strong manufacturing arm, Mexico might find a way to become more attractive to numerous industries. Aerospace is no exception. “For aerospace companies in the US, Mexico is the most obvious solution. Mexico has a significant opportunity to increase its share in the aerospace market during this time,” said Robles.

Photo by:   Image by Bilal EL-Daou from Pixabay

You May Like

Most popular