Clouds hang over aerospace industry as virus disrupts suppliers

With more airlines cancelling flights, the world's planemakers have been forced to cut spending, staff and output.

    Industry executives said the biggest concern was the suppliers already affected by output disruptions after the Boeing 737 MAX grounding [FIle: David Ryder/Getty Images]
    Industry executives said the biggest concern was the suppliers already affected by output disruptions after the Boeing 737 MAX grounding [FIle: David Ryder/Getty Images]

    The coronavirus pandemic is taking its toll on aerospace manufacturing, with Boeing Co saying it would halt production of most wide-body jets and Airbus SE, restarting only partial output after a four-day shutdown as suppliers cut jobs.

    With airlines unable to fly because of a collapse of demand over fears of contagion, reinforced by air travel restrictions, planemakers and their suppliers are under pressure to save cash to ride out a liquidity squeeze.

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    Moody's cut its outlook for the aerospace and defence industry to negative from stable and warned that even when markets recover, the damaged balance sheets of most airlines will hurt demand for new aircraft.

    Global passenger capacity fell 35 percent last week, the worst since the start of the crisis, according to data from airline schedules firm OAG, which said deeper cuts were likely in the coming weeks.

    More than 2,500 planes have already been grounded this year, data from Cirium shows, with taxiways, maintenance hangars and even runways at the biggest global airports turning into giant parking lots.

    On Tuesday, Asian jet fuel refining margins - the difference in value between raw crude and the refined product - turned negative for the first time in more than a decade, suggesting there was no recovery timeframe in sight for the aviation industry.

    Large US carriers have drafted plans for a possible halt in US passenger air traffic, four officials said on condition of anonymity, though there is no plan in place and US President Donald Trump said on Monday he was not considering a domestic travel ban.

    US planemaker Boeing faces the shutdown of key assembly lines for the second time in a year after being forced to halt production of its grounded 737 MAX aircraft in January.

    Production of long-haul jets like the 787 and 777 in Washington state will pause for 14 days starting Wednesday, forcing the world's largest industrial building, the giant Boeing wide-body plant at Everett north of Seattle, to fall silent for the first time in recent memory.

    As the crisis deepens, US legislators are considering changing some of the about $58bn in proposed emergency loans to the airline industry to cash grants to cover payroll costs, four people familiar with the matter said.

    Brazil's Embraer SA, the world's third-largest aircraft maker, said on Sunday it would furlough all non-essential workers in Brazil, where it makes regional jets, and further measures could be announced later this week.

    Joining the list of temporary shutdowns is Bombardier, which is suspending Canadian production of business jets, according to a source familiar with the matter.

    Airbus had called for strong government support for airlines and suppliers but stopped short of calling for direct aid for the company, which has secured an extra 15 billion euros ($16.14bn) of commercial credit lines.

    The European planemaker has, however, told officials privately that it may need European government help if the crisis lasts for several months, Reuters reported last week.

    Industry executives said the biggest source of alarm was the global supply chain of thousands of suppliers who would be severely hurt by abrupt stop-start movements in plane output. Many are already severely stressed by the year-long 737 MAX grounding.

    The International Association of Machinists and Aerospace Workers on Monday said in a letter to Congress that more than 500,000 US aerospace production jobs could be in jeopardy, and called for a relief package that included provisions to protect against layoffs.

    Engine maker GE Aviation announced plans to cut its US workforce by about 10 percent, according to a letter to staff.

    Montreal-based training specialist CAE Inc is laying off 465 manufacturing workers and slashing executive salaries and capital spending.

    German aircraft-engine maker MTU Aero Engines said it would shut output in some European plants for three weeks.

    The shutdowns are designed in part to allow for deep cleaning and the re-organisation of factory workers, who must avoid working in clusters, slowing output.

    SOURCE: Reuters news agency