It’s Monday and its week 6 of the UK Lockdown. I became inordinately excited at the sight of a Delta 772 flying from Amsterdam at 32,000ft, thats how bad or good, things are.
Singapore Airlines is sending some of its A380’s into the Australian Outback, Alice Springs apparently. At lest four will go there for the foreseeable future, as Covid19 outbreaks spread in the city state, mostly in low paid immigrant workers. Demand for air travel keeps dropping.
Virgin Atlantic’s plight was all over the financial press over the weekend. Several companies – including the Singapore Sovereign Wealth Fund, Cerberus Capital and many others were all said to be involved in a rescue package, which would see Richard Branson’s virgin Group effectively sell the rest of the airline. Until every one of them said they weren’t involved and weren’t interested anyway.
Virgin Atlantic insisted all that was pie in the sky and that negotiations were continuing in a constructive manner with the UK Treasury.
The thing is what is the airline now worth to anyone? Back in 2002 Singapore Airlines paid £600m for a 49% shareholding. They lost £350m on that deal when they sold it to Delta for just £250m 15 years later.
Right now the other 51% of Virgin Atlantic is effectively worthless, so its all about what it might be worth in the future. Based on that few investors are likely to leap into the fray. The best result is for the airline to get Government loans, save itself and try and carry on as best it can.
Airbus said it is burning cash at a rate that’s simply unsustainable and it’s going to have to seek French and German government assistance to keep going if it cannot restrain its outflows of money.
CEO Guillaume Faury told its 133,000 staff job cuts seemed inevitable and its already cut all production by 33%, and will likely have to reduce that further.
Airbus is going to show figures that its spend $6.5 billion in the first quarter more than it took in. Boeing is expected to have spent even more at $8 billion.
BOEING & THE DREAMLINER
Monday is Boeing’s quarterly earnings call and they won’t be pretty, in fact they’ll be so ugly, by the time I’ve stripped away the PR and double speak, it’ll be hard to even look. Boeing and Airbus are like the Ugly Sisters right now, and its not just them we need to worry about.
Imagine how, having pumped up – against their better judgement in nearly every case, production at the component manufacturers? Many of them went through hell and back to meet these two companies demands for more and more production, only for their worst nightmare scenario to come true.
Now they’re left with excess production capacity, too many staff and huge debts having invested in increased production to meet demand from Boeing and Airbus, and in turn the airlines.
Boeing is cutting production of the Dreamliner buy 50% – down to just 7 units a month, which as I explained in an article a few weeks back, is pretty much as low as it can go and remain viable. By doing this the production line, previously due to run out at the end of 2024, will now extend to around the end of 2027, provided nobody cancels.
However, the 787 and the A350 may well find themselves in higher demand as time goes on. Airlines like Cathay Pacific, Lufthansa and even BA are wondering quite what they’ll need in years to come and very large (ie 777-9) aircraft are low, low down on that list. The smaller aircraft are looking ever more attractive.
Oh yes, and Embraer…
And Boeing’s other problem is a massive lawsuit heading its way from Embraer. Imagine getting engaged to a Brazilian super model and publicly declaring your love and how what a great and fabulous life you’d have together. Everyone has wished you well, the wedding invites were sent out, the date set, the organist is practising in the cathedral and most of the guests have arrived. Then the Brazilian super model gets a note in the post saying here’s the $100m check – I can’t go through with it but please leave it a month or twelve before you cash it. She’s not happy and she’s telling everyone what a two face cheat you are, and you’re wondering why?