Rising Covid-19 infections will hold back the recovery of passenger demand in H2 2020. After a summer season cut short in Europe and North America by rising Covid-19 infections, along with continued low willingness to fly, global air traffic as measured by Revenue Passenger Kilometers (RPKs) contracted by -75% year-on-year in August, following an -80% drop in July. As sanitary restrictions tighten again, we now expect full-year 2020 air traffic to be down 60% - vs. a 40% decline in our previous forecast - compared to 2019 and to recover to its pre-crisis level only in 2024.
This has dealt a blow to new plane deliveries, especially for wide-bodied jets. The challenges facing airlines have been passed onto the upstream global aircraft industry by the deferral of new plane deliveries, along with a slump in new orders, if not outright cancellations, depending on the type of aircraft. Breaking down the data, we find that the Covid-19 crisis has hit demand for wide-body (twin-aisle) aircraft more than narrow-body (single-aisle) ones since long-haul international travel has suffered the most. Taken together, we expect Airbus and Boeing to see a drop in new plane deliveries by -57% and -26% in 2020 and 2021, respectively, compared to 2019. In this context, aircraft manufacturers have had no choice but to slow down their production-rates to around 40 aircrafts a month, well below their target of 60 a month a year ago.
Lowered production rates put aerospace players’ profitability at risk. We expect plane makers as a whole to post a USD4bn operating loss in 2020 and the average aircraft manufacturers’ operating margin rate to plunge into the red at -2.5% after an all-time high of 9% only two years ago. This gloomy outlook stems from Airbus and Boeing’s (most) profitable wide-bodies facing the highest production rate cuts. However, aircraft part and engine suppliers should get away with an operating margin rate divided by three to around 3% in 2020 and 2021, compared with their global average of 11% over the latest decade.