COVID-19 threatens Canadian aerospace companies as global air travel plummets

The International Air Transport Association (IATA) trade group forecasts that global passenger revenue could decline by US$113 billion or 13.5 per cent this year due to COVID-19, which has caused at least 3,200 deaths and spread to more than 100,000 people across some 90 countries as governments ramp up containment measures. (Pixabay photo)

MONTREAL — The novel coronavirus is wreaking havoc on the global airline sector, rippling outward to aerospace companies in Canada.

“The spread of the COVID-19 virus has already had a severe impact on demand for global air travel and the global airline industry and represents a clear threat to the sustainability of the current aerospace cycle,” National Bank analyst Cameron Doerksen said in a research note.

The International Air Transport Association (IATA) trade group forecasts that global passenger revenue could decline by US$113 billion or 13.5 per cent this year due to COVID-19, which has caused at least 3,200 deaths and spread to more than 100,000 people across some 90 countries as governments ramp up containment measures.

That revenue figure, released Thursday, is four times the number sent out just two weeks ago by IATA, which is imploring governments for assistance.

It would also surpass the revenue dip of 6.7 per cent that followed the Sept. 11 attacks, approaching the 16.5 per cent fall after the 2008 financial crisis.

The outbreak is taking a toll on Air Canada, whose shares have fallen 27 per cent since Feb. 18.

That day, Air Canada forecasted a “small increase” in adjusted earnings for 2020 based on the assumption that its cancelled routes to mainland China and Hong Kong will be fully recovered by the third quarter, along with a gradual return to service of its 36 grounded Boeing 737 Max jets starting late in the same quarter.

Since then, however, the virus has propagated at a prodigious rate with recorded cases on every continent save Antarctica, sending markets tumbling.

“The impact on airline profitability appears to be worsening by the day, and the spread of the virus and the impact on air travel has rapidly exceeded expectations of just a few days and weeks ago,” wrote Ken Herbert, an industry analyst with Canaccord Genuity.

Declining airline reservations have trickled down to commercial aerospace companies.

Bombardier Inc., reduced to a single revenue stream after selling its rail division to French train giant Alstom SA last month, will likely face falling demand for new business jets in the event of a broader economic slowdown triggered by the outbreak, said Doerksen.

He said that while Chorus Aviation Inc.’s regional flight service for Air Canada will remain insulated from the headwinds, its global plane-leasing business is at risk.

Chorus spokeswoman Manon Stuart declined to comment on the potential effects of the virus.

“The impact of the COVID-19 virus is being felt worldwide. We are watching the developments carefully, but won’t speculate on hypothetical outcome,” she said.

Disruption could also reach flight simulator maker CAE Inc. if carriers impose a pilot hiring freeze, park planes and hold off on new deliveries.

New aircraft production rates are poised to come down as a result of the outbreak, Doerksen said.

“Most airlines have already cut capacity in the short term and we see lower capacity over the medium term and possible airline failures leading to fewer new aircraft orders,” he said.

Aircraft landing gear manufacturer Heroux-Devtek Inc. could feel the pinch if Boeing Co. lowers production for the 777X wide-body jetliner, but the company says it’s not anticipating any impact yet.

“We have multi-year long-term agreements with our clients. We don’t foresee any impact on our revenues related to COVID-19,” Heroux-Devtek said in an email.

This report by The Canadian Press was first published March 6, 2020.

Companies in this story: (TSX:AC, TSX:BBD.B, TSX:CHR, TSX:CAE, TSX:HRX)

With files from The Associated Press