From blessing in disguise to another headache: Boeing 737 MAX
Throughout the past year or so, no other combination of words dominated the headlines like the Boeing 737 MAX. However, the biggest crisis in aviation’s history overshadowed the still-grounded jet’s story, as the aerospace industry struggled to grasp the aftermath of the coronacrisis. But the blessing in disguise might now turn into another headache for airlines and Boeing itself, as the plane gets closer to its recertification.
The sector is in an unprecedented crisis, with no certainty in sight. While previously airlines took up debt in order to expand and grow, now, cash has become the most important asset. Airlines were and still are stuck in a Catch-22 situation: they need cash, but as credit ratings are downgraded, banks are wary to give out loans. State aid, in the form of direct help and state-guaranteed loans, has become the floatation device to help ensure carriers would stay afloat.
Seemingly, state aid was given out left and right to ensure that connectivity remains during and after the crisis. Even the airlines that struggled before the crisis were given a second chance at a successful life. Alitalia was re-nationalized, Norwegian secured enough cash to keep running, Virgin Australia had watched a bitter battle for who will take over the airline, and so on.
Behind the doom and gloom of the coronacrisis, the Boeing 737 MAX completed its initial round of certification flights. The flights marked an important milestone in the aircraft’s planned return to service, which is planned to happen in the upcoming autumn months.
Change of tone
But very few customers are looking forward to throwing a party for the return of the Boeing 737 MAX, especially welcoming new orders.
Despite the numerous state aid, drawn credit facilities, and other liquidity bolstering measures, airlines are not looking forward to spending cash. After all, forward-looking bookings are at an all-time low. According to the International Air Transportation Association (IATA) data, overall bookings are down 82% in June 2020 compared to the same period last year. Bookings in November 2020 are down 59%, during a more difficult period for companies due to the seasonal nature of the industry.
Cash is and will be king for the immediate future and welcoming new aircraft, as airlines usually pay the bulk of the sum upon delivery, is a sure-fire way to dethrone the king. Of course, such options as switching to sale-and-leaseback upon deliveries are available, however, it still requires cash to pay to use the asset, namely an aircraft. Furthermore, a new aircraft would add additional capacity in a time, where capacity is non-essential.
“The customer is making an initial down payment, upon which we are taking the order in our order book and start when nearing, the production process. There are more down payments to be made over the production process and a final one upon delivery,” stated Stefan Schaffrath, a spokesperson for Airbus, describing the payment process for an aircraft.
“The amounts and timings vary from customer to customer and are subject to the confidential negotiated agreements within the contract,” added Schaffrath.
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