Looking Back and Forward: Major Airline Bankruptcy Filings in 2020

The airline industry had been on a positive trajectory due to a flourishing demand for air travel, strong consumer buying power, emerging technology trends, low-interest rates, and low jet fuel prices. But since the COVID-19 pandemic hit, the outlook for the airline industry has been bleak.

Air travel has been one of the severely affected industries in the early days of the pandemic. According to the International Air Transport Association (IATA), the airline industry lost over $118 billion in 2020 as the pandemic spread across the world. The ramifications of the pandemic on the three segments – airlines, aerospace, and maintenance, repair, and overhaul (MRO) – have led to major airline bankruptcy filings in 2020.

The worst financial year, to date

Airlines go bankrupt for different reasons, such as poor business models, inability to meet fixed costs, inadequate passenger revenue, and other local issues. But the disruption caused by the global pandemic in 2020 will go down in history “as the industry’s worst financial year, bar none,” said Alexander de Juniac, IATA’s Director General and CEO. Several airlines that have sought bankruptcy protection are now faced with the prospect of restructuring and consolidation, while a few have stopped flying entirely.

No less than 20 airlines around the world have filed for bankruptcy protection in 2020. A list of the most notable airline bankruptcy filings is available in Oliver Wyman’s report Global Fleet and MRO Market Forecast 2021-2031:

Source: Global Fleet and MRO Market Forecast 2021-2031

The report listed the low-cost carriers to have been hit hard, particularly Norwegian Air Shuttle and AirAsia X, two of the largest long-haul, low-cost carriers in the world.

In another report by IATA, the global pandemic has dipped major operational parameters in the passenger business to all-time lows. Passenger numbers were down to 1.8 billion from 4.5 billion passengers in 2019, passenger revenues fell to $191 billion from $612 billion earned in 2019, replete with a weak passenger load factor of 65.5% from 82.5% in 2019, which experts said was at a level last seen in 1993.

To contain the pandemic, almost all nations around the world have implemented tight restrictions for cross-border travel. Business travels, which accounted for most international travel, have plummeted. The global lockdown pressured global carriers to put thousands of their aircraft into storage, retire twice as many as normal, convert some for carrying cargo, and cancel or defer some deliveries of new planes. Thus, the global fleet was at its lowest point to about 13,000 aircraft in service in 2020.

This trend has also affected aerospace manufacturers given that there will be a surge of used, serviceable parts, and green-time engines taken from retired aircraft versus sales of new parts. Likewise, this also translated to less work for MRO service providers, due to smaller fleets and reduced demand for repair work.

Governments across the world have provided over $170 billion in relief funds and other financial support for airlines to mitigate losses and stabilize the industry. In the U.S., airline carriers and their employees have received a combination of government relief and private financing under the March CARES Act. But these actions had not been enough for most airlines to carry them over the next year so as not to declare bankruptcy or to cease their operations.

Looking ahead, the road to recovery

According to the Oliver Wyman report, the International Monetary Fund (IMF) has predicted the economic recovery from the COVID-19 pandemic to be “long, uneven, and uncertain” for almost all countries. The IMF projected a decline in the Gross Domestic Product (GDP) of 3.3% for developing regions such as Asia and the Middle East, compared to 5.8% for advanced economies such as North America and Europe. In consequence, the largest gains over the next decade are expected to come from Asia and the Middle East, with recoveries of 87% of their pre-COVID fleet size as of January 2021. 

Furthermore, experts said that four key factors will drive the timeline for recovery: epidemiological timelines, traveler sentiment, government restrictions, and macroeconomic impacts. In an accelerated recovery scenario, with COVID-19 vaccines now widely distributed around the world, case counts declining, and with governments lifting travel bans, demand for air travel could spike up again, and stored domestic fleets could return to service.

While the road to recovery is expected to be difficult and long, it is never too late or early to leverage tools that ensure aircraft are fully airworthy and maintained. To achieve significant improvement in the efficiency of your entire operations and quickly understand and resolve critical items, EmpowerMX offers modular solutions to provide you with better insight into real-time maintenance execution. 

Talk to an expert today to learn more about how our solutions can help maximize your profit margins amid the pandemic.