London, March 24, 2020 —
- New aircraft deliveries likely to be delayed to alleviate balance sheet strain as passenger volumes fall
- Parts and service business to contract on big capacity cuts, low flying hours
The outlook for the global aerospace and defense industry has changed to negative from stable in the wake of the coronavirus outbreak, Moody’s Investors Service said today in a new report.
“Contagion from the coronavirus crisis will slow the long-running commercial aerospace upcycle, and the relatively stable defense business is no longer sufficient to mitigate the downturn,” says Russell Solomon, a Moody’s Associate Managing Director.
The change to a negative outlook primarily reflects expectations that airlines and aircraft lessors will delay deliveries of commercial aircraft to lessen the strain on their balance sheets. There is also the potential for weaker passenger demand following the crisis.
“Airline passenger volumes could fall by 25%-35% in 2020 from 2019, with deep reductions and full or partial aircraft groundings during the second quarter of the year,” said Martin Hallmark, a Moody’s Senior Vice President.
Weaker airline balance sheets are likely to cause lower demand for new aircraft for several years. Airbus SE (A2 stable) and Boeing (The Boeing Company, Baa1 review for downgrade) will likely lower production rates, with effects spread throughout the commercial aerospace supply chain – notably including not just original equipment providers, but also the more lucrative parts and services businesses.
The defense sector is more robust but unlikely to emerge unscathed, as the significant increases in anticipated government borrowing to fund spending programs that are intended to alleviate pressures on companies and individuals and stimulate economies are likely to pressure defense budgetary growth to at least some degree.