Nearly two years have passed since the COVID-19 pandemic began, precipitating the worst crisis ever faced by the world aviation industry. Aircraft deliveries fell 35% in 2020 year-over-year, while air travel demand fell 66%. Both of those declines are jet-age records.
Yet with markets and production, there’s reason for cautious optimism. Looking at preliminary year-end numbers, the industry grew 7.5% in 2021. Even better, 2022 should see a very strong 22% expansion.
Each industry segment tells a different story, but the simplest one is defense. Military deliveries were hit last year for purely logistical reasons—pandemic-related factory closures and supply chain disruptions. The market—actual demand—was not hit at all. Countries that initially announced pandemic-related defense budget cuts, such as South Korea, quickly reversed those plans and actually increased spending over the previous year.
Domestic and export defense demand has been strong, both for geopolitical reasons and because defense spending is viewed as a good way for governments to support national aerospace industries and national economies in a very difficult time. Military output will fully recover to pre-pandemic levels in 2022, with additional strong growth after that.
Business aircraft also tell a happy story. Utilization recently passed 2019 peak levels, with charter and fractional operations exceeding all-time highs. Corporate profits, equities markets and oil prices, the key drivers of market demand, are all at high levels, coupled with strong interest in avoiding the service cutbacks and high load factors of airline transport. If you remove the output gap between Gulfstream’s G650ER and G700 (which will not enter service until the fourth quarter of 2022), then production will be back to 2019 levels in 2022.
The largest industry segment, single-aisle jetliners, tells the happiest story and contributes most to the steep upward angle in the pictured chart. Deliveries increased by more than 40% in 2021 and are expected to increase another 40+% in 2022. This is largely driven by the very strong domestic market recovery we have seen in North America and China. Also, there is the impact of Boeing 737 MAX production and deliveries resuming, with a goal of 31 new-build jets per month in 2022 in addition to deliveries of MAXs already built.
Airbus, meanwhile, is aiming for all-time record single-aisle production rates and is more concerned about supply chain issues than faltering market demand. A320-family output was slashed to 40 per month during the pandemic, but the manufacturer delivered 58 in November. It is aiming for rate 64 by mid-2023, and possibly 70-75 in the following years. The all-time annualized record was rate 53.5, in 2019.
Jetliners, which normally account for around 60% of total industry output, are overall in a good position. We are expecting air traffic to return to its 2019 peak in early 2023. Crucially, fuel prices are back from record lows, to a high $80-per-barrel level, while jetliner financing costs remain quite low. This ratio—the cost of fuel to the cost of capital—is the most important determinant of jetliner market health after airline traffic, and right now the ratio looks excellent.
The only exception to this positive outlook is twin-aisle jets. There was already overcapacity with larger jetliners before the pandemic. Also, twin-aisle jet demand depends on international air traffic, which was hit hardest and is taking longest to recover. On top of all this, the pandemic saw an acceleration in the shift toward single-aisles, particularly Airbus’ A321neo, for international routes. This contributes to record-high A320-family production but damages the twin-aisle recovery.
Some of the steep upward output line in our forecast does not reflect manufacturing activity. Scores of Boeing 787s and hundreds of 737 MAXs that were already built are slated to be delivered in 2022, so the supplier base will not benefit much from these. Inflation could also affect supplier profitability. And the financial damage from this downturn (and the 737 MAX shutdown) will affect most manufacturers for years to come.
Meanwhile, there are many ways the recovery could derail. If inflation persists, interest rates will rise, affecting jetliner financing. Omicron’s impact on the market is not known yet. If it, or a new COVID variant, causes shutdowns, closed borders and another air traffic slump, some airlines and suppliers could prove unable to withstand another major crisis.
But at the moment, the terrible COVID-19 aviation downturn looks set to be remembered as shorter-lived and more sector-specific than originally feared. After falling off a cliff, the industry is heading sharply up.
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