At times like these (referring to the worldwide COVID-19 pandemic) people can be so focused on their immediate needs that they fail to realize just how interconnected the global economy is. That is understandable. The most profound impacts of COVID-19 are felt at the local level. However, the impact of the pandemic on the global economy will also be felt at some point in the future.
To illustrate the point, this post will discuss how reduced air travel affects the entire composites industry. When airlines like Southwest and Delta fly fewer passengers, their reduced operations affect companies like Boeing. And when Boeing’s operations slow down, they impact suppliers in the composites industry.
Rock West Composites, a composites supplier based in Salt Lake City, explains that the aerospace industry consumes a tremendous amount of composite materials including carbon fiber, fiberglass, and Kevlar. There is no way to avoid harm to material suppliers when aerospace manufacturers cut back on production.
A Series of Black Swan Events
CompositesWorld editor-in-chief Jeff Sloan wrote a piece in March discussing a series of black swan events that have impacted aerospace. Though this post will not go into the details of what Sloan wrote, the overall theme of his piece underscores the point being made here.
Long before COVID-19 emerged, Boeing was dealing with several crashes of its 737 MAX aircraft. The plane was eventually grounded and de-certified when the cause of the crashes was discovered. Boeing ultimately had to cease production of the plane. They also had to put hundreds of undelivered planes into storage.
Putting the brakes on production obviously affected suppliers. With Boeing no longer purchasing their products, they found themselves with excess inventory. But that was just the start. Now that Boeing is putting all of their efforts into fixing and re-certifying the 737 MAX, plans for their New Midsize Aircraft (NMA) have been put on hold.
Why is this important? Because composite manufacturers were relying on the NMA program as a vehicle for developing new materials, testing those materials, and helping Boeing create new manufacturing methods. All of that is now on hold indefinitely. If the NMA project ultimately fails to get off the ground altogether, a lot of manufacturers and suppliers are going to be adversely affected.
COVID-19 Making It Worse
Issues with the 737 MAX introduced a couple of black swan events that have done significant harm to Boeing. COVID-19 is only making matters worse. The thing about COVID-19 is that it isn’t affecting just Boeing. Nearly every company in the aerospace sector is feeling its wrath in one form or another.
According to Sloan, air travel could ultimately be off by as much as 9% when all of this is over. While that might not seem like much, understand that airlines work on very tight margins. A 9% drop in passenger traffic means a significant drop in both profits and operating revenues. The end result could be less demand for new aircraft as airlines take a closer look at their total spend.
Fewer airline passengers ultimately result in less demand for new aircraft. That is because routes shrink and schedules are reduced. Planes last longer, thereby mitigating the need to replace them as frequently. And all the way down the line, tertiary companies suffer.
Reduced air travel as a result of COVID-19 is bound to impact airlines, aerospace manufacturers, and the composites industry companies that supply the materials for building and maintaining planes. Remember that next time you are tempted to assume that COVID-19 only affects bars, restaurants, and entertainment venues. It affects every corner of the economy.