The COVID-19 pandemic threatens some major airlines across the globe with bankruptcy, and both Boeing and its archrival Airbus will have to adapt and shrink until some degree of normality returns, according to one of the world’s top airline executives.
For Boeing, the worldwide downturn couldn’t come at a worse time, said Tim Clark, president of giant Gulf airline Emirates and a key Boeing customer.
“The MAX was probably the single biggest problem in Boeing’s history, until the pandemic came along,” said Clark, in a phone interview from Dubai. “Add the two together and you have a very stricken company.”
He said Emirates, the launch customer for the massive 777X that flew for the first time in January, is negotiating with Boeing to delay delivery of any of the jets from next year to 2022. It also wants to swap out some of the remaining 126 of the big jets on order and replace them with smaller 787 Dreamliners.
Clark said problems at Boeing have the 777X running late at the same time as the pandemic crisis has hit airline demand for the jet.
The first delivery for the 777X was originally set for this year, but was pushed into 2021 after problems arose with development of its GE9X engines.
And after the damaging revelations about lack of oversight during certification of the 737 MAX, he said, Boeing expects both U.S. and foreign regulators to take an extended time and insist upon a deep scrutiny before approving the 777X.
“One doesn’t really know when it will be delivered. It may suit both parties to push it back,” he said. “Much will depend on that negotiation.”
If delivery is deferred and 787s substituted for some of the 777Xs, it would be the second step back by Emirates from its original order. Last fall, it reduced the original 777X commitment, swapping out 24 of the jets for 30 Dreamliners.
Another 777X customer, Qatar, has also said it won’t take deliveries next year, and all the other airlines in the 777X order book are suffering distress because of the pandemic shutdown of air travel.
In a statement, Boeing said it is continuing flight tests on the 777X, with two airplanes already flown.
“As we prepare the third airplane for flight in the coming weeks, we remain pleased with the progress we are making,” Boeing said. “We are working closely with our customers around the world as they continue to adapt to the evolving COVID-19 situation.”
Sympathetic as he is to Boeing’s difficult position, Clark — who is on the brink of retirement after 48 years in the aviation business — said the world’s airlines are in such a parlous state they have no alternative but to ask Boeing for massive order deferrals.
The latest data from the International Air Transport Association (IATA) shows 91% fewer airline passengers in May than a year earlier. And cash coming in from advance flight bookings, which airlines typically rely on to make debt payments, is meager.
“We are a hugely capital-intensive business,” Clark said. “Without forward sales, it’s extremely difficult to service the debt.”
Clark said the “brutal reality” is that the order backlogs of both Airbus and Boeing “are populated by airlines that never contemplated this happening, never contemplated that their ability to pay for these airplanes would be compromised.”
“It’s as tough as it’s ever been. I’ve never seen anything like it,” Clark said of the impact on his airline competitors. “I see casualties ahead, some of them quite significant.”
“We are all up against it,” he added. Boeing and Airbus “have to bite the bullet.”
Flying cargo only on passenger jets
Emirates is the largest 777 operator in the world, with more than 150 of the Boeing jets in its fleet, and Clark credits that plane with helping the airline weather this crisis better than most.
Emirates has done so by flying about 90 of its 777s daily carrying a payload of almost entirely cargo in their belly holds, with very few and sometimes no passengers. This made economic sense because of surge in demand for freight and the performance characteristics of the 777, he said.
Emirates bought the 777-300ER passenger plane with an optional large aft cargo door that enables it to carry an extra six cargo pallets in addition to the standard eight cargo pallets in the forward hold, for a total belly capacity of just over 40 tons.
When the pandemic grounded most of the world’s fleet of passenger aircraft, that decreased by about 90% the amount of cargo that was typically carried every day in the cargo holds of those planes. It created a sudden, huge demand for fast, long-haul airfreight at a premium price.
Clark said his airline’s geographic position made it an ideal super-hub for carrying freight between Asia, Africa, Europe and the U.S.
Because of the huge overhead costs at Emirates, the airline needed cash coming in. Its 115 Airbus superjumbo A380s have been sitting parked since mid-March, earning no revenue. But Boeing’s 777-300ER had the range, fuel economy and carrying capacity to make the freight operation work.
“Thank goodness we had an airplane with fantastic legs, fantastic structural payload,” Clark said of the Boeing jet. “All of those aircraft are operating in a cash positive manner.”
Survival of the fittest
Clark had planned to retire earlier this year but has hung on to help Emirates get through the immediate impact from the pandemic.
He said he’s likely to finally take his leave next month and return to the U.K., while remaining an adviser to Emirates chief Sheikh Ahmed bin Saeed Al Maktoum.
He said airlines around the world can survive the pandemic only with “extensive, sustained cash injections.”
Regarding the $50 billion the government gave to the U.S. airlines in April — half in grants for payroll protection through the end of September and half in loans — Clark flatly declared: “That’s not good enough. You’ll have to double that.”
He believes the coming year will be “absolute harrowing” for the business, even for an airline as successful and with such deep pockets as Emirates. He’s hoping a COVID-19 vaccine will be available by 2022 to bring back a semblance of previous industry conditions.
“If we don’t start putting people on airplanes sooner rather than later, we’ll face difficulties as well,” he said. “We have to hold our nerve, keep ourselves financially positive with the help of the government, and tough it out until then.”
Despite the current dire prospects of aviation and his desire to push out the delivery of the 777X, Clark said he cannot imagine Boeing canceling the plane.
When demand returns, Clark said, the 777X will be “a brilliant airliner” and “a very elegant replacement for the 777-300ER.”
He acknowledges that Boeing has put a huge investment into developing the 777X. The massive new facility in Everett where its wings are built alone cost $1 billion. Still, he said Boeing must recognize the severe financial distress of the airlines.
Clark said Emirates is contracted with Airbus to take three A380 superjumbo jets by year end and an additional “four or five” next year. At real prices after standard discounts, that’s about $1.5 billion worth of airplanes Emirates is legally bound to take.
“Boeing’s investments in Seattle pale into insignificance compared to the orders we are under obligation to take,” Clark said. “Things have changed through nobody’s fault. Boeing has to look at the reality.”