Aviation in Asia Pacific 2020: Will there be a smooth take off after the hard landing

The suppression of demand for air travel across the world has lead the aviation industry to its ‘biggest ever’ market shock from COVID 19, and the last 7 months have presented unprecedented challenges to airlines, original equipment manufacturers (OEMs), lessors, asset finance banks, investors, lawyers and all involved in the aviation ecosystem.

To explore the effects of these events on Aviation in Asia Pacific, I have recently concluded several confidential discussions with senior leaders in the industry, across Hong Kong, Singapore, and China, to assess their view on the first 7 months of 2020, and what lies ahead for post-COVID, and the impact this will have on the Aviation employment market.

While majority of discussions with aircraft lessors, and OEMs in Asia Pacific revolved around doomsday planning, order cancellations and deferrals,  some well-capitalised platforms, like BOC Aviation, SMBC, Standard Chartered and ALC, are taking a predatory position in Purchase & Leaseback (PLB) and Sale & Leaseback (SLB) markets focusing on new deals with airlines. In China specifically, the aviation sector is seeing encouraging signs of recovery in terms of domestic air travel which could be a positive lead indicator for the rest of the market.

80% or more of their airlines in Asia Pacific (excluding China) are currently on a rent holiday

All lessors across the region seem to have managed to deal with the ‘first wave’ of rental deferrals successfully and are now tackling a ‘second wave’ from their Asia Pacific customers, as an increased number of carriers are still in administration. On a positive note, most of the major Chinese airlines are now starting to pay rents again and there has been improvement in payment frequency.

Aviation banks monitoring government interventions

While the Aviation supply chain has been bracing itself for reduced demand and production as airlines and lessors across Asia Pacific cancelling or delaying orders with Airbus and Boeing, many banks are monitoring government interventions hoping to be cushioned through airline bailouts. Both Singapore Airlines and Cathay Pacific have been massively impacted by the situation given their 100% reliance on international air travel and Singapore and Hong Kong’s government have since intervened to provide crucial support to their flagship carriers reducing negative impact caused by revenue loss.

The biggest question remains if governments will bailout non-flagship carriers across Asia Pacific or we will see more airlines seeking bankruptcy protection following the steps of Virgin Australia and Thai Airways. As such banks and lessors will be paying close attention to carriers such as Lion Air, Air Asia, and PAL over the coming months.

Some shareholders and owners of Aircraft leasing companies have reservations about the market and may reconsider their positions and commitment to aviation sector in the long term. This may result in upcoming Merger and Acquisitions activities in the next 12 to 18 months. If they have significant exposure to wrong aircraft types, they will have to make tough calls to weigh up supporting airline customers, with increasing pressure to get continued share holder investment, and their ability to service bank debt. Whilst few have publicly reached deals with their banks with the exception of NAC, it is acknowledged that some of the smaller lessors may encounter difficulties in the next few months. In view of this, banks are also closely monitoring the aircraft type each airline and lessor owns, as well as who their end customers are to analyse and evaluate risks for the rest of 2020.

Lessors with a higher liquidity ratio and lower number of aircraft on lease are ‘keeping their dry powder in reserve’ to seize opportunities to buy assets in stressed / distressed situations as they predict up to 30% reductions in values for wide-body and narrow-body aircrafts, Private equity firms are also waiting to enter the Aviation sector through acquiring portfolios of distressed / stressed loans from banks and financial investors.

Employment Outlook in Aviation

As Aircraft lessors, banks, and OEMs have reasonably ‘lean structures’, we have not seen significant restructuring, redundancies, or downsizing of platforms (so far) which is good news. Many of the positions approved in Q1 2020 have been put on hold until the situation becomes clearer and gaps are temporarily filled by the existing workforce.

• Many of the airline marketing / aircraft trading roles that contributed to new deals have changed their focus to credit control and debt collection.
   
• Corporate finance roles with banks and lessors has shifted their focus from complex ABS, JOL, and JOLCO structured deals, to credit update reporting to lenders and shareholders on their exposure and reviewing action plans on each customer.
   
• Credit risk teams are working all hours with cross functional deal teams to work out plans for all airline customers.
   
• Technical teams are now juggling a combination of contingency account planning, for possible repossessions in addition to the slated transitions, new deliveries, or redeliveries that are already processing.
   
• Legal counsel roles have become much more heavily involved increasingly in possible disputes, emergency planning for repossessions, rather than new transactions.

Roles in-demand

Across leasing, OEM, and banking sectors we have seen hiring freezes across organisations in Asia Pacific for the first six months of 2020. As we enter Q3 2020, many of these hiring freezes are still in place other than for ‘business critical roles’ replacement and new headcount requiring C-level approval. However, we are still seeing high levels of employment in the following roles:

1.      Technical-related

2.      Risk-related

3.      Legal counsels

4.      Corporate finance talent for Private equity funds

Contracting in Aviation

Many of the existing workforce are working longer hours, and harder than ever before to ensure their platforms survive and deal with immediate priorities of managing their customer portfolios and collecting rental payments from airlines. One of the best ways for organisations to navigate ‘headcount freezes’ is to explore fixed term contract hires for business-critical roles, and contractor options. This is a win-win situation for firms and candidates which allows those immediately available individuals to join lessors, OEMs, and banks to help with the most pressing matters and bring their knowledge and expertise on board.

Some platforms are successfully utilizing this strategy to ensure they have the right human capital in place to deal most effectively with challenges COVID has presented for their organisations. It also allows organisations to assess the ‘fit’ of the individual with an opportunity to make them permanent employees once headcount approvals are granted in 2021. 

Ben Wainwright
Associate Partner
Head of Aviation, and Professional Services

To discuss any hiring requirements, or if you are considering changing roles across aviation contact Ben directly - [email protected] or +852 9443 0658