Pivot
in the Skies

Up, up and away: for a long time the busi­ness of Satair, one of the world’s largest sup­pli­ers of air­craft parts, moved in a sin­gle direc­tion. It was all about growth, noth­ing but growth, for near­ly every­one in the avi­a­tion indus­try. “Our biggest chal­lenge over recent years was how to scale our glob­al busi­ness,” says Satair CEO Bart Rei­j­nen. “And that, of course, meant scal­ing up.” In the spring of 2020, this abil­i­ty to adapt became cru­cial. And now might be even more impor­tant. But this time the avi­a­tion busi­ness is tak­ing a dif­fer­ent course—at least for the moment.

Few indus­tries have been hit by the corona­virus as hard as avi­a­tion. In early April the Euro­pean air traf­fic orga­ni­za­tion Euro­con­trol was record­ing an aver­age of only 3,200 flights a day—a decline of near­ly 90 per­cent over last year. Air­lines and air­ports were suf­fer­ing, as were engine mak­ers and air­craft man­u­fac­tur­ers. They all had to adapt with­in a peri­od of days. But they also had to ask them­selves this ques­tion: how can we make our­selves as fit as pos­si­ble for the day when growth resumes?

“We were gear­ing up for near­ly 250,000 pas­sen­gers around East­er,” says Pierre Dominique Prümm, a mem­ber of the exec­u­tive board of Fra­port AG, the com­pa­ny that oper­ates Frank­furt Air­port. “With­in just a short peri­od of time we were down to only 5,000 or 7,000 pas­sen­gers.” Prümm and his col­leagues had to close large seg­ments of the ter­mi­nals, and turn a run­way into a park­ing lot for planes. They had to fur­lough work­ers, and shore up liq­uid­i­ty. Instead of con­cen­trat­ing on full capac­i­ties, they had to deal with acrylic sneeze guards, dis­tance mark­ings, and dis­in­fec­tant dis­pensers.

Hygiene was sud­den­ly also the focus of atten­tion at the Rolls-Royce air­craft engine plant. “As impor­tant as pro­duc­tiv­i­ty is, our high­est pri­or­i­ty is always on occu­pa­tion­al safe­ty,” says COO Sebas­t­ian Resch. The plants in the UK closed for an entire week to allow the com­pa­ny and employ­ee rep­re­sen­ta­tives to devel­op and imple­ment hygiene and social dis­tanc­ing strate­gies. Among other pre­cau­tions, the indi­vid­ual shifts have no longer had any con­tact with one anoth­er. Con­sid­er­able time was invest­ed in mak­ing sure employ­ees under­stood the need for these changes and how they helped raise the level of safe­ty for all con­cerned. “That made an incred­i­ble dif­fer­ence,” says Resch. And any­one who was not need­ed for the actu­al work of assem­bling engines was sent home to work from there.

At the head­quar­ters of Air­bus sub­sidiary Satair in Copen­hagen, 95 per­cent of the staff worked from home dur­ing the lock­down. It was essen­tial to pro­vide these employ­ees with the req­ui­site infra­struc­ture, says Rei­j­nen. “It’s enough of a chal­lenge to be han­dling cus­tomer orders from your bed­room or liv­ing room.”

Rei­j­nen him­self faced a dif­fer­ent chal­lenge. With a dozen loca­tions in dif­fer­ent parts of the world, Satair was con­front­ed with a cor­re­spond­ing set of dif­fer­ent nation­al reg­u­la­tions. “My first impulse was to tell the peo­ple at each site what they should be doing—but that was not a good idea,” he recalls. Instead, the employ­ees were told to fol­low the instruc­tions of their plant man­agers in com­ply­ing with local rules. “An impor­tant les­son for me was that try­ing to run every­thing from head­quar­ters makes no sense in this type of sit­u­a­tion.”

The CEO of Satair, who pre­vi­ous­ly worked in the aero­space indus­try, likes to com­pare the mea­sures taken to com­bat the virus with a three-stage rock­et. The first stage is about safe­guard­ing employ­ee health. The sec­ond stage con­sists of keep­ing the busi­ness running—without clients suf­fer­ing from the fact that their orders are being processed from bed­rooms. Now the com­pa­ny is in the third stage, which accord­ing to Rei­j­nen is “the most dif­fi­cult and prob­a­bly the length­i­est.” Here the major fac­tors are eco­nom­ic: liq­uid­i­ty, costs, capac­i­ties.

The prob­lem is that no one knows what tra­jec­to­ry the rock­et will take. At the height of the corona­virus cri­sis, the Inter­na­tion­al Air Trans­port Asso­ci­a­tion (IATA) esti­mat­ed that glob­al air pas­sen­ger vol­ume would decline by 38 per­cent in 2020 com­pared to the year before. Not even four weeks later, IATA cor­rect­ed this fig­ure to a pro­ject­ed drop of 48 per­cent, says Rolls-Royce man­ag­er Resch. “All of that is extreme­ly dynamic—and we’re only talk­ing about 2020 here.”

What makes these pre­dic­tions so dif­fi­cult is what Fra­port exec­u­tive board mem­ber Prümm calls a com­bined shock to both sup­ply and demand. “We will prob­a­bly emerge from the cri­sis with fewer airlines–those that often incur high lev­els of debt and receive larg­er gov­ern­ment sub­si­dies.” At the same time, many would-be vaca­tion­ers will have less money to spend. The eco­nom­ic sit­u­a­tion will also com­pel com­pa­nies to cut back on their busi­ness travel—or has already shown them that video con­fer­ences can work just as well.

Does that mean growth is a thing of the past? Not nec­es­sar­i­ly. “It’s impor­tant for all play­ers in the indus­try to rein­vent them­selves to a cer­tain extent,” says Prümm. Those who can do so in the quick­est and most con­sis­tent ways will emerge stronger from the cri­sis. “But those who hang on to their old mind­sets and think that growth will just return at some point will be schlep­ping far too much bag­gage around for way too much time.”

Dig­i­tal and sustainable—that is what the new ver­sion of the old avi­a­tion indus­try should look like accord­ing to the man­agers. Apps will guide pas­sen­gers upon check­ing in, drop­ping off their lug­gage, going through secu­ri­ty and bor­der con­trols, and even board­ing the plane. Dig­i­tal board­ing strate­gies are expect­ed to large­ly take over tasks that pre­vi­ous­ly required gate per­son­nel. “This trend was already under­way, but will now accel­er­ate as a result of the cri­sis,” says Joachim Kirsch, a senior part­ner and avi­a­tion expert at Porsche Con­sult­ing.

The other major trend is toward sus­tain­abil­i­ty. Although Satair’s incom­ing orders in May decreased by two-thirds over the same month last year, and although the pri­or­i­ty right now should actu­al­ly be on sav­ing money, Rei­j­nen has signed a new green ener­gy con­tract for his Dan­ish Air­bus sub­sidiary. Although not the cheap­est option, it is both eco­nom­i­cal and sus­tain­able. “Sus­tain­abil­i­ty will change avi­a­tion in fun­da­men­tal ways,” says the CEO. “It sim­ply has to. We shouldn’t make the mis­take of under­es­ti­mat­ing this mat­ter in light of the cri­sis.”

Rolls-Royce man­ag­er Resch also believes that the corona­virus will accel­er­ate the nec­es­sary restruc­tur­ing process­es. “I’m absolute­ly con­vinced that the pace of tech­no­log­i­cal change is going to pick up, not least of all because the struc­ture of the avi­a­tion indus­try will change sig­nif­i­cant­ly in the wake of this cri­sis,” he says. For Rolls-Royce that means an even greater focus on more effi­cient engines and an even high­er pri­or­i­ty on alter­na­tive fuels, for which stan­dards need to be devel­oped togeth­er with part­ners. And—more research and devel­op­ment for fully elec­tric and hybrid power sys­tems, even though air­craft man­u­fac­tur­ers and air­lines will have the last word on dis­rup­tive tech­nolo­gies of this type.

When will the indus­try take off again? “That is the mil­lion-dol­lar ques­tion right now,” says Rei­j­nen. IATA pre­dicts that pas­sen­ger vol­ume on domes­tic flights could reach the level of 2019 in two years. But for inter­na­tion­al flights that could take until 2024. Three to five years until full recov­ery is also the prog­no­sis of Rolls-Royce and Satair, albeit with a num­ber of ques­tion marks. Rei­j­nen is sure of only one thing. “Every­thing will be dif­fer­ent after the virus. Noth­ing will be as it was.”

But hard­ly any­one doubts that the avi­a­tion mar­ket will grow again in the future, although from a lower start­ing point. “When it’s pos­si­ble to do so, every­one will want to stroll across a piaz­za in Italy again or relax on a beach in Spain,” says Fra­port man­ag­er Prümm. “The human desire to trav­el is unquenched—and might even be stronger after the cri­sis than before.”

A sim­i­lar view is found at Rolls-Royce. “Avi­a­tion makes an incred­i­bly impor­tant con­tri­bu­tion to soci­ety, and is a valu­able and cru­cial dri­ver of glob­al growth,” says Resch. “All that will return—the only ques­tions are when and how.” Porsche con­sul­tant Kirsch sees a major oppor­tu­ni­ty for the indus­try in start­ing again. “Instead of cut­ting back on every cor­ner to win the price war, now is the time to reflect on the qual­i­ty for which avi­a­tion was once a sym­bol. The dig­i­tal trans­for­ma­tion offers enor­mous oppor­tu­ni­ties for this along the entire value chain, and can com­plete­ly reshape pas­sen­ger expe­ri­ence.”