At the end of 2008, the financial crisis had spread to the economy as a whole, triggering the worst global recession since the end of the Second World War. The result was a 2.2 % contraction of the global economy in 2009. In the leading economies, state aid on an unprecedented scale helped to avert a catastrophe and ushered in a period of recovery.
The global economy contracted by 2.2 % in 2009
But the recovery was not uniform. Whereas the majority of developed countries only gradually began pulling out of recession towards the end of the year, a number of newly industrializing countries, chiefly those in Asia, were already experiencing a strong upswing in the spring. China provided the main motor: as its domestic economy recovered, the outlook for other economies in Asia brightened, too.
In 2009, economic performance in the Asia-Pacific region remained stable, with a growth rate of 0.3 %, in North America the drop was slightly worse at 2.4 %, while Western Europe’s figure of 4.1 % was even more dramatic. These three regions represent the aviation industry’s key markets, together making up 70 % of total passenger traffic, 90 % of freight traffic and 90 % of the international aircraft fleet.
Even the Middle East – a fast-growing market with strong future potential for the aviation industry – could not escape the negative trend in economic growth, with the region having to deal with falling crude oil prices, a real estate slump and more restricted access to global credit markets. Dubai, one of the United Arab Emirates, was particularly hard hit.
Change in growth rates of economic regions (source: EIU March 2010)
The U.S. dollar steadily lost value against the euro in 2009
As an export-oriented aviation company, MTU has a strong interest in the euro / U.S. dollar exchange rate. In 2009 this exchange rate hit a low of 1.2455 U.S. dollars to the euro on March 4, thereafter steadily rising over the course of the year. As a result of this trend, MTU’s revenues were lower than originally planned. The U.S. dollar continued to lose value against the euro, reaching an annual low of 1.5144 on November 25, 2009. The average exchange rate for the period January 1 to December 31, 2009 was 1.3946 U.S. dollars to the euro and thus below the previous year’s figure of 1.4710. Further information on the effects of altered exchange rate parities is provided in Section 3. (Financial situation).
Comparative chart of U.S. dollar exchange rate movements 2009 and 2008
The mean crude oil price in 2009 was 62 U.S. dollars per barrel, or 40 % below the mean value of 100 U.S. dollars per barrel of the previous year. In the first quarter, at the height of the financial crisis, the oil price remained low. It began rising steadily to reach a peak of 70 U.S. dollars per barrel in mid-June, after which it fluctuated between 60 and 80 U.S. dollars per barrel. One agent in this price rise was growing optimism in the wake of the economic recovery since March. The return to low oil prices in the first quarter of 2009 was thus short-lived. As their kerosene bill is the biggest cost factor for airlines, the trend towards grounding and phasing out old, inefficient aircraft types remained unbroken and helped to fill order books for newer models. All this served to strengthen the importance of ongoing projects to develop innovative, fuel-efficient engines and aircraft.
Evolution of crude oil and kerosene prices in 2009 (spot price in U.S. dollar/barrel, Source: US Energy Information Administration)
Growth in the volume of international passenger and freight traffic (growth rates compared with the same month of the previous year, Source: IATA)
Gross domestic product (GDP) has a decisive influence on growth in the aviation sector, and the recovery of the global economy was clearly reflected in the rising volume of passenger traffic in 2009. After an inauspicious start, with growth in March down 11 % on the same month of the previous year, the figures for international air traffic then improved steadily over the following months. In December a positive growth rate of 4.5 % was reached, albeit relative to the rather weak figure of the previous December. The return to positive growth had its price, however, being bought at the expense of large discounts on ticket prices. In the lucrative premium segment, the decline in traffic was even more pronounced, having fallen by around 20 %. Freight traffic also touched bottom early in the year, with a negative growth rate of 20 %, but by December 2009 the market had recovered to a level 24.4 % higher than that of the previous year. Nevertheless, demand in the airfreight sector remains depressed on the whole.
Growth in the volume of international passenger and freight traffic (Source: IATA)
International passenger traffic and global freight traffic fell in 2009
Year on year, international passenger traffic and global freight traffic fell in 2009 by 3.5 % and 10.1 % respectively, showing that the impact of this crisis was much greater than any other comparable situation in the past. Nearly all regions went through this ‘V’ curve, with two notable exceptions: China’s growth rate of 17 % demonstrated that this market was still very robust, while the Middle East notched up almost 11 %.
The key indicators of capacity in the engine parts / engine maintenance sector – SKO (seat kilometers offered) or TKO (ton kilometers offered) – were similarly reduced, although not in the same magnitude as RPK (revenue passenger kilometers) and RTK (revenue ton kilometers), which reveal actual utilization. The figures for the latter showed a drop of 3.0 % in the passenger segment and 8.4 % for freight, and this growing surplus capacity had a negative impact on airlines’ business performance.
Faced with overcapacity, airlines responded by grounding aircraft. Consequently, the number of commercial aircraft in storage increased from around 2,000 in December 2008 to nearer 2,200 in December 2009, an increase of 10 %. Almost 50 % of the aircraft currently parked will not be taken into service again owing to their age, high fuel consumption or outdated equipment levels. Today’s high fuel prices are another compelling argument for keeping them on the ground.
In an effort to boost demand, airlines offered large discounts on ticket prices. This, in combination with surplus capacity and rising oil prices, negatively impacted their results. The industry as a whole posted a drop in revenue of 17 %, from U.S. $ 535 billion in 2008 to U.S. $ 456 billion in 2009, and total losses are estimated at U.S. $ 11 billion.
Lower demand for transportation, airlines’ deteriorating earnings, and the necessity to save capital brought on by more restrictive lending practices by banks, were all factors in the collapse of orders for new aircraft and the postponement of deliveries in 2009. The statistics are eloquent: whereas Airbus and Boeing received orders for 1,510 aircraft in 2008, the figure had withered to 570 the following year (source: Ascend). Orders for 160 aircraft were canceled in 2009 compared with 130 in 2008 – it must be said, however, that this constitutes only 2 % of the current order backlog. All in all, the number of firm orders for new aircraft held by Airbus and Boeing decreased by 8 %, from 7,430 to 6,860 aircraft, between year-end 2008 and year-end 2009.
Despite the economic crisis, the number of aircraft delivered in 2009 increased by 14 %
In spite of the financial turbulence being experienced by airlines, Airbus and Boeing together delivered 978 commercial aircraft in 2009. This was in line with their announced delivery targets and equates to an increase of 14 % (858 commercial aircraft) over the previous year. It should be borne in mind, however, that Boeing’s production output in 2008 was lower than usual due to the effects of strike action. The ongoing effects of the crisis have thus not yet reached the market for large aircraft engines. Nor has the dreaded credit crunch, the word on everyone’s lips at the start of 2009, materialized as yet, largely thanks to concessions by aircraft manufacturers and favorable terms offered by export credit agencies.
In contrast to the passenger aircraft market, the business jet segment was severely hit. In 2009, deliveries of business jets collapsed by 34 % from 1,313 to 870 aircraft (source: GAMA).
In the wake of the financial crisis, the global economy – which is main driver of the aviation sector – went into severe recession. State aid prevented the already grave situation from getting any worse in the leading industrialized countries and triggered an Asian-led recovery in the world economy.
The global economic trend is mirrored in growth rates for passenger traffic, which bottomed out in the first quarter of 2009 and consistently improved throughout the rest of the year. Nevertheless, the volume of air passengers fell by 3.5 % over the year as a whole.
According to IATA estimates, this decline in passenger numbers, in conjunction with falling ticket prices, made a big dent in airlines’ revenues. Higher kerosene prices added to the burden, generating estimated losses for airlines totaling U.S. $ 11 billion. Airlines responded by cutting capacity and decommissioning aircraft, which conspired to produce a lasting reduction in the number of hours flown by the international aircraft fleet. This in turn cranked down demand for engine parts and maintenance, particularly for older aircraft models.
In stark contrast to this negative trend, production at Airbus and Boeing was barely affected by the crisis, with the two manufacturers racking up a new record by delivering a combined total of 978 new aircraft. The backlog of 6,860 firm orders is a clear indicator of potential revenues from large aircraft engines in 2010.
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