The passenger air travel industry has changed significantly in the last couple of months. This might be the greatest understatement in history; global air travel is down about 65% in the 2nd quarter, and capacity will be down about 40% in the 3rd quarter, and up to 10% in the 4th quarter. Flight cancellations are looking to top two million by the end of June, and lost revenues are going to be in the ballpark of a quarter trillion. But in a time of staying home from just about everything, there is a definite economic shift. While most of the world has either voluntarily stayed at home, or has had it cast upon them, the reality is simple: passenger travel is almost non-existent, and home retail delivery has spiked. What does this mean for GSE?
The Shift Away From Passengers and To Cargo
In March, the world’s airlines tumbled in an economic free-fall; Lufthansa cut approximately 95% of flights. In the U.S., Delta grounded half of its fleet, resulting in a 70% reduction in flights. And these sorts of nosedives are not limited to just the aviation industry; it is global. The Dow Jones Industrial average absolutely tanked around March 23rd, dropping a blistering 36% from a month prior. This was hardly isolated, either. The S&P 500 dropped 31% in the same timeframe. Global markets haven’t fared any better, either. The German DAX Performance Index also sank 35% between February 24th through March 23rd, and the UKs FTSE 100 dropped about 30%.
But there is a bright side in all of this chaos and disorder: cargo. Taking a look across the industry, air cargo is proving to be less volatile than their passenger-carrying brethren. This is not to say that it is smooth sailing and tailwinds for the cargo carriers; the major freighters have all been taking their lumps, but just not to nearly the extent of the passenger air carriers. Where the legacy airlines were taking hits of upwards of 70%, the cargo carriers woes have been considerably more modest. Cargo giant Atlas Air, for instance, dove hard on March 12th, but has since gone back up to around their 6-month average.
A Transition to Cargo?
We need to explore now what might constitute a ‘transition’ to cargo, and if there really is such a thing occurring. But, with essentially no air travelers right now, or for the foreseeable future, airlines are parking almost their entire fleets.
With no passenger enplanements, and parked jets littering the ramps of so many airports, passenger airlines have a choice on their hands: fly the remainder of the fleet empty, or dedicate them to cargo.
Cargo has never traditionally been much of a revenue generator for the passenger airlines, with well under 3% of total revenue being the highest in the giant U.S. airlines, and under 1% at the bottom, using 2019 figures. But when faced with generating no revenue, grasping onto the sliver which cargo provides is something.
So, with percentages of under 3% in 2019, it’s unclear whether or not it is a transition per se. No, it is probably more like triage; airlines are doing whatever it takes to stop the bleeding. It is far too early to say what percentage of revenue cargo will jump to as passenger carriers allocate more and more of their resources to cargo.
The Impact on GSE
What impacts the airlines and charters will eventually impact GSE markets, although it is not altogether clear how much. GSE assets do not tend to update with the same frequency and certainly not the same price point as aircraft. A lot of GSE items have remained largely unchanged for many years, and will continue to serve their purpose just fine without innovation or replacement for the near future while the COVID-19 pandemic is sorted out. Suffice to say, updating GSE is probably not the highest priority of hemorrhaging airlines at the moment.
But that’s not just the end of it. There is always a market for the innovators, those who break the established norms and provide a service to the market which has not been done in the past, or perfecting an idea. There are countless examples in the wake of the pandemic where we see manufacturers shutting down lines and retooling to produce lifesaving PPE for medical professionals. Innovation is everything.
MROs are going to continue operating in spite of the steep downturn in flying. However, they are likely shifting their focus to a different type of operation. For instance: the 16,000 or so parked jets are not like an automobile or tour bus; you cannot simply park them, kick in the chocks, and walk away. These are highly complex machines which must be properly sealed for storage. Also, soft storage like they are seeing right now means that fuel is being kept on board, which means a couple of things. First, ground crews need to start engines occasionally and move fuel to keep the system lubricated and the fuel bladders from cracking. Also, the tires must be rotated, either by jacking the aircraft and rolling the tires, or by attaching a tug and moving the aircraft a few feet. This is the exact sort of environment where a towbarless tug can really prove it’s worth.
Judging by the photographs from airports around the world, there are jets numbered in the hundreds at many locations. Shifting to highly efficient remotely operated tugs for this purpose can cut time for the process down by a huge margin. How so? MRO teams can be broken down into tiger teams of just two people per tow rather than a minimum of three (generally the requirement for wingtip walkers can be waived since the aircraft is only being moved two or three feet). The towbarless tug is also a much faster and more efficient mechanism than the cumbersome old towbar and loud diesel tug. In this case, one member goes up to the crew cabin and operates brakes while the other simply hooks up the pushback tug and moves it a few feet.
By now, the term ‘social distancing’ has become part of our daily lexicon, and it is here to stay for the immediate future, and perhaps longer. But what exactly does it have to do with GSE in the MRO environment? A lot. Legacy GSE were built in ways which generally demanded a team working in close proximity.
Working on the parking aprons, remotely operated tugs offer a distinct advantage in that it takes only one person to supervise the tow and operate the tow vehicle, while the other members spread far beyond the six-foot social distance standard.
Working on the parking apron is one thing, but working in an MRO facility is another altogether. It is much easier to spread out on an apron and maintain well over six feet of spacing. But inside of a maintenance hangar, those standards start to get a little dicey. Fortunately, advanced GSE designs are offering a sort of buffer in some parts of the MRO process. Automatic guided vehicles (AGVs) are just such a solution, and it is a way which is strikingly simple: the AGV operates on a predetermined track or course using a few different methods to do so, moving materials throughout a warehouse or MRO facility. It can also just as easily be routed to move between facilities if need be.
MROs have the ability to reduce the amount of total human-to-human exposure by implementing AGVs to do much of the mundane movements of materials in, around, and through the workspace. For many years, this has been performed by use of manned warehouse tugs, forklifts, and pallet riders. Warehouses and maintenance facilities are prime markets for AGVs just to reduce unnecessary manpower to begin with, but COVID-19 has provided a much more pressing impetus for rapid acquisition. AGV tugs, carts, and forklifts can quickly be rolled into the MRO space to provide a substantial social distancing buffer to workers. Technicians will be much more able to report to a designated work area on the floor or on the aircraft and work that area without the need to personally shuttle throughout the facility.
MROs, cargo aprons, and parking aprons are traditionally 24/7 operations with crews rotating in on shifts. This is a nightmare in terms of preventing the exposure to germs as a new crew picks up equipment from the previous shift. Even if proper social distancing is being observed, new personnel are picking up equipment which was just being used and touched by someone else. AGVs present no such problem. Remotely operated tugs only require a wipedown of the remote control, rather than scrubbing the entire tug cab and ventilation system which is far from practical.
Conclusion to the changes in the GSE landscape
With a world in turmoil and a market on the brink of collapse, there are plenty of valid reasons for concern. But if history is a valuable indicator, which it is, the world will recover from COVID-19 and resume global travel and commerce. We cannot say when, and it will probably not look the same, but it will return. Airlines are probably going to look a lot different as some fold and close forever, or are devoured by much larger airlines, or taken over by governments, or are broken down into much more efficient operations who are agile and can quickly navigate murky waters of global crisis. Whatever the future holds, we do know that advances in GSE are going to play a key part in transitioning to cargo, and streamlining the MRO workspace, and streamlining operational efficiency as a whole.