External factors challenging the aerospace and defence sectors

3rd February 2021

The commercial aerospace industry has always been volatile. Tight profit margins and competition mean that only those with the correct business model can turn a profit. 


There are many external factors outside of an airline company’s control that can see them lose business. Airlines generally use hedge pricing to procure fuel, agreeing to buy future supplies at a set price by predicting the price of oil. On 2 August 1990, Iraq invaded Kuwait. Prior to the invasion of Kuwait, oil was trading at USD21 per barrel, Within two months, the price of oil had more than doubled to USD 46 per barrel. In 1992, the combined loss to the profit of global airlines was USD 4.8bn, made up of a combination of fuel prices and the lack of demand for travel. 


The attacks on the Twin Towers and the Pentagon by Al-Qaeda in September 2011 using hijacked aircraft as their weapons led to America immediately closing their airspace. Any airborne aircraft was instructed to land as soon as possible or return to their airport of origin. The effect of 9-11 was devastating for airlines due to an overnight decline in demand, especially by American travellers, many of whom were fearful about flying. Airlines faced the enormous task of boosting customer confidence. Losses were compounded as airlines had the additional cost of introducing enhanced security measures such as ballistic-proof cockpit doors. 9-11 cost the industry 62,000 jobs and it took six years for passenger levels to return to their original levels. Combined losses to airlines globally were more than USD 35bn post 9-11. 1 


The 11 September attacks were a shake-up for commercial aerospace and defence; airlines realised that they needed to be leaner and stronger should another crisis hit the industry. Post 9-11, the industry has had to weather the storms of the SARS crisis, the 2008 global financial crisis and more recently the volcanic ash cloud affecting flights when Eyjafjallajökull erupted in Iceland. It is not yet known what the ultimate cost on the industry will be from the Covid-19 pandemic, or when passenger numbers will return to what they were in 2019. An IATA (International Air Transport Association) report suggests that the total loss for the industry for 2020 is estimated to be USD 118bn and USD 40bn for 2021. American Airlines has announced 19,000 redundancies due to the slump2 and the total number of job losses from airlines is estimated to be 1.3million. Aircraft manufacturers and suppliers are also affected; Derby-based engine manufacturer Rolls Royce expects £2bn loss for 2020/21 coupled with the loss of 9,000 jobs. 


The current crisis will see commercial aerospace and the way we travel reshaped. Analysts are doubtful of seeing the volume of double-decker Airbus A380s restored in our skies and Qatar Airways has announced they are to half their fleet of the aircraft.