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‘We have seen fewer airline failures than you would expect’

Pandemic hit the sector hard but for investors, it is starting to spread its wings again

Recovery is happening, but it is progressing slowly and with significant geographic differences. Photograph: Getty Images

Recovery is happening, but it is progressing slowly and with significant geographic differences. Photograph: Getty Images

 

It might not be fair to say aviation was the hardest hit industry during the pandemic, but it certainly got a wallop when global lockdowns, travel restrictions and even total bans were implemented from March 2020.

As restrictions are lifting – although still sporadically reinstated – across the globe, the industry as a whole is cautiously raising its head above the parapet.

Laura Cunningham, partner in Arthur Cox’s aviation group. Photograph: Chris Bellew /Fennell Photography
Laura Cunningham, partner in Arthur Cox’s aviation group. Photograph: Chris Bellew /Fennell Photography

Has this time of uncertainty damaged the industry, and in particular, made investors shy? Not according to Laura Cunningham, partner in Arthur Cox’s aviation group. “Despite the Covid-19 pandemic, there remains strong investor interest in the aviation sector and significant opportunities have actually emerged as a result of the pandemic. As vaccination rates increase helping generate consumer confidence, and thus greater flight activity, investors have been eyeing up the aviation sector as one with the potential to make significant returns in the long run.”

Joe O’Mara, head of aviation finance at KPMG in Ireland agrees. “The recovery is happening, but it is progressing slowly and with significant geographic differences. The 2021 airline financial results will be better than last year but they will still be the second-worst ever recorded.

“However, we have seen fewer airline failures than you would expect, as there has been over $200 billion of government support given to the sector globally. There are concerns as to how sustainable this is, but ultimately you would expect that the strategic and economic importance of air travel will mean these government supports will continue for a while yet.”

Future innovations

While there’s no doubt that the industry has faced major challenges over the past two years, the future is looking bright and has even created room for innovation and new entrants.

“Although the pandemic has created challenges for many in the industry it has also afforded opportunities for new entrants who have been able to enter the market through gaps left by larger airline operators and lessors,” says Cunningham. “One such example is Emerald Airlines, Ireland’s newest regional airline company, which secured a deal with Aer Lingus to run its regional franchise in the wake of Stobart Air’s collapse.”

Aircraft leasing is big business, particularly in Ireland which is home to two of the largest lessors in the world, Avolon and AerCap. In 2020, such lessors funded over 55 per cent of new aircraft deliveries and the expectation is that lessors will break the 50 per cent barrier for ownership of all commercial aircraft in the next few years, according to O’Mara.

“While it remains a very challenging market, aircraft lessors have shown a remarkable resilience and that has increased market confidence in the leasing sector,” he explains.

It appears the aviation industry globally, and Ireland’s in particular, can anticipate a bright future with clear skies ahead.