Aviation Investment Banking Q4 2020 & Year-End Update
Total Page：16
File Type：pdf, Size：1020Kb
Aviation Investment Banking Q4 2020 & Year-End Update OUR TEAM Aviation Investment Banking James S. Cassel Scott E. Salpeter Joseph “Joey” Smith Chairman President Director, Aviation [email protected] [email protected] Services 305-438-7701 305-438-7702 [email protected] 305-438-7706 Relevant Experience: Relevant Experience: Relevant Experience: ▪ Investment banking for over 24 years ▪ Investment banking for over 24 years ▪ Investment banking for over 20 years Representative Assignments: Representative Assignments: Representative Assignments: Bankruptcy Airlines Valuation MRO Capital Raise Aviation Services §363 Sale Bankruptcy Airlines Valuation MRO Capital Raise MRO §363 Sale M&A Sale MRO Solvency Opinion Freight & Logistics Capital Raise Distribution Valuation MRO Philip Cassel Ira Leiderman Deborah Aghib Margery Fischbein Managing Director Managing Director Managing Director Managing Director Marcus Wai Chris Mansueto Laura Salpeter Julian Astrove Edward Kropf Tahz Rashid Vice President Vice President Vice President Associate Associate Analyst Includes projects by our professionals at prior firms. 1 Aviation Investment Banking I AEROSPACE & DEFENSE REVIEW II M&A & PRIVATE PLACEMENTS REVIEW III PUBLIC MARKETS REVIEW 2 FLY AWAY & GOOD RIDDANCE 2020 Aviation Investment Banking The aviation industry faced extraordinary challenges in 2020. As COVID- For this 4th Quarter and Year-End, we believe that the trends continue to 19 spread, the travel industry was among the hardest-hit as governments be worrisome, despite the positive Thanksgiving and Christmas/New Year closed borders and businesses went virtual. With 2020 in the rear-view holiday travel bumps. Although 2021 will offer a vast improvement, with mirror, we want to revisit our 2020 updates and theses along with some the aggressive rollout of the various COVID vaccines, we continue to of the aviation industry’s most notable events of the year: believe that the full recovery of the aviation ecosystem will be pushed out to 2022-2023. Below are some final tallies for 2020 from the In our Q1-2020 update, we underscored the COVID-19 pandemic as a International Air Transport Association (IATA); “grey rhino” (defined as a highly probable but neglected threat) that plunged the global airline industry into an unprecedented crisis, as As the current crisis continues, IATA announced a worsening forecast airline bookings nosedived in response to global shelter-in-place for the airline industry’s losses in 2020. IATA’s recent economic regulations and business restrictions on travel. The COVID performance report of the airline industry predicted that airlines are repercussions were rapid and disastrous, as revenue and cash flow set to finish 2020 with $118 billion in losses. However, all is not doom plunged for most airlines, original equipment manufacturers (OEMs), and gloom, as the association predicted that losses could be cut to and their suppliers in the aircraft production and related travel $38 billion in 2021. services ecosystem. The CARES Act provided a much-needed liquidity lifeline, but the quarter closed with unparalleled fear and uncertainty. The COVID-19 crisis challenged the very survival of the industry in 2020. In the face of a half trillion-dollar revenue drop (from $838 In our Q2-2020 update, we highlighted how the COVID-19 pandemic billion in 2019 to $328 billion) airlines cut costs by $365 billion (from infected the entire aviation ecosystem. With the airlines significantly $795 billion in 2019 to $430 billion in 2020). “The history books will grounded and financially fragile (passenger revenues projected to be record 2020 as the industry’s worst financial year, bar none. Airlines more than one-third less than in 2019), the carnage reverberated cut expenses by an average of a billion dollars a day over 2020 and throughout the aviation ecosystem from OEM manufacturers and will still rack up unprecedented losses. Were it not for the $173 their Tier 1-2 suppliers, to MROs and the aftermarket suppliers, to billion in financial support by governments we would have seen airports and their personnel and contractors, and throughout the bankruptcies on a massive scale,” said Alexandre de Juniac, IATA’s massive related travel and tourism industries. Director General and CEO. In our Q3-2020 update, we suggested that the recovery in the Aircraft manufacturers are predicted to complete the delivery of 800 aviation industry will be a slow “U” and continue to be painful for new aircraft before the end of the year. That is approximately half of most of its participants. The third quarter showed slight all planned deliveries at the beginning of 2020. IATA predicts that in improvement over the second quarter, with most industry metrics 2021, airlines will take delivery of 1,302 new aircraft, which is close to improving slightly, but we believed we were in the beginning of a the number in 2019, although additional delivery delays and order slow “U” rather than a quicker “V” recovery cycle, and without cancellations are to be expected. additional global stimulus, that the industry should continue to brace for more airline failures, as lifelines and cash reserves are depleted. 3 2020 HIGHLIGHTS Aviation Investment Banking January February March The global aviation industry was healthy and The Singapore Airshow was disrupted, just as Flybe, the U.K. regional carrier, could not untouched by the COVID-19 virus that was COVID’s spread was being recognized; COMAC, sustain itself following a sudden drop in infecting Wuhan, China and would soon be along with nine other aircraft manufacturers, passenger traffic and subsequent liquidity unleashed on the rest of the world… were denied entry to the event, as China was issues, wherein it became the first casualty of the epicenter of the outbreak at the time. the COVID pandemic when it went into Textron, Gulfstream, and Bombardier also Administration (Bankruptcy/ Receivership). withdrew from the airshow. The developing COVID pandemic brought about Cathay Pacific subsequently suspended 90% of the suspension of travel between the United its flights to Mainland China (first to act). States, China, and 26 European countries. U.S. domestic airlines were required to cut nearly all flights between two of the most interconnected regions in the world. April May June The U.S. Government passed the Coronavirus Airbus reached a milestone with its new U.S. British Airways implemented controversial Aid, Relief, and Economic Security (CARES) Act, production facility for the A220 in Mobile, AL. cost-cutting measures, viewed as draconian at which included hundreds of billions of dollars As the stronger airlines continued to the time, wherein they threatened to fire and for airlines and the related aviation ecosystem consolidate their fleets, the Airbus A220 then rehire their pilots under new contracts. to keep them afloat. Among the significant became one of the major winners in 2020 due This developed as the pilot union was terms was a requirement to keep all workers to its size and proficiency. negotiating with the airline, which announced employed through the end of September 2020 plans to cut up to 30% of its workforce. and to continue serving all destinations. Boeing announced plans to cut 12,000 jobs, approx. 10% of its global workforce, by the end With the beginning of the typically lucrative of 2020 as aircraft deliveries plummeted during summer travel season, the major U.S.-based the COVID pandemic. On a brighter note, airlines didn’t fare well. Carriers operated at Boeing reiterated that its defense business was just 65% of domestic flights year-over-year, strong and steady. with bright spots being Spirit and Hawaiian Air. 4 2020 HIGHLIGHTS Aviation Investment Banking July August September JetBlue became the first major U.S. airline to Virgin Atlantic became one of the biggest El Al Israel Airlines flew a historic flight from Tel defer furloughs. It reached an agreement with brands to declare bankruptcy due to the Aviv to Abu Dhabi through Saudi Arabian its pilot union to keep all pilots on payroll until pandemic, announcing plans to lay off airspace for the first time since 1972, as a result at least May 2021. Delta joined a growing thousands of workers and retire its 747s, all of peace deals struck between Israel and number of legacy airlines prepared to furlough while applying for government funding. several of its neighbors. workers after the CARES Act expired on October 31st. ExpressJet was the largest U.S. casualty of the The A380 era witnessed the beginning of the pandemic. The regional carrier, which had end when Airbus completed production on its Aeromexico (Grupo AeroMexico SAB), 2,500 staff and over 100 aircraft when it shut final A380 Superjumbo. This news, coupled voluntarily opted to restructure via Chapter 11 down, saw its contract with United Airlines with Boeing’s decision to stop passenger 747 bankruptcy process. This came as other Latin terminated due to cost-cutting measures. The production, marks a growing shift away from American carriers struggled to restructure airline was seeking to stay in business, but to big planes to smaller, more efficient aircraft themselves in the wake of the epidemic. date has ceased operations. that are easier to fill and cheaper to operate. October November December Breeze, the newest project of JetBlue and Azul Boeing’s 737 MAX was green-lighted by the Brazil’s GOL Airlines became the first airline to founder David Neeleman, raised $83 million FAA to resume service after a 20-month-long resume commercial flights with the troubled ahead of its 2021 launch. It will start operations grounding and countless hardware and Boeing 737 MAX after the type was recertified. with Embraer aircraft from Azul before software changes. The FAA became the first American Airlines followed as the first U.S. transitioning to new Airbus A220 jets. global regulator to reapprove the Boeing 737 carrier to fly the jet again.