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Thursday, April 16th, 2020

Spirit AeroSystems warns of dire quarterly results amid COVID-19 pandemic

Spirit AeroSystems (Spirit) the American airframe maker has announced that for the first quarter of 2020, it is likely to post a loss of US$160 million as opposed to a profit of US$163 million for the same period last year, generating approximately U$1.1 billion in first quarter revenue, down about 46% from U$2.0 billion for the same period in 2019.

Having relied on Boeing for roughly 50 percent of its revenue in 2019, Spirit was heavily affected by the ongoing problems of the still-grounded 737 MAX and laid off 2,800 workers in January when the planemaker halted production of the jet and Spirit had to suspend its 737 MAX fuselage work. However, that was pre-COVID-19, the outbreak of which has seen Spirit forced to furlough staff and implement layoffs. Though the company has not issued final first-quarter results, the preliminary announcement of the poor quarter came with confirmation of a US$1.2 billion debt offering which is due to close on April 17 and which the company has indicated it will use for general corporate purposes and to repay other debt.

On April 8 Spirit confirmed it will furlough staff at both Wichita and Oklahoma premises for a period of three weeks. 2020 first-quarter results will include a US$42 million one-off expense relating to cost- and workforce-trimming measures, US$25 million related to COVID-19 production suspension, US$73 million from the 737 Max fuselage production suspension, and U$65 million in retirement plan expenses.

As at the end of March, Spirit held US$1.8 billion in cash and plans for the acquisition of both Asco and Bombardier aerostructures for a combined US$920 million should still close in 2020.

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Finnair Cargo builds air bridge between Europe and Asia

Passenger traffic has reduced to a minimum due to the coronavirus pandemic, but Finnair's air cargo is still operating during this exceptional period. This week, Finnair will fly more than ten return flights on its A350 aircraft to Tokyo Narita, Seoul, Osaka, Shanghai and Guangzhou.

These cargo flights carry national emergency supplies to both Finland and Estonia, coronavirus samples from private healthcare provider Mehiläinen and critical supplies from other companies and organizations, as well as normal cargo, such as fresh fish. The flights are arranged both as charter as well as Finnair's own commercial operations. 

All cargo flights are flown on utilizing Finnair’s A350 fleet. This week, to increase cargo capacity, the cabins of two A350s will be converted for cargo use. Previously, Finnair has only carried cargo in the hold.

Delta expands cargo-only flights between U.S. and Asia

Delta is expanding its cargo-only flights between the U.S. and Asia, as demand for medical supplies continues to grow in the U.S. Beginning this week, Delta’s scheduled cargo operation will grow to daily-service with the addition of flights from Los Angeles, supplementing the Detroit service that launched March 30. The flights will operate daily to and from Shanghai, with a stop in Incheon.

Detroit-Incheon-Shanghai service will operate four times weekly, and Los Angeles-Incheon-Shanghai will operate three times weekly. All flights will use a fuel-efficient Airbus A350-900 aircraft, a widebody jet that can carry up to 42 tons of cargo in its hold. Once the cargo arrives in Detroit or Los Angeles, it will be transferred to domestic passenger flights to be shipped to destinations around the U.S.

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Seabury Capital advises HAECO Group on acquisition of Jet Engine Solutions

Seabury Capital Group's London- and New York-based Aerospace and Defense (A&D) Investment Banking teams assisted Hong Kong Aircraft Engineering Company Limited (HAECO Group), in the acquisition of Texas-based aero-engine maintenance provider, Jet Engine Solutions (JES).

The acquisition marks HAECO Group’s debut in North America’s on- and near-wing, aero-engine market, forming part of HAECO Group’s strategy to grow its Global Engine Support business and enabling the company to further strengthen its quality services to customers worldwide.

JES, founded in 2009, operates 14 engine bays from its 12,000 m² premises located in Carrollton, Texas, and is capable of storing up to 120 engines. The facilities are supported by employees with deep industry experience in providing maintenance services to a wide range of blue chip customers on most in-demand engines, such as the CFM-56 and LEAP families. Transaction terms were not disclosed.

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Alaska and Horizon receive government-aid

Alaska Airlines and Horizon Air have agreed to general terms with the U.S. Treasury regarding their participation in the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

The program will provide Alaska and Horizon with a total of US$992 million, to be used exclusively for the cost of employee payroll and benefits. The funding is expected to cover about 70% of budgeted costs through Sept. 30, 2020, and was based on similar costs reported by the airlines for the period of April through September 2019.

Of the US$992 million in funding to be disbursed under the PSP, US$267 million will be in the form of a loan and must be repaid to the government. Additionally, the Treasury will receive the right to buy 847,000 non-voting shares of Alaska Air Group at a price of US$31.61/share.

Under this program, Alaska also agreed to additional conditions such as no involuntary furloughs or changes to rates of pay through Sept. 30, 2020, continued suspension of dividends and share repurchases until Sept. 30, 2021, limits on executive compensation through March 24, 2022, and continuation of service as reasonable and practicable under a Department of Transportation rule.

Alaska and Horizon also communicated to the Treasury their intent to apply for US$1.128 billion in federal loans through a separate program authorized under the CARES Act. This process is still ongoing. Funds loaned to Alaska and Horizon through this program will support short-term liquidity needs and must be paid back in full.

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CDB Aviation adds executives to Americas team

CDB Aviation, a wholly owned Irish subsidiary of China Development Bank Financial Leasing, has added new members to its commercial team based in Fort Lauderdale, Florida.

Jorge Garcia has joined as Senior Vice President and Alan Mangels as Vice President, with both executives expected to support ongoing outreach efforts to airlines and reinforce the lessor’s presence in the Americas.

Jorge Garcia has assumed the role of Senior Vice President Commercial, Americas, with almost two decades of experience in aviation and aircraft finance. Garcia joins the lessor from AerCap, where he was Vice President, Leasing.

Alan Mangels has joined the team as Vice President Commercial, Americas, from Rolls-Royce, where he was Vice President Sales and Marketing for Business Aviation.

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Emirates to conduct on-site rapid COVID-19 tests for passengers

Emirates in coordination with Dubai Health Authority (DHA) will be introducing additional precautions regarding the coronavirus. On April 15, all passengers booked on a flight to Tunisia were tested for COVID-19 before departing from Dubai. The quick blood test was conducted by the Dubai Health Authority (DHA) and results were available within 10 minutes. This test was conveniently done at the Group Check-in area of Dubai International Airport Terminal 3.

Adel Al Redha, Emirates Chief Operating Officer said: “The testing process has gone smoothly and we would like to take this opportunity to thank the Dubai Health Authority for their initiatives and innovative solutions. This would have not been possible without the support of Dubai Airport and other government authorities. We are working on plans to scale up testing capabilities in the future and extend it to other flights, this will enable us to conduct on-site tests and provide immediate confirmation for Emirates passengers travelling to countries that require COVID-19 test certificates. The health and safety of staff and passengers at the airport remain of paramount importance.”

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Boeing sees further 75 cancellations for 737 MAX while production remains at standstill

Following on from the month of March where the world’s second-largest planemaker posted 150 MAX cancellations, which included 75 from Avolon, the Irish leasing company, April has now seen a further 75 cancellation. These include 34 of a 135-jet order from Brazil’s GOL.

This is now the thirteenth month since the 737MAX was grounded following two fatal crashes and it was back in January this year that production for the beleaguered jet was stopped, a difficult situation which has been compounded by the COVID-19 pandemic, and there is no current set date when FAA approval of modifications to the jet will be obtained.

The COVID-19 pandemic has also hit deliveries of Boeing’s larger jets, though the company confirmed the delivery of 50 planes in the first quarter, down from 149 in 2019. Orders for March include 12 787 Dreamliners, a 767 freighter and 18 pre-Max versions for the P-8 maritime patrol program, with additional orders in the quarter bringing the total number of orders up to 49 and a negative 147 orders for the three months.

According to Reuters news agency, after further accounting adjustments representing jets ordered in previous years but now unlikely to be delivered, Boeing’s adjusted net orders sank to a negative 307 airplanes.

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Tamar Jorssen
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Email: tamar.jorssen@avitrader.com
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Tamar