Shoosmiths latest SAMBA aviation webinar on 20 May attracted around 50 delegates to listen to our panel guests share their views on how recent events, including COVID, Brexit and climate change, have shaped the aviation sector today and how they might influence its future.
Hosted by Elliot Bishop (Head of Shoosmiths Luxury Asset Group) and Sarah Fairweather (Joint Head of Marine and Aviation). Elliot indicated the hope that future SAMBA events would be live in Shoosmiths new London offices at No.1 Bow Churchyard rather than the ‘flight sim' webinar approach required during the pandemic.
Our expert panel consisted of:
- Neil Garwood, CEO of Airport Coordination Limited
- Chris Hughes, Relationship Director, Lombard Aviation
- Marc Ghaly, Sales Director, Bombardier Business Aircraft
- Florent Series, Chief Commercial Officer Europe, TAG Aviation
All our panellists agreed that the impact of Brexit has been masked by COVID. Marc Ghaly reported that Bombardier had anticipated a big impact on its business as a result of Brexit, but that this hadn't materialised. He ascribed this to the fact that Bombardier operate at the higher end of the business jet market (typically between $28m -$75m) and most Bombardier customers are global entities with a high net worth.
Marc said that Brexit did have an impact inasmuch Bombardier noted an uptick in the a number of customers choosing not to register aircraft in the UK with Guernsey and Malta proving popular alternatives, but he was confident that the UK would once again become a destination of choice for the registration of aircraft now that there is more certainty and the Brexit position has mostly settled.
Florent Series agreed With Marc and commented that Brexit did not come as a surprise and so most of the operators were reasonably well prepared. However, what many operators didn't anticipate was the UK exiting the European Aviation Safety Agency. This surprise exit left UK operators facing difficulties in running their operations in the EU and means that separate negotiation is required with each EU member state in relation to permits. Florent comments that this has brought back rivalry and complications - some countries have been great and have applied reciprocity, some have been obstinate and there is no uniformity.
Following a ten-year stint as MD of Southampton Airport, Neil Garwood began his tenure as CEO at Airport Coordination Limited just as the pandemic hit. He admitted that he has been very busy – albeit not quite in the way he may have expected! Sarah and Neil had a discussion about the change in air transport movements and how the focus has now swung from passenger transport to freight. Neil agreed that freight may have saved some airlines from collapse as they have been able to substitute one for the other, but he did see grounds for optimism, especially in the Chinese market, the American domestic market and the Australia/New Zealand travel bubble. And with the introduction of the UK government's Green List for overseas holiday and travel destinations (despite the fact that it seems to be a moveable feast) Neil suggests that the huge amount of pent up demand as people want to resume flying for tourism and trade also augers well for the future. His next job will be to finely balance the availability of take-off/landing slots with that anticipated high demand.
Chris Hughes saw Lombard (part of NatWest) take off with a flying start to 2020, with a new leader, new strategy and great events – before the world changed overnight! March 2020 saw a great deal of uncertainty and, like many businesses, NatWest had to move many thousands of staff to remote working in a very short period of time whilst still being able to service its clients.
NatWest implemented some positive initiatives to support its staff and clients however new business all but dried up, not returning to a decent level until the summer. Many clients postponed purchases as it did not make commercial sense to spend millions on a grounded aircraft and a fluctuating number of new enquiries mirrored the lockdowns. NatWest's focus turned from new business to supporting existing clients, with Chris and his team contacting all clients to offer help and support during lockdown.
Although Chris saw an uptick in the summer months, he admits that closing transactions was a challenge as his team and customers used to do so face-to-face – not possible when working from home. Coupled with potential clients hedging their bets on discounts on aircraft which didn't ultimately materialise, closing remains an issue. However, Lombard are now gradually (and cautiously) coming out to see potential and existing clients, with a definite uptick in financing the acquisitions of ultralong-range jets.
Marc, like Chris, commented that Bombardier had a very strong start to 2020 before sales in March hit a brick wall. There was very little activity between and then and early June, although Bombardier recovering very well indeed for the latter part of the year. However, Marc reports that it was existing pre-pandemic deals which made for such a good end to 2020 rather than new business and client aircraft inspection was very difficult.
Bombardier also faced operational challenges due to location of its assets in Kansas and Montreal, meaning traditional delivery and inspection arrangements had to be modified in short order. Despite these challenges, the discounts that Chris' clients thought would materialise because of the pandemic have not happened, so now there is a shortage of business aircraft. Indeed, Marc reports that some customers are skipping the charter stage of ‘try before you buy' and heading straight to acquisition as lead times are long and demand is high.
Business airline operators
Florent was very honest in reporting that 2020 has been a nightmare for TAG, commercially and operationally. Everything stopped in March 2020, a common theme amongst our panellists. TAG was in the unenviable position of having aircraft positioned all over the world, meaning it had to find a way to put pilots on furlough, find parking for its aircraft, extend ongoing training programmes for staff so they could qualify before deadlines expired, and manage maintenance programmes made even more difficult because the aircraft were grounded.
TAG saw clients continue to buy aircraft throughout the pandemic and Florent had no qualms in confessing that trying to deliver was challenging with so many variables, among them the differing crew nationalities and quarantine restrictions applicable to each individual. Florent thinks the pandemic has shown that each country has been making their own Covid rules rather than working in unison and there ought to be more global coordination.
On the charter side, as was the case with Marc and Chris, for TAG everything stopped in March but picked up in summer – at least in the limited number of countries that clients could fly to. TAG has seen a lot of demand in the leisure sector, especially from first time clients who would usually fly commercial but have made an exception because of health and safety concerns, however this optimism has been hampered by increased administrative burdens caused by COVID.
Florent's biggest concern is corporate clients who used to fly a lot on charter. Many big corporations have put a ban on travel and the acceptance of 'hybrid home/office working' could change the way we work permanently. However, he remains optimistic and thinks TAG will see a wider spread of clients choosing to fly charter for health and safety reasons, albeit less frequently than pre-pandemic corporate clients.
Marc said Bombardier is increasingly receiving questions from clients on emissions and climate change - 10 years ago, clients would never have asked about these topics. Bombardier have made a pledge to achieve net zero emissions by 2050, as well as on the aircraft production side. Its engine manufacturers have stepped up their game, with engines 15%-20% more efficient now than they were before.
However, the biggest driver towards ‘green aviation' will be sustainable aviation fuels (SAFs). Bombardier flew its first, mainly demonstration, SAF flights in 2017 and its full fleet is fully SAF compliant. The main barrier to mainstream SAF use is cost at the moment, however Marc is confident the price will fall as it becomes more ubiquitous.
Florent sees two main issues to be resolved in tackling climate change in aviation: how do you reduce emissions, and if you can't, how do you compensate? TAG teams up with emission offset companies but sees SAFs is one of the key remedies to the first issue. However, although clients are talking about SAFs, at present they do cost between four and 10 times more than mainstream aviation fuels, so clients are reluctant to pay more to use them even if there is availability. Florent agrees with Marc that when clients do make the change to SAFs in volume, affordability should improve.
In terms of commercial aviation, Neil commented that before the pandemic, the green agenda was everywhere but has inevitably taken a back seat during the pandemic. Neil suggests industry is not so much ‘green' but more ‘olive' in its approach at present. He maintains that aviation needs to return to where it was on the climate change agenda before the pandemic hit as the issue is not going away. As far as aviation finance is concerned, Chris suggested that environmental, social and governance issues may not yet made borrowing more difficult but are factors that will come into play over the next three-five years as stakeholders will scrutinise these aspects more closely. NatWest is the key financial sponsor of COP26 and committed to making its own operations climate positive by 2025 and negating the climate impact of its finance activities by 2030. NatWest is currently modelling out ways to meet these targets, including scenarios in terms of SAF, hydrogen and battery power for smaller aircraft.
Optimism about the future of aviation
It is clear the aviation sector will continue to experience turbulence for the next few years in terms of sustainability as we come out of the pandemic, but despite the challenges faced, our panellists were all optimistic about the future.
An all-important question posed by Elliot to our panellists at the end of the discussion was:
“COVID restrictions and quarantine requirements aside, if you could fly anywhere in the world, where would you fly to, with whom and in what aircraft?“
Marc naturally selected the Bombardier Global 7500 as the frontrunner. Most of our panel would go away with their families. Neil would take his entire team from ACL, prompting Sarah to ponder whether she should consider a career change! Somewhere hot and sunny with a beach was the most popular destination, with Marc opting instead to visit his family in his native Montreal.
Here's hoping all of us get to fly to our desired destinations safely before too long.
Originally published 22 June 2021
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