EMBRAER OPTIMISTIC ABOUT AFRICA’S AVIATION RECOVERY
African airlines are shifting to domestic travel and more economical regional aircraft as Covid-19 travel restrictions limit their range, says Cesar Pereira, Vice President, Europe, Middle East & Africa at Embraer Commercial Aviation
The Covid-19 pandemic is almost undoubtedly the single greatest obstacle the commercial aviation industry has faced, overshadowing the 9/11 terror attacks, the 2003 SARS outbreak and the 2008 financial crisis. Africa has been particularly hard hit as it was one of the fastest growing areas for commercial aviation. According to the International Air Transport Association (IATA), the impact of Covid -19 on Africa’s aviation industry and economies is worse than expected and the Association in November predicted that Africa’s aviation activity this year will reach just 30% of 2019 levels.
As lockdown restrictions ease, Africa is predicted to see around 45m travellers in 2020, rising to 70m in 2021, down from 155m in 2019. IATA expects a full return to pre-Covid-19 levels in late 2023, slower than initially expected as international travel, especially in Europe, remains constrained.
However, there is some good news as domestic travel picks up across Africa as countries re-open their borders. Most experts agree that it will take a couple of years for the situation to normalise. Embraer expects that global passenger traffic (measured in Revenue Passenger Kilometres – RPKs) will return to 2019 levels by 2024, with domestic traffic recovering earlier.
“Although we cannot predict this exactly, we do see different factors influencing the recovery. Indeed, travel restrictions will last until the vaccine and fast testing procedures are implemented. The industry will certainly recover but the environment will be different. Airlines that recognise weaker demand and adapt accordingly will be better positioned to take advantage of new opportunities,” Pereira says.
Airliner production
Forecast International has predicted it will take at least until 2023 for annual airliner production to come even close to matching the level of production seen in 2019, but market recovery will get underway after 2020. The big manufacturers – Airbus and Boeing – have been struggling to deliver aircraft and have cut production as the pandemic depresses demand for new jets. However, Embraer, the third largest producer of civil aircraft, has yet to receive a single order cancellation, and is even delivering new aircraft, Pereira says.
Richard Aboulafia, Vice President of Analysis at the Teal Group, believes Embraer has a brighter future due to its leading position as a manufacturer of regional jets. Due to post-pandemic requirements for smaller-capacity aircraft, Embraer is even looking at developing a new turboprop aircraft to cater to softer demand and the regional market. It is also exploring the Short Take Off Utility Transport, or STOUT, concept using hybrid technology to carry about 30 people or 3 tons of cargo.
Embraer CEO Francisco Gomes Neto in November said the company believes the domestic and regional markets will rebound first, especially as airlines look for more versatile, flexible, and economical fleets. “We do believe that our E-Jets are very well-positioned in that direction. So that’s why we believe we have a good chance as soon as the market picks up,” he said, which is expected to happen around 2022.
Embraer has an established presence in the African market and since the delivery of the first EMB 110 Bandeirante to Gabon’s Nouvelle Air Affaires in 1978, the company has sold more than 150 jets to roughly 50 African operators. The Nigerian carrier Air Peace will soon receive its first of 13 E195-E2s to replace larger and less efficient Boeing 737s. “Congo Airways is another E2-customer in Africa. They are in fact a new member of the Embraer family, having ordered two E190-E2s, with purchase rights for an additional two, to replace their current Q400 turboprops,” Pereira says.
Regional focus
With many international borders closed, African airlines have been focusing on their domestic or regional markets and therein lies the greatest hope for recovery. “Based on our analysis, domestic and regional routes will recover faster, probably by 2023, and our crossover jets, offering the right capacity, will support airlines to build again their networks quickly and profitability,” Pereira says.
Even before the pandemic, countries like South Africa and Nigeria had a high share of domestic and regional traffic, accounting for 85% of total traffic in both countries, with intercontinental traffic representing only 15%. “Focusing on these markets is therefore definitely sustainable for many airlines in Africa,” Pereira says.
A great example of a regional airline is Airlink, one of the most successful and profitable airlines in Africa. Airlink is currently serving 25 domestic and 20 regional destinations, offering the widest network in South Africa. “With a fleet of more than 40 Embraer, Airlink is our biggest customer in Africa,” Pereira says. The airline recently unveiled a new logo and brand and is expanding operations across southern Africa as lockdown restrictions ease.
Cargo resilience
The cargo market has fared much better than the scheduled commercial passenger market, and figures from IATA show modest growth as 2020 comes to an end. According to Alexandre de Juniac, IATA’s Director General and CEO, “For air cargo, 92% of the business is still there, whereas about 90% of international passenger traffic has disappeared.” North American and African carriers are reporting demand gains on 2019, with the main challenge continuing to be on capacity.
Pereira says Embraer’s customers moved quickly in response to the increased demand for cargo, as aircraft like the EMB 120, ERJ 145 and E-Jet series have significant useful payload capacity. “For example, a fully loaded 96-seat E190 can carry 3 metric tonnes of cabin freight in addition to underfloor cargo. A 118-seat
E195 can carry 3.75 metric tonnes. This has enabled our customers to keep flying and generate revenue and cash for their business.”
Cargo aircraft as well as smaller passenger aircraft fared better during the pandemic – more diminutive regional aircraft suddenly became more economical as passenger numbers dwindled. “A good example of this is Kenya Airways,” Pereira says, “where the Embraer fleet was still flying when all other aircraft stood still.”
Rebuilding African aviation
International bodies like IATA have suggested a number of ways to revive the aviation sector, including government financial relief to airport operators and airlines. The Association is calling for taxation relief, loans, loan guarantees or direct support to maintain financial liquidity. Several African countries have already taken steps to aid their airlines, such as waiving aircraft landing and parking fees, and tourism taxes on transit passengers. The governments of Rwanda, Senegal, Côte D’Ivoire and Burkina Faso have pledged $311m in direct financial support to air transport and another $30bn has been promised by various governments, international finance bodies and other institutions including the African Development Bank, African Export Import Bank, African Union, and the International Monetary Fund.
Right now, Pereira believes one of the best things that airlines can do is make sure passengers know that it is safe to travel aboard an aircraft. “The air in an Embraer E-Jet cabin is completely refreshed at least 20 times every hour – that’s four times more often than in a hospital operating room,” Pereira says.
In the medium and long term, airlines need to rethink their fleet and network strategies as they adapt to the pandemic and its side-effects. “We have seen how airlines with right-sized aircraft such as E-Jets have been able to maintain frequencies and connectivity despite lower traffic levels,” Pereira says. “Replacing old narrow bodies with modern regional jets such as E2s, with lower fuel burn and maintenance costs, will give the airlines the right tool to better react to potential future demand changes and keep growing sustainably.”
Apart from the commercial aviation sector, Embraer has seen resilience in the defence sector (it just received an order for two KC-390 tanker/transports from Hungary), and only a small impact on the private aviation sector. Unlike the 2008 market crash, the pandemic has had little negative impact on the private jet market, and business jet travel is making a strong recovery.
The coronavirus pandemic is changing the aviation landscape in many ways, with a renewed focus on regional aviation. “This gives me confidence that we will see yet another wave of orders and deliveries of our aircraft to customers on the African continent,” Pereira says.
We have seen how airlines with right-sized aircraft such as E-Jets have been able to maintain frequencies and connectivity despite lower traffic levels