Aviation: The great come back?

We thank TMA Director Andrew Pepper for moderating this insightful webinar which was attended by over 200 people and can be accessed in full here.

Speakers

Paul Zalkin – Aviation sector specialist, Quantuma
Paul is an insolvency and restructuring specialist. He has advised a range of businesses in the aviation sector, including a number of board advisory matters with businesses operating both directly in the aviation sector and in the parts supply chain. He has also undertaken a series of successful accelerated M&A assignments for businesses operating in the sector which most recently includes a substantial helicopter charter, sales, parts and training business operating from the UK. Paul’s aviation sector experience expands across borders, where he most recently advised the operating board of a European airline operating a substantial number of international routes, undertaking solvency and options reviews.

Peter Davies – CEO, Airline Management Group
Peter is an experienced Chief Executive of airlines and a Chair and Non-Executive Director of customer and business services companies. Peter is currently the Chairman of Airlink, a Fellow of the Royal Aeronautical Society and was a former elected Member of IATA’s Board of Directors.

What are the challenges facing airlines?

Opening the discussion, Peter began by giving context to the challenges that airlines are currently dealing with. Even before Covid-19, he said that the aviation sector isn’t a sector that makes much profit and that around the world it tends to be a poor investment. Since the pandemic hit, the situation has been exacerbated and most airlines now find themselves in a position where they have to completely restructure. Not until 2024 are passenger numbers expected to return close to 2019 levels.
But despite the challenges, Peter thinks this is actually a great opportunity for airlines to ‘reset their dials’ financially, as well as structurally and mentally.

And to do so, he said that airlines need to be careful not to rack up unsustainable debt that they won’t be able to repay in 2-3 years. If Peter were to advise the board of an airline like EasyJet of Ryanair right now, he would be advising them to keep their costs under control but also to look to new initiatives such as more energy efficient aircraft to ensure that their balance sheet looks healthy in the future. He thinks airlines should be concentrating their staff on survival and creating liquidity, while the board concentrates on making sure they have a future which he thinks must involve “breaking convention and thinking outside the box”.

Paul agreed with Peter that airlines are going to have to adapt to survive and while he expressed his optimism that “this is not the death of the aviation sector”, he said its size and shape may change as airlines and their suppliers adjust.
How have airports and suppliers been affected?

Moving on from airlines, Peter and Paul then discussed the position of airports and suppliers to the industry with Peter pointing out that in an average airport, at least 50% of revenue comes from everything other than flights such as shops, car parking and food outlets. And without passengers there has been no revenue for them.

In fact, Peter said it’s possible that airlines are currently in a better position than the airports and suppliers because short haul airlines in particular can adjust their variable costs quite easily by limiting the number of new aircraft coming in and laying off old planes with inefficient engines. Airports, however, have a significant amount of sunk capital such as buildings and car parks which can’t be laid off in order for them to recoup some of their losses. They can only cut jobs which, unfortunately, many of them will do.

Paul agreed that suppliers to the industry are having a very difficult time right now and, in his work, he said the key challenge has been forecasting. While there are a number of tools at turnaround professionals’ disposal, credible restructuring plans need to be based on forecasts but right now, it’s extremely hard to work out whether forecasts are meaningful and robust as suppliers to the aviation industry, particularly small and specialist ones, are at the mercy of their customers, the airlines.

How can turnaround and restructuring professionals support the aviation industry?

The discussion then turned to how turnaround and restructuring professionals can support the aviation industry and its suppliers through this period and out the other side.

As someone who has used many such advisors in the course of his career, Peter said that Directors in the sector want specific and detailed advice. When seeking out advisors in his capacity as CEO, he said he would want to understand how the advisor sees the company’s future and what models and alternatives ways of operating they suggest. Crucially, he said he would want to know that their restructuring plan is aimed at achieving long-term growth rather than just addressing short-term problems.

Peter also pointed out that there’s no point getting great advice if the company’s management team can’t implement it. Therefore, as a CEO, he would want to see a rounded approach that doesn’t just consider financial restructuring but also whether the company needs to reorganise to ensure that those in senior management positions are capable of implementing the plan.
Speaking with experience from the other side of the table, as someone who has served many clients in the aviation industry, Paul added that clients want to know that you’re on their side and that you’re not going to tell them what they already know, they’re looking for novel solutions.

And finally, closing the webinar, Paul said he firmly believes that the turnaround industry has an important role to play in getting the message out that “we genuinely want to contribute to helping the UK rebuild its economy” and said that picking up the phone to speak to a professional can be the best thing a company can do.

Thank you to Peter, Paul and Andrew for their time and to everyone who joined the webinar. The next TMA event will be Part 3 of our webinar series with Colliers International to take place on 2nd September with details of how to join released soon.