Aviation Industries Contract As a Result of COVID-19

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As expected, our industry is continuing to contract as a result of the ongoing pressures from COVID-19. Today’s issue of IFExpress features announcements from industry vendors and OEMs about current and forecasted reductions in their work force. Airlines are starting to address what flying may look like with social distancing still in effect but after the Stay Home, Stay Safe orders are loosened. This is certain to be a continuing discussion in the weeks ahead. The IFExpress team will keep you appraised as this story continues to evolve.

Now let’s take a look at some of the announcements from the past seven days.


GOGO

Gogo announced that effective May 4, it will furlough approximately 60% of its workforce and reduce compensation for most other employees as part of a broad-based cost reduction plan due to the impact of COVID-19. The furloughs will impact more than 600 employees across all three of Gogo’s business segments. The time and duration of those furloughs will vary based on workload in individual departments. Salary reductions will begin at 30% for the CEO, then 20% for the executive leadership team, and feather down from there. In addition, Gogo’s Board of Directors has agreed to reduce their compensation by 30%. Certain types of employees, such as hourly workers, will not have their compensation reduced. Approximately 60% of Gogo’s revenue comes from its two commercial airline segments. Passenger traffic on commercial airlines using Gogo’s service has declined 95% this month compared to the prior year, resulting in a projected 60-70% reduction in sales for the month of April. The remaining 40% of Gogo’s revenue comes from its business aviation segment which has seen a sharp decrease in flight activity. Additionally, since many business aircraft are flying less frequently, there has been an increase in requests for one-month account suspensions and a dramatic decrease in new plan activations for the month of April. “The health and safety of our employees and customers is our first and most important priority, but the long-term health of our business is also a critical focus area,” said Oakleigh Thorne, president and CEO of Gogo. “In March, we announced 16 levers that we can employ to dramatically lower our costs in order to ensure our long-term viability, and we believe we are implementing the appropriate measures to accomplish that goal.”

In addition to personnel actions, the Gogo 16-lever plan includes, among other actions, renegotiating terms with suppliers, delaying aircraft equipment installations, deferring purchases of capital equipment, reducing marketing and travel expenses and eliminating non-essential spend. “We established best- and worst-case scenarios and action plans against the 16 levers based on market conditions against those scenarios,” Thorne said. “Based on where the market is today, we believe these personnel actions are necessary, and if conditions worsen, we have additional levers to pull if needed.”

Gogo also announced that it has applied for an $81 million grant and a $150 million loan under the recently enacted CARES Act. If Gogo receives government assistance, it will modify the personnel actions announced to comply with the terms of that assistance. Prior to this announcement, Gogo has already implemented several cost-cutting measures related to personnel, including a hiring freeze, suspension of 2020 merit salary increases, and deferral of the CEO’s 2019 bonus. Gogo had $216 million cash on hand as of the close of business on April 20, 2020, including $22 million drawn under its revolving credit facility.

Gogo intends to provide an update on its response to the pandemic and share further details on the steps it is taking to strengthen its financial position when it hosts its first quarter 2020 earnings conference call. “The impact of COVID-19 on air travel, and a challenging economy in general, mean we have to make tough decisions, including implementing these essential cost reductions,” said Thorne. “I am proud of our Gogo employees, who have risen to the challenge to ensure that our business continues to operate smoothly and effectively during this difficult time.”


BOEING

On April 21, 2020 Boeing announced key organization and leadership changes aimed at driving greater cross-company integration and continuous improvement; aligning enterprise services to current business conditions while increasing value; streamlining senior leadership roles and responsibilities; and preparing now for the post-pandemic industry footprint. The changes are effective May 1.

A newly formed group — Enterprise Operations, Finance & Strategy — will consolidate several important areas, bringing together teams responsible for manufacturing, supply chain and operations, finance, enterprise performance, strategy, enterprise services and administration. Led by Greg Smith, executive vice president, Enterprise Operations, and chief financial officer, this new global organization will embed operational excellence and consistent lean principles across Boeing and its supply chain, and restore production and supply chain health as Boeing and the broader aerospace industry recover from the COVID-19 pandemic.

Corporate Audit will join Smith’s new group and continue to report directly to the Boeing Board of Directors Audit Committee as it does today, providing independent, objective assurance and advisory services to improve company operations.

Jenette Ramos, senior vice president of Manufacturing, Supply Chain & Operations, will bring 34 years of Boeing experience, leadership and operational skills to a special assignment in support of Smith and Boeing President and CEO David Calhoun.

The company also is combining its legal and core compliance programs, including global trade controls, ethics and business conduct, into a single organization led by Brett Gerry, chief legal officer and executive vice president of Global Compliance. This approach will enhance Boeing’s already strong compliance and internal governance program through focused accountability for, and a more integrated approach to, Boeing compliance responsibilities. It also will help the company proactively address new legal and compliance obligations arising from an increasingly complex global regulatory environment.

To accelerate this important work and to build on the existing strength of its compliance and ethics program, Boeing soon will name a chief compliance officer who will be responsible for leading the company’s compliance, ethics and trade control activities. This person will report to Gerry, with a direct reporting line to Calhoun and the board’s Audit Committee on compliance and ethics issues.

Finally, Boeing Government Operations, led by Executive Vice President Tim Keating, will assume responsibility for the company’s Global Spectrum Management activities, which ensure the safe, efficient and compliant use of radio frequency spectrum in Boeing products and operations.

“I am confident these changes will drive greater alignment among our functions; better equip our commercial, defense and space, and services businesses to deliver on customer commitments in a changing marketplace; and support our continuous efforts to develop talent through challenging leadership assignments,” said Calhoun. “Special thanks to Greg, Brett, Tim and Jenette for taking on new leadership responsibilities.”

Coinciding with these organization changes, Diana Sands, senior vice president of the Office of Internal Governance and Administration, has decided to retire from Boeing later this year after nearly 20 years with the company and following a thorough transition of responsibilities. “Over the past two decades, Diana has played a key role in developing an industry-leading ethics and compliance program, served in several critical finance roles and been a strong advocate for advancing diversity and inclusion across the company,” said Calhoun. “The Boeing Board of Directors and I are deeply grateful for Diana’s leadership, integrity and dedicated service.”

Also from Boeing: 

On April 25th the company announced that it has terminated its Master Transaction Agreement (MTA) with Embraer, under which the two companies sought to establish a new level of strategic partnership. The parties had planned to create a joint venture comprising Embraer’s commercial aviation business and a second joint venture to develop new markets for the C-390 Millennium medium airlift and air mobility aircraft. Under the MTA, April 24, 2020, was the initial termination date, subject to extension by either party if certain conditions were met. Boeing exercised its rights to terminate after Embraer did not satisfy the necessary conditions. “Boeing has worked diligently over more than two years to finalize its transaction with Embraer. Over the past several months, we had productive but ultimately unsuccessful negotiations about unsatisfied MTA conditions. We all aimed to resolve those by the initial termination date, but it didn’t happen,” said Marc Allen, president of Embraer Partnership & Group Operations. “It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues.”

The planned partnership between Boeing and Embraer had received unconditional approval from all necessary regulatory authorities, with the exception of the European Commission.

Boeing and Embraer will maintain their existing Master Teaming Agreement, originally signed in 2012 and expanded in 2016, to jointly market and support the C-390 Millennium military aircraft.

Lastly, Boeing Dreamlifter Transports 1.5M Face Masks for COVID-19 Response

  • Partnered with Prisma Health, Atlas Air and Discommon Founder Neil Ferrier to bring 1.5 million medical face masks to healthcare professionals in South Carolina
  • Boeing Dreamlifter becomes the largest aircraft ever to land at Greenville-Spartanburg International Airport
  • Additional airlift transport missions with the Boeing Dreamlifter and ecoDemonstrator are planned in the future

OTHER NEWS

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