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May 12, 2020

Boeing CEO sees risk of a U.S. airline failure on 'apocalyptic' travel slump

Dave Calhoun

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Boeing Co.’s chief executive officer sees a risk that a major U.S. airline will fail as the COVID-19 pandemic all but erases demand for flights.

The recovery is going to be slow, with air traffic taking years to rebound, Boeing CEO Dave Calhoun said in an interview Tuesday on NBC. Asked by “Today” show host Savannah Guthrie if a major airline might have to fold, Calhoun said travel would still be depressed in September -- the last month of the U.S. government’s payroll support for airlines.

“I don’t want to get too predictive on that subject but yes, most likely,” he said. “Something will happen when September comes around. Traffic levels will not be back to 100 per cent. They won’t even be back to 25. Maybe by the end of the year we approach 50. So there will definitely be adjustments that have to be made on the part of the airlines.”

Carriers worldwide are facing a dire collapse in demand for flights as governments restrict travel and consumers heed warnings to stay home. Boeing is shrinking its business as the company’s airline customers delay orders and rethink their fleets. Calhoun has predicted air travel won’t return to pre-virus growth levels until mid-decade, and the Chicago-based planemaker last month announced plans to cut 10 per cent of its workforce and slow jetliner production.

“We currently believe each of the larger U.S. airlines have enough capital to survive the year,” although “anything is of course possible,” said Helane Becker, an analyst at Cowen & Co. “We believe if demand stays down 90 per cent through year-end with no sign of recovery, a bankruptcy filing would be more likely to occur in early 2021.”

Boeing fell 1.3 per cent to US$127.24 at 1:57 p.m. in New York. A Standard & Poor’s index of U.S. airlines dropped 3.6 per cent.

The CEO “was speaking to the general uncertainty in the sector, not about any one particular airline,” Boeing spokesman Gordon Johndroe said in response to the NBC interview.

‘Apocalyptic’ Moment

When NBC’s Guthrie said an unnamed airline executive had described the situation as “apocalyptic,” Calhoun agreed that the short-term outlook was grim.

“‘Apocalyptic’ does actually accurately describe the moment,” he said.

The airline industry will rebound after the “near-term turmoil,” but the comeback will take years, he said.

“Near-term, for me, doesn’t mean a few months,” he said. “I believe it’s three full years before we return to the traffic levels that we had just in 2019 and probably another two before we return to the growth rates that we used to have.”

Still, Boeing is confident enough in the medium-term outlook -- over the next three years or so -- to plan aircraft production, Calhoun said. Analysts have questioned whether the cuts the company has outlined are deep enough to reflect the expected airline shakeout.

The airline industry will gradually rebuild passenger confidence in travel with measures such as airport screening for fevers and illness, he said. And for passengers worried that airplane cabins are flying petri dishes, the Boeing CEO highlighted the air-filtering systems on jetliners.

“Believe it or not, that cabin replaces its air every two to three minutes,” he said. That system “was designed to prevent transmission of exactly this kind of airborne carrier.”