Flying Into Oblivion?
Is the aviation industry flying into oblivion? Will our blasé attitude be our downfall? Massive debt levels and low savings. How can we prepare for what is to come? Can air taxis and hypersonic jets save us?
Will the blasé attitude of many individuals and businesses within the aviation industry about the serious economic and geopolitical challenges upwind be their downfall?
Why this is important: The aviation industry is extremely sensitive to shocks, be those economic, social, geopolitical, or natural. Individuals and businesses who remain oblivious to the challenges ahead around the world that will undoubtedly affect the aviation industry are currently flying blind.
- Most airlines are heavily indebted and are not prepared for a serious shock to their operations.
- Many general aviation (GA) businesses, such as flight schools, Part 135 operators — aircraft management and charter services — and other types of GA operators operate on thin profit margins and are also heavily indebted.
- Like with the rest of the economy, individuals working in the aviation industry are largely living paycheck to paycheck with reduced savings and increased debt levels. Mainly as a result of increased personal loans and credit card usage.
Many individuals and businesses within the aviation industry are already struggling and are not prepared for what is to come.
- Whether it’s ignorance, lack of understanding, or a downright carefree attitude toward what is to come within the aviation industry, many individuals and businesses are just not prepared. This is remarkable since many are already struggling as things are, and it would be helpful for them to become prepared for even tougher times ahead.
- The industry seems quite excited about new technology, such as electric, vertical takeoff and landing (E–VTOL), sustainable aviation fuels (SAFs), and the possibility of the return of supersonic flight and the introduction of hypersonic flight. Yet, if you look at what’s happening much of these things could be considered a distraction. What may be best now is for the players within the aviation industry to not overextend themselves on new technologies that may not pan out in the future given the severe economic challenges ahead, but instead, for businesses to fortify their balance sheets and individuals to prop up their savings. It would also be prudent for both businesses and individuals to reduce their debt levels.
Sustainable aviation fuel enthusiasm wanes
- In this newsletter, we have warned that the level of investment required to successfully adapt sustainable aviation fuels (SAFs) is more than the private sector is willing to provide. We’ve also stated that if it was not for government mandates and initiatives from NGOs around the world the push for SAF would not be as significant.
- Therefore, it is not surprising to see airlines speaking out about the cost-prohibitive nature of adapting sustainable aviation fuels, and that the overly optimistic goals initially set for its adoption may not be achieved anytime soon.
Electric vertical takeoff and landing vehicles (E–VTOL)/Air Taxis go viral
- No doubt companies such as Joby Aviation and Archer Aviation have achieved remarkable feats, with a level of technological advancement and innovation they’ve been able to put into their respective air taxis. So much so that a great buzz and hype is now surrounding the two companies, also catching the eye of many large investment companies and retail investors as well.
- Notwithstanding the above, given the current economic climate, and what is surely to come — what we are predicting to be an inflationary recession or an inflationary depression — it is clear that this level of enthusiasm from investors cannot be sustained in the long run. The question is: What will happen to these companies when the investment money dries up during tough times?
On Aviation™ Note: Much like how we have forecasted the inflation challenge that we are currently facing. We are forecasting a future of inflationary recession, or even an inflationary depression, better known as stagflation.
We have stated that the aviation industry is paradoxically fragile and robust at the same time. This led us to believe that this has caused it to be extremely sensitive to shocks within the economy, socially, geopolitically, and environmentally. Even in good times, many businesses within the aviation industry struggle to stay profitable, and individuals to keep a steady income flow. There is no doubt that in tough times all of these situations are exacerbated for already struggling players within the industry, and others who were doing seemingly well prior will be sucked into the microburst. Yet, all is not lost. One can get prepared now and be better able to ride through the turbulent air ahead without experiencing severe structural damage.