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The last thing anyone needs in this coronavirus situation is more panic, but there’s a notable gap between the alarms emanating from the airline industry and the sanguine attitude among the companies that supply their spare parts and maintenance work.
Last week brought a flood of fresh warnings from US carriers on cancelled flights, with Delta Air Lines Inc and American Airlines Group Inc following United Airlines Holdings Inc in pulling their guidance for the year. All three carriers also announced plans to reduce their capital expenditure plans, with United saying spending could be deferred for up to four years. Meanwhile, Southwest Airlines Co CEO Gary Kelly warned of a sharp decline in bookings and said the company was “seriously considering†reducing its flight schedule, according to a video message to employees. “The velocity and the severity of the decline is breathtaking,†he said. “There is no question this is a severe recession for our industry and for us, and it’s a financial crisis.†By contrast, aerospace supplier Honeywell International reiterated both its first-quarter and full-year guidance.
Part of the problem is a natural information lag. Honeywell acknowledged that assumptions underlying its numbers — including minimal economic impact in China from the coronavirus and a macro environment consistent with the end of 2019 — were being challenged. But with sales already tending to be weighted towards the last month of the quarter, there’s not enough visibility right now to give a more formal update to the numbers, CFO Greg Lewis said.
The implicit takeaway seemed to be that guidance will likely need to be reduced. United Technologies, which is set to separate its aerospace arm from the Carrier climate and Otis elevator units later this year, also has been mum on the potential hit to its business as the virus has spread beyond Asia.
The steady drumbeat of increasingly dire warnings out of airlines suggests
this is going to get worse before it gets better. United President Scott Kirby said that net US bookings are down about 70% and the airline expects to see further deterioration.
—Bloomberg
Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News