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COVID-19 impact on business aviation operations and risk management

Aerospace
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By John Taylor | June 11, 2020

The article reflects on the downturn of aviation operations as a result of the pandemic crisis and the utilisation of risk community groups.

Airports Council International (ACI) and the International Air Transport Association (IATA) has called for governments to quickly provide financial relief to airport operators and airlines during the COVID-19 crisis.

While the organisations were united with governments to stop the spread of the virus, they said current flight restrictions had eroded revenues to a level that was “beyond the ability of even the most extreme cost-cutting measures to mitigate”.

Business aviation

The business aviation sector has not proven immune to the fallout, even if it usually benefits from times of disruption, when business travellers turn to private charters to fill the gaps left by restrictions on commercial aviation.

Worldwide business jet flights fell 79% in the first two weeks of April compared to the same period last year

According to recent analysis by WingX’s Global Market Tracker, worldwide business jet flights fell 79% in the first two weeks of April compared to the same period last year; just over 26,000 flights were operated during the period.

Activity in North America and Europe broadly reflected that global trend, while business jet flight activity out of Asia, South America and Africa fell between 65% and 70% year on year; flight activity out of China was down by 57%.

In all, just under 1,000 business jets were active worldwide in the first half of April, compared to over 4,000 in the corresponding period the year before.

72%
Fall in business aviation traffic across Europe compared to the same time in 2019

In the last week of March, Eurocontrol, a civil-military organisation dedicated to supporting European aviation, observed a 72% fall in business aviation traffic across Europe compared to the same time in 2019.

A survey of 130 European business aviation CEOs conducted by European Business Aviation Association (EBAA) revealed that estimated financial losses for the thousands of SMEs that make up the sector range from 50-90%. The most pressing issues for those executives were staff-retention costs, fixed-location costs and taxes.

The EBAA says the sector generates nearly €90 billion in revenue every year and employs more than 370,000 people.

An unprecedented risk environment

While no companies across the business aviation sector – big or small – will ultimately prove immune to the impact of the COVID-19 pandemic, it is being felt differently across markets.

Solutions, insofar as they exist, need to be flexible enough to be tailored to specific businesses. And insurance providers need to have the sector knowledge, depth of expertise and the modern resources to provide analysis and enterprise-wide solutions.

Willis Towers Watson’s A Class community was recently created specifically to help navigate challenging times such as these, providing assistance with insurance negotiations, employee-related issues, contractual obligations (with leasing companies, etc.) and geopolitical risks as countries emerge from the pandemic at differing speeds.

Early COVID-19 projections (pre-‘pandemic’) for the sector fuelled expectations that corporate jet operators would see an uptick in demand from companies wanting to isolate their senior executives from the outbreak as they travel. But those expectations fell away as global flight restrictions mounted.

In Europe, where business aviation companies operated more than 70 medical flights per day before the outbreak, an increase in Medevac flights are proving to be a small window of opportunity for the well-positioned jet owner. There are a few dominant players in the global business jet sector, but most are small companies. While business-jet operators with larger fleets may have an adequate cash flow to see them through this period (with the support of their Insurers and financiers), there are concerns some smaller operators in the U.S., Europe and elsewhere may not survive.

The insurance perspective

For insurers, most business-jet clients operate for individual owners or perform ad-hoc commercial charters (in some cases, medevac flights). But the growing number of global flight restrictions has significantly reduced charter flights and impacted available cash flow.

The growing number of global flight restrictions has significantly reduced charter flights and impacted available cash flow

This has resulted in fleets being grounded and has owners looking for either immediate returns on their grounded aircraft through sales or seeking opportunities to offset ongoing costs including insurance premiums.

This is where partnership with brokers to advocate these new circumstances are crucial. Exposure are significantly different and ratable premium and or adjustments should reflect this.

While sympathetic, insurers are facing their own cash-flow concerns and are looking for detailed narrative before they will consider any potential returns. These include:

  • A full list of aircraft grounded
  • Details of any arrangements operators are making with their current financiers
  • Evidence of impact from lost revenue (ie., specific contracts they have lost, or proof of any downturn in passenger numbers)
  • A revised business plan
  • Details of any staffing plans – ie., layoffs or asking staff to take unpaid leave
  • Details of where aircraft are located for the duration of the grounding (to manage accumulation and security questions)
  • Details of adjustments to any training plans for pilots during this period, due to closure of simulators or being unable to travel to training facilities

Some civil-aviation authorities are offering extensions of validity period or advising that recurrency training can take place on the actual aircraft rather than a simulator.

As dark clouds gather over the sector, some operators remain hopeful that the disruption caused by the COVID-19 outbreak may give rise to new opportunities when business returns. A more security-conscious business sector, may want their most senior executives to travel with ‘known persons’ and not on commercial aircraft, building a new customer base for business aviation in the longer term.

In the UK, there is also expected to be increased focus on preventing ‘illegal charters’, aircraft that are not licensed or insured to perform commercial passenger flights, which would benefit legitimate operators.

This activity was thrust into the spotlight by the UK Civil Aviation Authority’s investigation of the tragic loss of Premiership footballer Emiliano Sala, whose illegal charter crashed as he was in transit to join his new club.

Sources

1 https://aci.aero/news/2020/04/30/aci-and-iata-call-for-urgent-financial-assistance-to-protect-jobs-and-operations/

2 https://privatejetcardcomparisons.com/2020/04/20/private-jet-flights-drop-80-in-april/

3 http://pr.euractiv.com/pr/european-business-aviation-community-calls-urgent-safeguarding-measures-european-institutions-and

4 https://www.ebaa.org/news/press-release-european-business-aviation-community-calls-for-urgent-safeguarding-measures-from-european-institutions-and-the-member-states/

5 https://www.ebaa.org/news/press-release-covid-19-european-business-aviation-under-threat/

6 https://www.willistowerswatson.com/en-GB/Solutions/services/a-class

7 https://expandinghorizons.com/wp-content/uploads/2019/09/European-Business-Aviation-Advocacy-Roadmap_for-print.pdf

8 https://www.theguardian.com/football/2020/mar/13/emiliano-sala-pilot-of-plane-that-crashed-was-not-licensed-to-fly

Author

Managing Director, General and Corporate Aviation

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