VCU star alumnus and Airbus executive provides insider perspective on navigating the aeronautical industry in turbulent times
As part of its ongoing series of virtual conversations about business-related impacts of COVID-19, the VCU School of Business and Dean Ed Grier on June 30, welcomed Ricardo Capilla, CEO, Airbus Mexico.
Capilla earned a bachelor’s of science in business and marketing as well as an MBA in Management & Entrepreneurship and Business Administration from VCU, where he also distinguished himself as the CAA Soccer Player of the Year in 1998 and ultimately was named a 2019 Alumni Star.
Capilla, a native of Mexico who is fluent in three languages, joined Airbus in Mexico in 2007 as a national sales representative and became the helicopter sales manager for Mexico and part of Latin America. In 2009, he relocated to Airbus Helicopters’ French headquarters where he spent three years as executive assistant to the Global Supply Chain, three years as Helicopter Programme Manager. Before being named head of country for Airbus Mexico, Capilla was Corporate Secretary and Chief of Staff to the president and CEO of Airbus Helicopters for four years where he managed the Executive Committee agenda, corporate security, audit, public affairs, crisis management, and responsibility and sustainability strategy.
Capilla explained how the COVID-19 pandemic has impacted the aeronautical industry and then took questions from the virtual audience. These highlights have been condensed and edited for clarity.
Turbulent times for the aeronautical industry: The COVID-19 pandemic is the greatest crisis that the aeronautical industry has ever seen. In mid-May, 90 to 95% of flights were cancelled around the world. Domestic flights globally are down about 70%. Airports report 90% fewer flights. Before the crisis, approximately 21,000 aircraft were flying. At the peak of the crisis, that number plummeted to 7,000.
In 2019, airline companies earned more than $800 billion dollars in revenue. The International Air Transport Association anticipates that 2020 revenue will be 50% of that, resulting in unprecedented challenges for the aeronautical industry, its 25 million employees, as well as the industry’s supply chain.
Historical perspective of the aeronautical crisis: In previous decades, the airline industry has grown at a rate of about a 6% a year, meaning every 15 years the global fleet doubled. Industry growth has been fairly constant over time, despite crises that included: the oil crisis of the late 1970s and early 1980s, the Gulf Crisis in the mid-1990s, the Asian Financial Crisis of 1997, the 2001 attack on September 11, the 2003 Asian SARS epidemic, as well as the global financial crisis of 2008. In each instance, the industry stumbled but recovered. With a 50% drop in revenue, the COVID-19 pandemic represents a very strong crisis.
Focus of aeronautical industry on health and safety: Airbus is a €70 billion euro business that employs 135,000 people worldwide, has a physical presence in more than 30 countries and manufactures aircraft used globally. Although Airbus has three divisions (Commercial Aircraft, Helicopters, Defence and Space), commercial airlines remain the “bread and butter” for the aeronautical industry.
The three most important factors in our industry are: aircraft safety, aircraft security, and the health of our employees, passengers and clients. In these areas, our industry collaborates rather than competes. Right now health and safety are paramount.
Urgent need for liquidity: Aeronautical companies currently have a great need to remain financially strong. This is a cash crisis. We need to make sure cash is contained and that we stop all non-essential cash outflows while activities are stopped. That means implementing decisions. We have to look at the production rates and adapt them depending on the foreseen demand.
Government support: In major countries like the U.S., France and Germany, the government is intervening with billions of dollars (or euros) in stimulus to support our entire industry. Governments recognize that it is important for the industry to survive this period with confidence until demand comes back. It’s important to let private companies perform and compete, but when we have a situation like this that is not the fault of the airline companies, government support is welcomed.
Not all countries can afford to provide financial support, but many recognize that COVID-19 is a worldwide issue. Few industries are more global or essential than aeronautics. We never stopped working – not just because of traveling, but also because our industry supports defense, security and rescues. Our industry has a humanitarian aspect.
When will the industry return to pre-COVID levels? Three factors will determine how quickly the aeronautical industry recovers from the pandemic:
1) health concerns (a risk management issue)
2) traveler mindset (how the public feels about traveling)
3) economic impact (if the economic impact means people cannot afford to travel)
In previous years, the aeronautical industry has endured a health crisis (with SARS), negative traveler mindsets (following September 11), as well as the economic crisis of 2008 and 2009. This pandemic bundles all of them into one event. While there is room for error, the consensus in the industry is that airline travel will take three to five years to return to the levels where we were at the end of 2019. Even today there are travel bans between countries. Expect that national routes with single aisle aircraft will be the first to recover, followed by international, wide-body flights.
I’m optimistic for those considering jobs as a pilot. Before this crisis, we already had a big pilot shortage – an anticipated need of 500,000 over the next 20 years. Today we have only 200,000 trained pilots, so there will be a big shortage. In the short term, there is less of a need. But, in the long term, as a career, I think we will recover, and pilots will be in demand.
What is needed for passengers to return to flight: In order for passengers to return, the industry must provide them with peace of mind. This issue is not limited to aircraft. Passenger safety must be assured from the moment they enter to the airport to the time they exit the airport at their destination.
After 9/11, we changed the entire spectrum of aircraft security. The same will be true for health. I think there will be a pre- and post-COVID era in terms of flying on aircraft.
Aircraft air quality: The most direct influence that a company like Airbus has on the industry is on the aircraft itself. The last generation of aircraft all have High Efficiency Particulate Arrestors (HEPA) filters that remove more than 99.9% of micro & nano-particulates that are the size of microscopic bacteria and virus clusters.
In most aircraft cabins, 50% of the air is recirculated filtered air and virtually virus free. The other 50% is expelled and replaced by fresh air at high altitudes. Every two to three minutes, the air in the aircraft is cleaned. These systems have the same grade or conditions as that of an operating room where air is cleaned every 10 minutes. Air travels from the top of the aircraft to the bottom (where it is filtered) with little lateral movement.
Right now, the health industry is playing a main role in our recovery from this crisis. That’s why we compare our aircraft filtering systems to those in operating rooms. Greater awareness of these systems may give passengers greater peace of mind and make them feel safer about flying.
The entire industry is engaged in a worldwide campaign to raise awareness about airline systems and safety protocols. Passengers must be educated and assured about sanitation of the terminals and aircraft, air quality and filters and even how we serve food and allow people to move about the aircraft.
Short- and long-term expectations: In the short term, for the next three to five years, the aeronautical industry will need to be resilient in order to emerge strong and robust.
But our long-term approach hasn’t changed, as far as where we will invest and the opportunities we will pursue. In the future, Airbus will continue working to ensure our aircraft are designed and manufactured in more environmentally friendly ways, reducing our carbon footprint and emissions. Many of the stimulus packages we are looking at in Europe are also geared toward investing in research and development for these types of technologies.
Every industry can learn from other industries. When we talk about electrification of aircraft or hybrid aircraft, meaning electric and other means of propulsion, we are learning from automobile industry that learns from cell phone industry.
Where Airbus competes: Airbus is very proud of our brand and our products. We try to sell the features of our products to the airline companies – to make sure that the aircraft is tailored to their needs, that we have the right performance, the right economics behind them, the right autonomy and operational reliability. We compete strongly on the features of our aircraft. The fierce competition between Airbus and Boeing is the best thing that can happen in the aerospace industry and the world for the benefit to the end consumer. Both companies have invested in research and development to produce better aircraft in every regard.
History of Airbus: Airbus celebrated its 50th anniversary last year. We started as a consortium of different national champions in Europe, but decided we would be stronger as one block, having a champion for Europe. Our home countries are France, Germany, Spain, and the United Kingdom. Our main roots are European and a lot of culture of company is based on those roots, but there is a lot of diversity and inclusion with other countries like Canada and Mexico. Our multi-function teams are incredible. It is more complicated at the beginning, maybe because of the cultural differences, but then the output is amazing.
In the U.S., it was a pure strategic decision to be seen, more and more, as an American company and that has paid off. Our market shares are quite high – in the 50s and above depending on the type of aircraft. Our employees in the U.S. are leading this. The CEO of Airbus in America, Jeff Knittel, is a U.S. citizen and he and his management team are doing a fantastic job.
The importance of being a local contributor: It’s important to Airbus to be a local player and partner in the more than 30 sites where we have a physical presence. The best way to do that is to invest. In the U.S., for example, Airbus has 20 facilities and employs 4,000 people. We also have a huge global supply chain with parts and components produced in the U.S. that go in our aircraft. We estimate there are 275,000 jobs in the U.S. that are directly or indirectly related to Airbus via our supply chain.
Last year, our U.S. plants produced about 58 A320s, Airbus’ single-aisle, best-selling aircraft. We began production of the A220 in Mobile, Ala., and produced more than 500 Light Utility Helicopters (Lakotas) in Columbus, Miss. This means that Airbus is a local contributor to the U.S. economy. It’s important for us to contribute to the society in all of the places where we live and work. This is something we try to do worldwide.
Leadership is critical: In the end, our recovery and success will come down to leadership. Leadership in these times of crisis is extremely important. Being able to talk to employees, customers and all the stakeholders in a transparent manner is the best way we can get through this crisis together. It’s not easy or simple, but crises always have opportunities, learnings, teachings. There is always a way to come out more resilient.
Watch the full conversation and Q&A below or on YouTube.