Issue No. 852
Caught in The Chaos of War
Airlines and Aerospace Feel Fallout From Ukraine War
Pushing Back: Inside The Issue
For the airline and aerospace industries, Russia's invasion of Ukraine is unlike other recent conflicts. For one, it's occurring on the doorstep of some of the world's busiest airspace, much of which now is closed to Russian aircraft. As of Sunday, Russia's airspace remained open for most world airlines, except those from the UK, but that undoubtedly will change. Without access to Russia's vast airspace, flights between Europe and Asia will have to track over Anchorage for polar routes or to the south for routes to such places as India, Southeast Asia, and Australia. This will add time and fuel costs to Asia flights, but the silver lining (if there can be one in war) is that traffic to Asia still remains sharply down due to pandemic travel restrictions.
The West has announced sanctions that will bar Russian airlines from buying U.S., Canadian, and European aircraft and parts. Airbus and Boeing aircraft comprise most of Russia's fleet, and even its homegrown aircraft rely on Western technologies. Russia, however, sits on much of the world's titanium supplies, so retaliation will start to hit aerospace companies once stockpiles are exhausted. Sanctions also could apply to leased aircraft, which most Russian airlines operate. Not to mention, of course, that sanctions announced on February 27 would effectively disconnect Russia from the global economy. How that plays out remains to be seen. And then there's oil. The price of oil surged to more than $100 per barrel last week before settling below that threshold. Russia supplies 10 percent of the world's oil, and almost 40 percent of Europe's natural gas. OPEC so far has resisted calls to increase production.
All of this is occurring against the backdrop of a global pandemic, and as airlines were starting to emerge from two years of just trying to survive. IAG last week still was optimistic about summer demand and had little to say about how the war could affect its business. But it reported its results one day after the outbreak of hostilities. Lufthansa reports its earnings later this week, and a fuller picture of how the conflict will affect Europe's airlines will begin to emerge.