Petr Kováč: New businesses and creative engineers, a unique combination in the Czech aerospace industry

Interview with Petr Kováč, Director, Strategy and Transactions, EY Czech Republic, on the current situation in the aviation industry for Ekonomický deník.

Czech companies in the aviation industry are working with huge potential for the future. Education produces quality people, it is about giving them space and allowing them to develop within the Czech Republic. Aviation production and its further development depends a lot on the companies having sufficient support from the government and state institutions, and this is what Petr Kováč, an expert on aviation from Ernst & Young Czech Republic (EY), talks about in an interview for Ekonomický deník.

What is the state of the aviation industry in the Czech Republic? And I ask with regard to domestic aircraft and aviation equipment manufacturers.

I see the Czech aerospace industry through the story of individual companies, and it is possible to say that many of them are building on a long and deep tradition of manufacturing aerospace equipment and aircraft in the Czech Republic or Czechoslovakia. Moreover, they are working with huge potential for the future. This was also evident, for example, at the November fair in Dubai, where sixteen major manufacturers presented themselves under the auspices of the Ministries of Industry and Trade, Foreign Affairs and Defence.

We will probably not have ambitions to produce large transport aircraft in the Czech Republic, that is the domain of giants such as Boeing and Airbus. On the other hand, our industry makes a significant contribution to the production of aircraft all over the world, be it military technology, everyone knows Aero Vodochody and their light jet aircraft. Their L-39 NG is an attractive aircraft that has the potential to sell worldwide. A number of companies in our country produce components for various aircraft and helicopters at the same time.

So is the Czech Republic keeping up with foreign countries?

There are brand new companies growing here, and there are both creative engineers and people who assemble and manufacture specific things. It is a unique combination. They are building on tradition and creating completely new things at the same time. Vrgineers, for example, are working with virtual reality to such a level that their products can act as training aids on state-of-the-art aircraft. They're working with the makers of the most cutting-edge technology in American aircraft and fighters. As another example, a few years ago, a group of enthusiasts led by Ladislav Semetkovsky started developing the production of an unmanned commercial drone, and that's how Primoco was founded. This is an unmanned aircraft that can provide a range of aerial services.

Military technology, drone development, simulators, what is the other potential of the Czech aviation industry?

For example, the development of components for the space industry, in which the Czech Republic also participates.

You also mentioned the unique combination of domestic engineers and technicians.

I would not underestimate the Czech education system, which produces quality people. In the future, it is most important that these people have the space to develop within the Czech Republic and have the opportunity to work here on interesting projects and in interesting companies.

Where does the Czech Republic stand in the aerospace industry in general compared to other countries?

Compared to countries of similar size such as Belgium and Sweden, we are rather above average in the aerospace industry. But it is very difficult to compare.

Who are the most frequent customers of Czech companies?

As I mentioned, for example, the L-39 NG Aera Vodochody is the final product, but we also produce a number of components and the customers cannot be specified, they are global companies that then finalise the products. By the way, the Czech Republic is also a place where international companies build their, I don't want to say headquarters, but certainly centres where they develop various technologies, I am thinking of GE or Honeywell, for example.

And what attracts them to the Czech Republic, is it the experts mentioned above?

Primarily it is about the skills of the people in the Czech Republic.

According to Kováč, business is done at the level of large corporations.

Where else can the Czech aerospace industry develop? Does it have room to grow?

Aviation production and its further development depends a lot on the fact that companies have sufficient support from the government and state institutions, for example, because we are after all in an area that is not completely, how should I say it, controlled by the behaviour of the final consumers. Business is done at the level of large corporations or directly by governments, and this applies particularly to military equipment. Governments play an important role in the conclusion of large contracts. But it is also a question of further support, such as education, creating conditions for the development of start-ups and incubators. There are a number of concrete steps that can be taken, the most tangible of which is support for negotiations on offsets in the programme around the F-35 aircraft.

Moving away from manufacturing and into airport halls and airports, how is the situation here? The coronavirus pandemic has seen a huge downturn for the aviation industry. It was not known if it would be possible to return to the numbers that were there before the pandemic. It was impossible to predict how people would behave.

The airline industry had experienced probably the biggest disruption to its operations since its inception. But there is a need to separate Europe and the Czech Republic a little. There is a strong demand for air travel throughout Europe. In terms of passenger numbers, it will reach pre-Covid levels next year. In the Czech Republic, we will be at some 80 per cent. The hypotheses that people would be afraid to fly have not come true. The moment all the restrictions were relaxed, it was seen that demand for a certain type of air transport would explode. Primarily it is the demand for air travel for tourism, where we are already at a higher level than we were before the covid.

Have we become so used to travelling?

Exactly. It's something we've become accustomed to, at least in the western world. We consider air travel to be safe, fast and cheap. But what is not coming back so quickly is the business of transporting passengers. It's just slower there. And it's hard to tell if some routes are flying slower and that's limiting demand or if lower demand is affecting how they fly.

And where have the business passengers gone?

Under covid, we've become more used to communicating remotely through various platforms like MS Teams, Zoom and others. Going forward, the passenger mix is likely to be different than before covid. There will be more flying for tourism and business people will communicate more through "teams" and other platforms. And a not insignificant number of them will also move to private jets. Long-haul routes are also slower to recover, but at the moment I think we are getting closer to normal.

How is airline behaviour changing?

The trend is towards all airlines trying to fly cheaply and looking at different ways to achieve this. The path of reducing ticket prices undoubtedly means that the comfort on planes will be lower, there is no point in hiding that. If you compare the different modes of transport, air travel is very cheap.

Carriers are also renewing their fleets and modern aircraft are much more fuel efficient. The savings in fuel consumption are really significant. This goes hand in hand with a focus on making air transport more sustainable. But it is also about noise, for example. We can see the renewal of a number of fleets and massive orders for new aircraft types, whether Boeing or Airbus. This will go towards making air travel cheaper and greener.

So what will the global push for greener transport mean for air transport? We see, for example, a greater emphasis on transport by rail.

For example, the move to rail is a big issue in France, for example, where domestic air travel is more or less banned and there is a big tendency to move passengers onto high-speed trains. But that is specific to France. Another thing is the higher taxation of aviation fuel, because it is still sold without VAT. This would automatically increase the price of transport. There is also pressure to develop completely new types of fuel that are more sustainable. There are a number of initiatives. Some of them are outside air transport; they are various regulations and initiatives that are aimed at making aircraft more efficient, quieter and much less polluting.

Coming back to that, in the Czech Republic, the return to pre-civil aviation numbers is slower, what is the impact of that?

There are a number of specific reasons why the return is not quite as fast. Probably the most important one is the war in Ukraine, where the airspace over Ukraine and especially over the Russian Federation is more or less closed at the moment. This means the loss of a number of direct connections between Prague and these regions, but also restrictions on certain long-distance services in this direction or changes to routes.

We also have to remember that Prague is well located regionally and logistically, but there is no classic network carrier of the size of Lufthansa, for example, operating here. But again, we have a strong representative of at least European format, and that is the Smartwings group, it is a major player. It is Smartwing that is an important factor in the fact that we are returning passenger numbers to what they were before the covid.

And how does Václav Havel Airport Prague stand in international comparison?

It is one of the best airports in its category within Europe. It has a good position in the centre of Europe and the current management is trying to prepare new plans, working on the creation of the airport city concept, which is very important. It is not just about the airport, but about the whole structure of activities and services that can be created around the airport.

It has already been mentioned that people like to travel, what destinations do they prefer?

If you look at specialist apps like Fly Radar, you see flights going to Mallorca or Egypt, these are fleets of planes every half hour or hour. They're like beads on a thread. What is also interesting is that, for example, aircraft occupancy is higher than it was before the covid.