Aerospace: Many suppliers continuing to struggle for finance

THE UK aerospace sector may be enjoying a boom but many firms operating in the supply chain in the Midlands are still struggling to attract the finance they need in order to continue growth.

Original Equipment Manufacturers (OEMs) such as Rolls-Royce and Airbus may have suffered a few setbacks of late but overall their prospects remain strong, with order books stacked for the next seven years.

With such surety suppliers to the industry should also be feeling confident – but many aren’t.

All this week TheBusinessDesk.com has joined forces with DLA Piper, Santander and Finance Birmingham to assess the manufacturing strength of the aerospace supply chain in the Midlands.

We are joined by The University of Birmingham, which is spearheading pioneering research into the sector and which has underlined its commitment to the industry’s future with a new joint venture agreement with Rolls-Royce to create the £60m High Temperature Research Centre at Ansty Park in Coventry.

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Many suppliers are struggling because they still cannot attract the finance they need in order to compete to the level they would like.

This is especially true of firms further down the supply chain, which are away from the glare of the OEMs and to who staying in business from month to month remains a priority.

Only yesterday tier one supplier Avingtrans strengthened its position by acquiring an aerospace business – RMDG Aerospace – from West Bromwich-based Tricorn Group.

A telling comment came from Mike Welburn, chief executive of Tricorn, who said: “Whilst RMDG made a positive contribution to Tricorn in the past there has been significant consolidation in the aerospace sector in more recent times which has meant the business does not have the scale of some of its competitors.”

Competing for business in the aerospace supply chain can be an expensive pursuit for many firms and owing to the almost unique long-term agreements that characterise the industry, if a firm is bidding for a slice of a project that could span decades it has to be confident that it can consistently deliver quality products.

Such a move often requires a firm to make a considerable capital investment up front, especially if new tooling or machinery is required to fulfil the orders.
Many suppliers have had a tough time over the last few years trying to convince lenders they are good risks – so what are their options?

Charles Garfit, Head of Manufacturing, Santander Corporate and Commercial Banking, said he was pleased that the annual investment allowance had increased, especially for a sector where high capital investment was required. However, he said it was just a shame that the threshold could not be raised above the £0.5m level.

He said two forms of finance which did work well for the sector were asset and invoice financing.

“We fully deploy the Funding for Lending Scheme (FLS) into asset finance so firms can use the money to expand and renew their machinery requirements. Invoice finance also helps to maximise working capital and on a secured basis,” he said.

Mr Garfit said there was also a challenge for suppliers around tooling.

“We offer specific help to supply the funding and bridge the gap between having to pay for the tooling and getting paid for the order,” he said.

Tim Lake, Lead Partner, DLA Piper, said securing finance for a firm could be a minefield for those involved.

“Where it is a strong business with a strong order book with good revenue then there’s likely to be no problems securing finance,” he said.

He said his worry was that the banks were still only providing traditional structures and there was a gap for bespoke financing for tooling in particular, although Santander appeared to have been proactive here.

Read more about this issue in our special supplement.