One of the priorities for recovery from the COVID-19 crisis for the aerospace and defence sectors is the unlocking of finance for essential manufacturing supply chains and ensuring support for SMEs.
Throughout the COVID-19 crisis, Government have announced a variety of fiscal support measures to help with the initial impacts that businesses faced. In order to assist companies through the market transformation that will result from this crisis, mechanisms dedicated to long-term support for essential supply chains should be considered.
Current Support Packages
ADS has considered the need for long term support for UK businesses in aerospace and defence in a post COVID-19 economy as companies take on the task of right sizing to new levels of lower demand. In order to retain UK competitiveness high value manufacturing, companies in the UK supply chain need to survive. The impact of the COVID-19 crisis has hit SMEs and the cross-sector UK supply chains hardest, and they are now left the most exposed to loss.
The UK’s current financing structures and those made available as a reaction to the crisis will not be enough to offer long term stability to firms that need it most. The loan schemes made available will not be sufficient for companies that are already laden with debt and struggling with cash flow issues as a result of COVID-19. There comes a point where taking on more debt, even if it is government backed, becomes counterproductive.
Long Term Support
Firms need a long-term outlook beyond repaying loans and debt in order to be able to develop and grow. The aerospace and defence industries are characterised by high development costs, lengthy development periods, and long lead times on return on investment which when combined create challenges for smaller companies who want to raise long-term capital from private capital markets.
In a post COVID-19 economy where raising capital will become even more difficult, there is a need for Government to develop the long-term support and confidence that businesses need. An approach to support SMEs in the industry through equity financing should be considered to help the UK aerospace sector overcome finance market failures.
Andrew Bailey, Governor of the Bank of England agrees, recently saying to media in the context of COVID that the longer the virus crisis lasted, the more companies would need new equity rather than loans.
ADS continues to work with Government on ideas to best support the equity investment approach that would be of significant benefit to companies across the supply chain. ADS explores a number of existing measures and previous examples of where UK Government has supported this approach in another of our blogs.
To read about our five priorities for Restart & Recovery, click here.