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West & Wales 'Aerospace' Meeting - 23/02

Aerospace and Manufacturing Overview

Despite the best efforts of Storm Doris, we had a great attendance at the West & Wales members' meeting last week, with over 30 members and guests present, including a good mix of independents, advisors and lenders.

Mark Boughey and his colleagues from RSM provided an overview of why aerospace is a key sector in the West and Wales - it contributes 9% of total employment in the region. This was followed up with Paul Herbert sharing his vast experience of working in the aerospace sector with Smiths and Dowty, and his views on the successful components of a turnaround plan in the sector. Jonathan Hughes from Leumi then finished off proceedings with an update of the sector from a lender’s perspective.

For those of you who weren’t able to make the evening, I have set out some of the key learning points I took from the evening:
 

  • Whilst the movement in foreign exchange rates following the Brexit referendum will provide a number of exporters with opportunities, there are a number of key challenges facing the sector. These include skills gap, increasing wage costs, accessing funding for investment, embracing new technology and the uncertainty that Brexit brings.
  • There are new financial reporting standards, which mean that companies will need to understand the implications that this may have on their financial statements, audit, and also the view taken by stakeholders such as credit insurers.
  • There have also been changes to the tax regime, which may enable companies to tax refunds which weren’t previously available.
  • Whilst accelerated sales processes are a useful weapon available in a number of situations, this can be challenging in a “business and asset sale” scenario given the necessary AS (Aerospace Standard) accreditations attach to the Company.
  • Companies operating in their sector need to fully understand their supply chain – the delay in receipt of a small item can cause delays to a large production programme and result in significant fines being imposed.
  • The ability to differentiate from competitors can allow companies to attract good margins which is essential to compensate for the high bid costs in a number of situations.
  • It is not uncommon for companies to experience delays to their order book and therefore careful cash and cost management is essential.
  • Many aerospace and manufacturing companies have a traditional asset base, which means that ABL funding could be available. Suppliers into aerospace may find them having strong leverage over a few customers, which makes the opportunity to lend even more attractive to potential lenders, even if the debt is contractual.

Our next regional event will be a joint IFT, TMA and R3 debate on 11 May - more information on this will be available in the coming weeks.

Kind regards
Gareth Slater, West & Wales Region Chairman