Money talk

According to Dave Riordan, managing director and global head of aerospace & defence at Lloyds Bank Commercial Banking, Global Corporates, commercial aviation is performing well, making boardrooms across the industry bullish about their future growth.
While there are some models and sub-sectors of the industry that are less buoyant, the major airframe manufacturers have order books stretching ahead for another six to seven years. Continued growth in air traffic, from both emerging markets in the Far East, Middle East and Latin America, as well as from traditional markets in Europe and North America, will only add to that pipeline.

There is scarce sign of this trend abating with more than 35,000 aircraft set to be delivered during the next 15 years, satisfying the insatiable appetite of airlines from emerging markets and the long-term replacement cycle of established carriers.

For manufacturers throughout the supply chain, such a robust market instils a great deal of confidence. While demand is indeed robust and the sector fundamentally strong, there are still challenges that businesses must address to ensure that they remain on course for growth.

Managing costs and protecting margins remains a priority for many boardrooms. The globalisation of the commercial aviation industry has brought with it inherent risks that need to be managed and at the top of that agenda is foreign currency fluctuation. We see increasing attention being paid by treasurers in this area and one in which the banking sector has a vital role to play. As manufacturers work with suppliers and buyers across the world, foreign exchange fluctuations can be challenging and potentially damage margins if factors go in the wrong direction. By hedging against major swings in currency prices, a business can trade with confidence, having some visibility over future costs and revenues.

The other headline challenge for manufacturers is managing production schedules to keep up with demand. With such a complex supply network, continuity of production is of upmost importance.

That is why we are being asked by some of the biggest manufacturers in the industry to help manage and protect their supply chains. By offering finance solutions, leveraging the financial strength of larger players and getting early payment on invoices, we can help sustain the health of the sector.

With regard to other key trends, we do not expect there to be radical changes to the numbers of aircraft models going forward. Where in previous years focus has been on new product development, major new model launches are now quite rare. Rather we expect investment to focus on changes, avionics and in engine technology, to drive efficiencies and make lighter, quieter aircraft.

To its benefit, commercial aviation is general a well-capitalised industry that can readily access a wide range of funding sources from the capital markets, leasing finance and export credit agencies to senior debt and securitisation.

This is due to the fundamental nature of commercial aircraft as an asset with a long life, strong after-market value, and quality that undergoes extensive production scrutiny. Coupled with such strong economic growth factors driving forward commercial air travel, there is no reason why manufacturers in the industry cannot thrive in the coming years. However, their success and long term survival will be dependent on their ability to be diligent in protecting themselves against the inherent risks found in a high growth, complex and globalised industry.

www.commercialbanking.lloydsbank.com