Taking flight? How to finance the next step

AMAug18Features - lloyds2
AMAug18Features - lloyds2

The aerospace sector is fuelled and ready for growth but knowing how to navigate uncertainty and finance the next step is the key to success, say Lloyds Bank Commercial Banking’s managing director, global head of manufacturing & engineering, Dave Riordan.

The aerospace sector is fuelled and ready for growth but knowing how to navigate uncertainty and finance the next step is the key to success, say Lloyds Bank Commercial Banking’s managing director, global head of manufacturing & engineering, Dave Riordan.

The aerospace sector is a shining light for the UK economy. According to government figures, it has annual sales of £32 billion and directly supports more than 95,000 jobs. As the biggest aerospace market in Europe – and second only in the world to the US – it is a leading example of Britain’s global manufacturing expertise.

But, of course, it faces challenges. The sector, which exports 90% of its products, faces headwinds in the form of Brexit uncertainty and potential changes to trade agreements, which could lead to a reduction in operations and cause financial challenges.

Nevertheless, the industry continues to perform strongly. Predictions for global airport traffic show an upward trajectory, with commercial travel expected to increase by 7% this year, according to the Statistics Portal. And rising fuel prices are also leading many airlines to accelerate their plans to bring in more efficient aircraft, which is driving order books across the supply chain. Meanwhile, amid global geopolitical uncertainty, defence spending is likely to remain robust with worldwide military investment expected to top $2trillion by 2022.

While economic headwinds might ordinarily cause UK firms to hold back on investment, the global nature of the aerospace industry means that businesses can offset subdued demand in more mature economies by growing their exposure to emerging markets. This is evidenced in the commercial aerospace sector’s rising sales into Asia over the past few years. The key for firms in the sector is adequate financial support, alongside superior financial management focused on working capital.

Businesses can use banking solutions including invoice finance to release cash into the investment cycle, along with supplier finance to support key suppliers and improve payment terms. Meanwhile, asset finance can be used to allow for measured capital expenditure to enhance organic growth targets. Through these products, firms can unlock anywhere between 3% and 5% of their cashflow ready for reinvestment in new opportunities, at home or abroad.

Furthermore, as aerospace is an inherently global industry, capitalising on opportunities for export can be critical for success. Whether it is a company’s first step into international business or an experienced exporter looking to move into a new market, understanding how to operate in unfamiliar regulatory environments and manage new relationships is challenging. Often, exporters also face financial obstacles, with longer transaction periods adding pressure to a firm’s finances.

To help the sector more easily manage these obstacles, we developed the International Trade Portal. It offers advice and access to a database of 127,000 buyers and suppliers, providing the platform for new trading relationships. Exporting remains the foundation of the UK aerospace sector’s growth, but trading overseas can be daunting and complex. It is therefore crucial that firms challenge their bank to deliver a tailored package that supports their financial needs and helps them to build commercial relationships across the supply chain.

And looking beyond the supply chain, those companies seeking to undertake M&A activity should seek financial guidance, too, which can help achieve these ambitions. So far this year we’ve provided more than £3bn to the sector to support M&A activity and remain committed to helping firms throughout the management and financing of strategic business decisions.

Aerospace is a jewel in the UK’s crown and is well-positioned to soar in the future. With the right financial management, we’re confident the sector can capitalise on opportunities at home and abroad and carefully manage any turbulence it encounters. We are committed to supporting the sector and make sure it – and Britain – continue to prosper.

www.lloydsbank.com

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Lloyds Bank

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