UK aerospace suppliers could be thrown a £1 billion ($1.3 billion) lifeline if plans put forward by trade body ADS are adopted by the government.
It is calling for the creation of a “patient capital investment fund”, backed by equal contributions from industry, the government and the financial sector, which would help the supply chain manage the immediate crisis and prepare for the longer term.
Paul Everitt, ADS chief executive, says capital provided by the scheme would allow the aerospace sector to navigate the “challenges of the next few years in a robust way”.
ADS has “an ambition” that the fund will eventually have £1 billion under management, although points out that this may need to be delivered in “a number of tranches”.
However, he stresses that it will be vital for the fund to have a long-term outlook given aviation’s lengthy research and development cycles.
“The next generation of technology could take a decade to be developed and executed,” he says.
“Government involvement will allow us to shape the rules and rates of return in a way that is more suited to the long-cycle nature of the aerospace industry.”
Under the proposals, the fund would solicit private equity backing but, in exchange for a “de-risked” investment, would demand that “the rate of return and speed is stretched”.
Contributors would take a stake in the fund, rather than in any company receiving the investment from it, says Everitt. Backing for projects “based on expert advice” from industry, could be gained for production or system improvements, to advance the decarbonisation agenda, or even to aid supply chain consolidation.
The proposals are one of the first outcomes from ADS’s UK Aerospace Supply Chain Taskforce. Headed by former Airbus executive Tom Williams, and including representatives from seven prime contractors and tier one suppliers, plus from the UK’s Department for Business Energy and Industrial Strategy, the body has been examining ways to support the industry in the face of sharply lower commercial aerospace orders driven by the coronavirus downturn.
Additional proposals made to the government include at least doubling the annual funding for the Aerospace Technology Institute (ATI), from £300 million to £600 million, split equally between the state and industry, plus increasing its commitment into the 2030s, and to advance defence acquisition programmes to provide a “bridge” for suppliers until commercial aerospace recovers.
Everitt says the government has been broadly receptive to its entreaties, and recognizes the “scale of the challenge we are facing”.
UK chancellor Rishi Sunak is due to deliver a budget this autumn, potentially including support measures for the industry.
By that point, the effects of the commercial downturn on the supply chain should be apparent, he says. While the task force has so far found little evidence of severely distressed businesses, cash and orders from the first quarter have kept suppliers afloat.
The latter part of the year is likely to be the “most challenging from a cash-flow point of view”, he says.
While any government assistance for the sector will be welcomed, the UK’s approach appears much slower than that of France, which in June announced the creation of a similar €1 billion ($1.18 billion) investment fund.
Although Everitt says he is “not worried we are too far behind”, he concedes that “we would have preferred an earlier commitment from government”.
ADS’s requests for government support may find support from UK parliamentarians. The all-party group for sustainable aviation recently wrote to Sunak calling for additional assistance for the sector: £500 million to support sustainable aviation fuel production; an increase in the ATI budget; and a commitment to airspace modernisation.
Sir Graham Brady, a co-sponsor of the letter, which was signed by 35 MPs, says he is hopeful that the plea “will receive a fair wind”.
“Obviously it is going to a significant role in taking us to [carbon] Net Zero – it is something that again creates an opportunity for the UK to be at the forefront of technology,” he says.
“It is a means of bring to life the slightly clichéd phrase of ‘growing back better or greener’. Aerospace has taken such a big hit from the current crisis that we need to support it back to health over the next months or years.
“There is an opportunity there to make sure we provide the best technology available to make sure that recovery happens.”
