In 2022, the Banque de France identified 26 major suppliers in French aerospace industry facing precarious financial situations. Today, nearly 40 major subcontractors of Airbus and Safran are considered at risk of failure, according to recent studies. In 2023, 30% of these companies reported financial losses, and nearly 20% of major subcontractors are struggling with significant economic difficulties, with no prospects for improvement.
Loss of Productivity
Faced with a spiral of unprofitable growth, the sector is struggling to regain optimal productivity levels after the pandemic. The departure of many experienced employees during the Covid crisis has reduced operational efficiency, despite the hiring of new profiles. This situation, coupled with rising production costs, is putting companies at risk.
Pressure from Prime Contractors
The inflation in energy, raw materials, and wages has severely impacted subcontractors. State-backed loans, granted during the pandemic, now need to be repaid, adding additional financial pressure. Furthermore, delivery delays not met by giants like Airbus and Boeing create cash flow tensions for suppliers.
Ongoing Quality Issues
The recurring delays in schedules from major companies, combined with quality issues at Boeing, exacerbate the financial difficulties of suppliers, while also questioning the profitability of signed contracts. This has led to intense competition and price negotiations that favor prime contractors, leaving subcontractors to absorb most of the cost increases.
The Industry Tightens Its Ranks
In light of this concerning situation, actors in the aerospace sector are organizing. The launch of the Aero Excellence initiative by Gifas encourages SMEs and ETIs to assess and improve their industrial maturity. Additionally, a new investment fund, Tikehau Ace Aéro Partenaires 2, with a potential of 800 million euros, could soon be established to support these struggling companies.
The Financial Challenges of Major Aerospace Subcontractors
The financial landscape of the aerospace industry raises serious concerns, particularly for major subcontractors such as Airbus and Safran, due to an increasing risk of failure. A study by the Banque de France revealed that nearly 40 major suppliers are in a risky situation. The pandemic has left lasting scars, with ongoing wounds exacerbated by financing difficulties as well as high debt related to state-backed loans. Companies are now seeking financial backers to provide them with the necessary funds to stabilize their balance sheets. However, the situation calls for a more substantial response from the various stakeholders in this vital sector.
A key element in this complicated battle lies in a notable decline in operational efficiency. Since the health crisis, the sector has lost 10% to 15% of productivity, among other factors due to the departure of experienced talent. Although the sector has rehired, the lack of experience among new hires could continue to hinder some collected performances. Moreover, nearly 30% of them reported losses in 2023, indicating an urgent need for reforms and internal reassessments to prevent further failures.
External Pressures and Additional Costs
In addition to their own organizational complications, subcontractors endure pressures from rising external costs such as raw materials, energy, and wages. Bernard Birchler, an expert from Bain & Company, notes a more than 20% spike in production costs for some, presenting a real peril for the financial stability of the affected firms. This scenario is aggravated by the obligations to repay loans granted during the pandemic, intensifying financial tensions. Subcontractors must maneuver to release capital to meet these growing demands.
A Light at the End of the Tunnel: Adaptation Strategies
Recognizing these challenges, sector leaders are seeking strategic solutions adaptable to these new requirements. The industrial group GIFAS has introduced Aero Excellence, a self-assessment framework focused on the continuous improvement of suppliers’ industrial maturity. This program aims to encourage SMEs and ETIs to pursue virtuous progress, in an effort to harmonize the various levels of the sector. Meanwhile, a new investment strategy has emerged in the form of the Tikehau Ace Aéro Partenaires 2 fund, raising expected capital of 800 million euros. These initiatives would serve to pacify and streamline economic mechanisms to promote a more stable recovery.
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