Conclusions partly shared with L'Usine Nouvelle by the Group of French Aeronautical and Space Industries (Gifas). In 2022, the Banque de France counted “only” 26 major suppliers in this situation. In addition, 30% of them suffered losses in 2023. Nearly 20% of the main subcontractors of the aircraft manufacturer Airbus and the engine manufacturer Safran are in serious financial difficulty. And no sign of clear improvement is on the horizon.
Loss of productivity
These players are caught in a spiral of insufficiently profitable growth from which they have struggled to escape since the pandemic. “The situation is worrying, but not alarming”tempers Didier Kayat, president of the Group of aeronautical, defense and space equipment manufacturers (GEADS), also general director of Daher. Manufacturers in financial difficulty are not always on the verge of going out of business. “When we are classified red in the analysis of the Banque de France, this means that we borrow at prohibitive rates which are no longer competitive or that we no longer find means of financing, in the worst case cases”explains Frédéric Parisot, the general delegate of Gifas. Two business segments, out of the twelve existing, concentrate most of the hot spots in the sector: machining and aerostructure. As for SMEs – around 220 companies in Gifas – they are doing rather better. There were 24 in the red zone in 2023, compared to 37 in 2022.
How can we explain this bad situation? First, by a sharp drop in operational efficiency. “The Covid crisis has led to plans to reduce the workforce by around 20% among many of these players, with mainly departures of experienced peopleexplains Bernard Birchler, aeronautical expert from Bain & Company France. Since then, they have rehired around 20% of the workforce, but with much less experienced profiles.” Nearly 30% of positions have been renewed in the sector since 2019, according to Gifas. Result: today, the sector produces less than before the crisis, but with a greater workforce (210,000 employees, compared to 202,000 in 2019). The loss of productivity is between 10 and 15% in the most critical segments over the period 2019-2024.
Pressure from principals
Furthermore, aeronautics subcontractors have seen their costs explode. Increase in energy prices, but also raw materials and salaries, inflation of up to 40% in certain low-cost countries… “Some have seen their production costs jump by more than 20%”assesses Bernard Birchler. Situations of over-indebtedness are not unrelated to state-guaranteed loans (PGE), granted at the height of the pandemic. “Companies must repay them, while coping with the increase in their working capital requirements for ramping up production and for investment in capacity”deciphers Didier Kayat.
The sector still has to repay 500 million euros of PGE within three years. “We asked the State to take a break to give breathing space to businesses that need itsays Frédéric Parisot. But this was not possible because these EMPs, linked to the exceptional context of Covid, are subject to strict European rules, according to Bercy. We are therefore seeing reluctance on the part of the banks, who have let go of companies in the aerostructures segment, testifies, on condition of anonymity, a GEADS industrialist.
Quality issues that persist
SMEs and large suppliers also bear the brunt of the repeated shifts in Airbus and Boeing schedules. The first is facing delays from certain key manufacturers and the second seems incapable, for the moment, of remedying the quality problems which limit its production. These sluggish delivery levels call into question suppliers' planned turnover and tend to dry up cash flow. “The best students suffer and the least good students blow”summarizes the boss of a subcontractor. Among some managers, doubt sets in about the need to follow the objectives of those giving orders to the letter.
“Many suppliers ultimately accepted contracts that were not profitable for them”says Bernard Birchler. In other words, they would have absorbed most of the cost increases. “At the time of the crisis, contractors renegotiated certain contracts by offering cash facilities,” says a good expert in the sector. But with the counterpart of annual price reductions of between 2 and 3%, depending on the case.” The sharing of value within the sector promises to fuel debates between the different players in the coming months.
The industry closes ranks
Faced with the worrying financial situation of certain subcontractors, the leaders of the aeronautics sector are working behind the scenes. A “control tower” meets every month to assess the companies most at risk and define action plans. Gifas also unveiled Aero Excellence on October 1: a benchmark based on self-assessment which indicates the level of industrial maturity of suppliers.
The sector sees it as an incentive tool for SMEs and ETIs to get up to speed. More than 80 sites are currently being validated and 100 should be validated by the end of the year. In addition, a new investment fund, Tikehau Ace Aéro Partenaires 2, is promised in the coming weeks, succeeding the one created during Covid. It could ultimately have a budget of 800 million euros, supplemented in particular by Bpifrance and the four major clients (Airbus, Safran, Dassault Aviation and Thales). Enough to put oil back into the wheels.
You are reading an article from L'Usine Nouvelle 3736 – November 2024
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