Losses, high debt…. several dozen French aeronautical subcontractors are on the verge of bankruptcy

The 15^e edition of the Aeromart show will be held this December 3, 2024 in Toulouse in a special context. The shadow of the crisis facing aeronautical suppliers will indeed hang over this business convention which brings together some 1,200 principals and subcontractors. A study on the sector carried out by the Banque de France, at the request of Gifas*, indicates that around forty major aeronautical subcontractors found themselves in serious financial difficulty last year. The main sectors affected are machining and aerostructure.

To reach this conclusion, the survey was based on the 2023 financial statements of the approximately 200 companies listed. Nearly 20% of the equipment manufacturers of the aircraft manufacturer Airbus and the engine manufacturer Safran were therefore, just a year ago, at risk of failure, that is to say with insufficient self-financing capacity and a level of high debt. Although the study is careful not to give names, it nevertheless specifies that 30% of these large suppliers have also suffered losses. An alarming situation which must be roughly equivalent today and which contrasts with the recovery of the sector over the past two years. Several factors are put forward to explain this dropout.

Reduced productivity, repayment of loans…

The health crisis has left its mark… It first led to a reduction of around 20% in the workforce, mainly experienced employees. The sector has since rehired but with less qualified profiles. Consequence: a loss of productivity of around 10 to 15% in the most critical segments over the period 2019-2024 according to Gifas. Then, the time to repay the state-guaranteed loans (PGE), granted in the midst of a pandemic, came. These reimbursements come at a time when the sector must invest to keep up with ramp-ups and reduce its carbon footprint. It is therefore not surprising to see companies in a situation of over-indebtedness or with cash flow in the red. Combined, they still owe 500 million euros to the State over the next three years. Finally, during Covid, clients took the opportunity to renegotiate certain contracts downwards with their suppliers… Contracts which are today, with inflation and rising costs, very unprofitable.

Soaring costs

And after the pandemic, the war in Ukraine did not help matters. With the rise in the price of raw materials, the surge in energy, and wage increases due to inflation, production costs would have jumped by 15 to 20%. Unable to revise their prices upwards due to contracts that are too rigid, large aeronautical subcontractors are seeing their margins disappear like snow in the sun.

Headwinds

The main suppliers to Airbus and Safran at risk of failure often also work for Boeing. An additional difficulty in achieving stability in this wind shear. On the one hand, they must accelerate the pace to keep up with the imposed increase in pace, on the other, they must procrastinate in the face of the wind gap experienced by the American firm since the start of the year. A complicated double game to manage in terms of parts supply and inventory management.

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The Boeing crisis does not help the affairs of these French subcontractors

Plagued by serious financial problems, the forty or so major aeronautical subcontractors are not necessarily about to lower the curtain. The situation is recoverable, especially since a new support fund of 800 million euros will arrive by the end of the year. Called “Aéro Partenaires”, it should allow France’s leading exporting industry to regain some altitude.