Restructuring in the aviation industry
How could changes in the restructuring industry impact the sector?
There have been a number of recent developments in the UK restructuring and insolvency industry, partly as a response to COVID-19. Insolvency reforms in the Corporate Insolvency and Governance Bill 2020 have provided new tools – in particular a Restructuring Plan – which provides far greater scope than previous restructuring tools to compromise, liabilities and shareholders. This could mean that restructurings cut debt ‘deeper’ and/or tackle a wider range of stakeholders and, possibly, ownership structures. Lenders will have a close eye on debt levels and will want to see a sustainable capital structure. Additionally, we have seen the use of ‘light touch’ administrations, where administrators delegate certain responsibilities back to directors in order to achieve a more collaborative, effective and lower cost insolvency process.
34 The total turnover of civil aviation is £34bn 40-50 Percentage that civil aviation demand has dropped The year analysts predict the aviation industrywill rebound 2024
How do you think this will impact the future of the industry?
With the economic impact of the pandemic on the aviation industry, there may be further sector consolidation in a drive for scale. Supply chain consolidation has been happening for some time, as customers push for lead time reductions and cost savings. This activity will likely gather pace, as acquisitive companies take advantage of underperforming companies at discounted valuations. This in turn will allow them to increase their capabilities, customer base and technologies, meaning they emerge much stronger, more diversified and valuable as growth returns.
What does the future hold for businesses in the aviation industry?
We expect further distress in the aviation sector into 2021. The market challenges facing many smaller and financially weaker companies in the supply chain means that they will face existential challenges over the next 12 months, with pressures mounting as the current backlog of work runs out. It is important that companies map out potential risks and put in place robust contingency plans. Having the courage and vision to explore options to streamline a business if appropriate is critical. Businesses should focus on conserving cash, find ways to reduce costs and be competitive on price. The ability to challenge and re-examine every aspect of the business is paramount, and it’s worth noting a simple reduction approach may not always be best.
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