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An Opportunity for Private Equity as Aerospace Continues to Grapple with Significant Operational Challenges

As aerospace continues to feel turbulence, there is an opportunity for private equity to deploy the capital needed to support the increased demand.  A feature of the sector is the long-term contracts that are set up between suppliers and Original Equipment Manufacturers (OEMs). While these offer steady cash flows, they do not necessarily guarantee rapid profit.  

An ongoing shortage of labor continues to loom, but did you know that the largest skillset deficits for supply chain roles are in supplier and performance management?  Riveron's aerospace team partners with OEMs and their suppliers to assess financial performance, identify opportunities for improvement, and implement strategic initiatives to improve financial performance and access to capital.    

Key focus areas where private equity can bring value include leveraging their expertise in scaling operations, understanding cost drivers, and managing cash flow for profitability.  As private equity continues to drive deal activity in the aerospace sector, companies must look for partners who can help them navigate the complexities of operational excellence and sustainable growth.

Research suggests that, entering the recent crisis period, many aerospace supply chains were already less financially stable than those of their peers in adjacent advanced-manufacturing sectors. An analysis of the aerospace sector’s Altman Z-score—a measure of company financial health—compared with those of other adjacent advanced-manufacturing sectors (specifically automotive and advanced electronics) reveals several insights. Coming into 2020, before the disruptions from the COVID-19 pandemic, aerospace already significantly trailed peer industries. Then, from 2020 to 2023, these peer industries saw either negligible change or improvement in the financial health of the supply chain: automotive was down 1 percent, while advanced electronics was up 4 percent. Meanwhile, the financial health of the aerospace supply chain health decreased an incremental 9 percent.

Tags

aerospace, restructuring & turnaround, business performance improvement, transaction services, lenders, mergers & acquisitions, private equity, office of the cfo