In October of last year, Supply Chain Matters advised senior supply chain executives to initiate scenario plans and contingencies in three potential areas of global supply chain impact. One of these areas directly involved emerging developments reflected in the Eurozone financial crisis with the potential impact on financing of inventory and working capital. Similar to what immediately occurred during the 2008-2009 financial meltdown, some European manufacturers, especially those residing in financially weakened banking sectors such as Greece, Ireland, Italy, Portugal or Spain would experience difficulty in acquiring affordable access to credit and loans. Our belief was that a worsening of bank fragility or more outright bank failures would cause an additional credit crisis for these companies, and this would impact supply chain working capital, production and inventory deployment strategies.
This week, the Wall Street Journal reported (paid subscription or free metered view) a significant reminder to this impact, one that is impacting multiple aircraft manufacturers. Spanish based manufacturer Alestis Aerospace SL, an airframe supplier to Airbus, Boeing and Embraer, has been forced to slow production because of a lack of access to working capital. This Seville based manufacturer was placed under court administration, the Spanish equivalent of bankruptcy protection, earlier this month. Alestis was formed in 2009 from the merger of several smaller aeronautic manufacturers within Spain. The company produces composite aircraft ribs, panels and skins for the Airbus A320 and A380 aircraft, among other supply contracts. The WSJ also notes that the company has gained valuable capabilities in the building of parts from composite carbon materials, supporting today’s new wave of lighter, more fuel efficient aircraft models. Alestis has gained at least one long-term supply contract from Airbus.
The financial crisis impacting Alestis was ultimately prompted last week, when the government of Spain ordered all banks to raise provisions against potential losses tied to real estate loans. That dried up available capital to companies such as Alestis. The other twist to this situation is that the company resides in an economic area that is primarily driven by credit requirements stemming from tourism, services and real estate vs. high-tech manufacturing. Because aerospace projects tend to have longer time windows, the local banks, struggling to survive themselves, can no longer afford or unable to finance loans tied up for multiple years.
Global aircraft manufacturers have accumulated customer orders that have provided years of capacity and production backlog for this industry. Supplier failure, especially related to competency in new technologies is not something that the industry needs right now. The WSJ reports that Airbus procurement teams are paying special attention to prompt payment and are monitoring Alestis’s key supplier network as well. Supply Chain Matters is of the point of view that alternative financing solutions will also have to explored, including the option of acquisition.
This is yet another reminder that in this era of global value-chains, an economic crisis in one geography will often spillover to other regions. We once again advise senior supply chain executives to insure that risk contingency planning is actively practiced, especially concerning ongoing developments in Europe.