Access to funding crucial for aviation industry as it to compete for rising passenger numbers

With major UK airports gearing up for the annual holiday season, ensuring both the safety and speed of processing millions of passengers through terminals and onto sun-loungers creates a huge strain on both airlines and the ground support services industry.

Traditionally, the busiest day of the year is July 21st, the day after schools break up, with around 8,800 flights leaving or entering UK airspace. That the peak period stretches across July and August with a total of 770,000 flights last summer, the highest number in history and a five per cent increase on last year – or 40,000 more flights.

Forecasts show that UK air traffic will continue to grow from 2.5 million flights in 2017 to 3.1 million by 2030. At the same time the Department of Transport forecasts that by 2030 congestion in the skies will lead to 50 times more delays and 8,000 cancellations a year. To cope with that demand airports either need to expand or become more efficient. Both require continual investment as delays don’t make for happy holiday-makers.

Undoubtedly, those efficiencies will be driven by technology. Cutting edge security technology would see shorter passenger queues and faster, more effective screening processes. We’ve seen the frustration of removing laptops, shoes, belts and coins from pockets – imagine simply strolling through a giant scanner fitted with various highly sensitive camera’s?

Back in February, the Government trumpeted its investment towards innovation in aviation security. The amount? A meagre £1.8m which simply isn’t good enough.

SME’s in the Aviation & GSE Sectors Held Back By Funding
Whilst the global leading manufacturers have the means to fund numerous research and development projects, SME’s find the playing field pretty different. Like many other sectors, businesses in the aerospace and ground support service (GSE) industry are being held back by these major lenders.

The SME Alliance, who represent thousands of small businesses, who have recently given evidence to a parliamentary Select Committee inquiry, believe it’s now even tougher to obtain funding from the major banks. Whilst challenger banks, who initially were a more amenable, are reverting to more classic banking business models.

Lending to small businesses over 2017 remained fairly static. With the £5.6bn of new loans drawn in the fourth quarter some 11 per cent down compared to the same period in 2016. This is despite years of cheap money offered up to the major banks at rock bottom rates and designed to boost investment.

An avenue of funding SME’s operating within the aviation or GSE sectors are not yet using are corporate funders, like ourselves at CMF Capital. The team, headed up by Colin Hayter, is increasingly providing suppliers, manufacturers and airport procurement with access to new funding opportunities.

“Through unique relationships with our funding partners, CMF Capital has the ability to set up significant lines of credit with major UK airports. Our strategy includes bringing those customers and GSE suppliers and manufacturers together. The aim is to facilitate a highly competitive point of sale financing solution for new and used equipment.” Said Hayter.

Industry Pressures to Reduce Carbon Omissions
Given the increase in UK passenger numbers, airports need to be continually upgrading their infrastructure. To enable this, they need to be confident of securing funding for mission critical equipment, research and development. To further compound the situation, global air travel is set to double by 2036. According to the IATA, they are forecasting 7.8 billion, up from 4 billion passengers in 2017. Unsurprisingly, that growth is driven by the Asia-Pacific region.

That growth in air travel will also have an environmental impact. Whilst the aviation industry can be commended on its robust strategy to reduce carbon emissions it’s still some way off it’s promise of reversing carbon-neutral growth by 2020. A shining light for the ‘green airport award’ is Stuttgart according to the Head of GSE Finance at CMF Capital.

“With the introduction of electric GSE fleets, harnessing electricity from alternative sources, they are able to make ground handling more efficient. From passenger buses to baggage and cargo tugs, switching to electric and the latest battery storage technology are financially more efficient in the medium term, but make an immediate impact on the environment.”

“In addition to typical ground support equipment, these credit lines will help the airports to acquire a broader range of assets, including power generators, external LED lighting and internal operational technologies.” Continued Hayter.

Regional Airports To Play Increasing Role
It’s not just the major UK international hubs that are investing in new technology and equipment. Newquay is officially the fastest growing airport for the second year running with a 22 percent increase in passenger numbers. However, those 454,000 travellers still only amount to two days worth of traffic at Heathrow.

With fierce competition amongst the airlines, the cost of travel has never been lower making it more accessible. Regional airports are also offering more long-haul destinations, rather than acting as a ‘connector’ to the likes of Gatwick or Heathrow. And, whilst Heathrow’s third runway is approved, construction around the west London site will be anything but swift and uncomplicated. Something that Manchester, Edinburgh and even Doncaster Sheffield airport are seizing upon.

Manchester Airport has already reported its busiest May on record, with 2.5 million people passing through its doors but their aspirations don’t stop there.

The Manchester Airport Transformation Programme or MANTP is expected to cost around £1 billion and will see terminal capacity doubled in size. The plan is simple; to become the gateway and hub for the north of England. That vision, dovetails with the government’s wider strategic northern powerhouse objectives that aims to boost economic productivity in a new post-Brexit global world.

MANTP’s aim is bold. To become a top 10 European airport – they are currently 19th and serve 210 destinations – that vision requires more than simply expanding terminal footprints. From passenger facilities, lounges, security halls and of course the ‘back office’, the ground support equipment that makes it all tick.

Whilst cities like Manchester who, have deep pockets and a coherent economic strategy, delivering on that investment is achievable, for other smaller airports scaling up to meet demand is more difficult. Especially when cashflow is tight.

“Given the life-span of GSE assets, CMF Capital is able to achieve up to seven-year repayment periods. This stream of funding provides compelling cash flow benefits or by way of back to back leasing facilities.” Said Colin Hayter.

The reality is simple. GSE manufacturers and airports live in a globally interconnected world and numbers will only increase. Brexit confusion is not helping, but one hopes that common sense prevails. It’s no good making the right noises, businesses, especially SME’s need to know there is a plan that is achievable for the industry.

Whether that means the major banks will start lending again, who knows. But whilst they continue to build up their balance sheets with cheap tax payer money, maybe it’s time to switch to funders like ourselves who offer a more personal relationship along with funding solutions that are tailored to a board’s objectives?