Credit Suisse says not all Aerospace and Defence firm dividends at risk

Those aerospace firms with higher exposure to Defence and enjoying a "strong" cash position were at a lower risk of having to "review" their policies on dividend payouts, Credit Suisse said.

That was the main conclusion of the Swiss broker's analysts.

The spark driving their analysis was the recent decision by MTU to postpone its AGM and scrap its payout; but unlike the German engine maker, which funnelled about 86% of its free cash flow towards dividends, for the remainder of the Aerospace and Defence sector, that proportion was "generally" 50% or less in 2019.

And most A&D companies enjoyed "good liquidity".

Nevertheless, there was a caveat.

"It is however likely to be less of a priority if preserving the business from existential risks becomes necessary. With most AGMs in late April/May, commercial aerospace corporates have a few more weeks to judge on the situation and potentially reconsider their dividends if traffic demand shows no sign of turning back on."

Among those manufacturers least at risk were those with strong net cash positions (Airbus, Dassault Aviation and Qinetiq) or a strong presence in Defence (BAE Systems, Thales, Ultra, Qinetiq), the analysts said.

Yet in the case of Airbus, rolling jets of its assembly lines that airlines were not taking meant that it was burning cash a high rate of €30m per A320 or €80-100m per A330/A350.

That led the analysts to conclude that: "Airbus will soon need to take a decision on future production rates if passenger demand is pushed too much to the right."

As for the Aftermarket space, which includes the likes of Meggitt, Safran and Rolls Royce, airlines trying to conserve cash "by any means possible" and the possibility of slower production rates at airframe manufacturers meant that a temporary halt was likely.

And Rolls Royce was already facing the industrial challenge posed by the 737 Max debacle, to which it was supplying Trent 1000 engines, with Boeing's decision to ground that model also impacting on Safran and Senior.