A 'no-deal' Brexit would be credit negative for European aerospace and defense companies, in the short term with smallest companies most affected by the disruption, Moody's Investors Service said in a report. Moody's central view is that the United Kingdom and the European Union will reach an agreement that preserves many of their current trading arrangements, minimizing the impact on European aerospace and defense companies. However, while Moody's believes it is in the shared interests of the UK and the EU to avert a cliff-edge risk, a 'no-deal' Brexit scenario will remain a threat until the two sides sign a withdrawal agreement with transition arrangements. However, trade disruption will pose a significant near-term risk in the event of a 'no deal' Brexit as the European aerospace supply chain is highly integrated, complex and already strained. There could be lengthy border checks that could delay deliveries of commercial aircraft, military equipment, their parts and components and there could be greater demands on working capital. Of the large companies Moody's rates, Rolls-Royce (RYCEY), Airbus (EADSY) and Leonardo S.p.a. would be most affected by a no-deal Brexit due to their UK sales exposure. Other companies operating in the space include BAE Systems (BAESY) and GKN (GKNLY).
