Ratings agency Moody’s has warned that if Britain crashes out of the European Union (EU), it could threaten the health of the continent’s aerospace and defense firms.
In an update to the markets on Thursday, Moody’s identified firms including Rolls-Royce, Airbus and Leonardo Spa as Major European companies that would be most impacted by changes to cross-border movement of parts and equipment.
It said these companies would suffer because of their U.K. sales exposure, the location of their factories, and risks to certification of parts.
Moody’s added in a statement that border delays could delay deliveries of commercial aircraft or military equipment and cause a strain on working capital.
The agency said it would expect bigger companies in the sector to better manage their manufacturing footprint, but that changes to the location of factories would take time “because of the significant costs and planning.”
Moody’s added that smaller aerospace and defense companies would be hardest hit by a no-deal Brexit because they would lack the scale, resources and liquidity to make changes to operations.
The statement qualified that Moody’s still believed that the United Kingdom and EU will avoid a hard Brexit that would prevent British-based firms having to default to World Trade Organization rules.
But Moody’s said that as the clock continued to wind down until Britain’s scheduled departure on March 29, 2019 the prospect of a hard exit was growing.
“The risk of a ‘no-deal’ Brexit scenario is increasing and will remain a significant near-term threat to the aerospace and defense industry until a withdrawal agreement with transitional arrangements is signed,” said Jeanine Arnold, a Moody’s vice president and author of the report.
Arnold also noted that any British exit without a deal would put the country’s membership of the European Aviation Safety Agency (EASA) at risk, adding that if U.K. firms dropped out of the regulatory approval scheme it would cause “substantially negative fallout” for European aerospace and defense.