In today’s blog to celebrate UKTI’s national ‘Export Week’ in the UK – we take a look at why UK Export Finance (UKEF), and the availability of export credit, is vital in ensuring UK businesses can compete for business globally.

The importance to our sectors….

Aerospace, Defence, Security and Space sectors are some of the most active industries in utilising the support provided by UK Export Finance (UKEF). Export credit allows companies to gain financial help in order to fulfil export orders, and allows buyers to successfully purchase goods with significant UK content (such as commercial aircraft from Airbus or Eurofighter Typhoons from BAE Systems). This ensures vital capabilities, technology and jobs are maintained here in the UK.

During the financial crisis, this was particularly important – as the use of commercial and capital markets to fund the purchase of civil aircraft for example, reduced significantly. As the main bulk of payment for an aircraft is made at the delivery stage, the work of export credit agencies allowed thousands of jobs and capabilities to be secured in the UK.

Since the financial crisis, the reliance on export credit has reduced slightly – as the global economy has begun to recover. However, in 2013-14, UKEF issued guarantees for civil aerospace business amounting to £961 million, which generated a premium of around £60 million for the UK taxpayer and supported the delivery of 95 aircraft in total.

For defence, UKEF provides flexibility when required – as despite only 1% of all export finance spent on defence in 2013-14, a large order in 2012-13 meant that around 47% of export credit funding was defence related.

Alongside these larger order and export opportunities, which benefit the wider UK supply chain as well, new changes to the Export & Investment Guarantee Act, and the extension of the variety of products on offer from UKEF, means that more and more small businesses will be able to benefit from UKEF support – working with their customers to fulfil potential order, and ensuring their own UK supply chain will be able benefit.

International cooperation and promoting a level playing field…

UKEF does not sit in isolation – but works proactively with organisations in France, Germany and Canada to provide support for UK content on international projects. As an example, UKEF works with French and German ECAs to support orders for Airbus aircraft – depending on the respective national workshare of the aircraft type. This is arranged on a reinsurance basis, whereby one of the three ECAs leads a transaction and the other two provide support, and also provides Airbus customers with a single portal through which they can obtain ECA support.

At last year’s Farnborough Airshow, UKEF also announced that it would work with Export Development Canada (EDC) to provide guarantees for around 20% of the value of loans extended by EDC, to overseas buyers, for the new Bombardier CSeries aircraft. This reflects the significant, UK-manufactured proportion of the aircraft.

Working with other international export credit agencies is also important to ensure the UK is able to compete for business across the world. There are currently around 60 foreign credit agencies worldwide, with agencies in China and India continuing to grow. The US Ex-Im bank is perhaps the world’s largest credit agency – supporting $37bn in US manufacturing exports in 2013 – but the public discussion over its future highlights the importance and critical nature of the bank for US business.

Future of Export Finance…

According to Boeing’s capital market forecast, in 2015, Export credit is set to remain at around 15% of all aircraft financing – a significant proportion of global funding. However as stated, this will more likely decrease over the next few years – driven by an increase in confidence in capital markets.

This does not mean however, that export credit will not continue to be important in ensuring the UK can compete for business. Not only does export credit allow flexibility for exporters – if existing forms of finance become unavailable – but as the UK looks to new markets, UKEF offers both credibility and security. For aerospace in particular, the type of future business for Export Credit Agencies will be focused on emerging markets – where aviation demand is pushing greater aircraft orders and deliveries, but where the financing market is perhaps not as mature as Europe or North America.