...The broadly healthy liquidity of EMEA Aerospace and Defence (A&D) companies underpins the ratings in the sector, which for the most part are strong investment grade. Companies have consistently high cash reserves and sizeable long-term committed bank lines, while debt levels are not onerous and maturities are primarily long term. A further boost to the overall liquidity profile of the sector is the free cash-flow (FCF) generation, which whilst sometimes volatile and negative over the past two years, is typically around 2%-3% of revenue through the cycle. Year-end cash levels, however, are somewhat misleading as they tend to be at their intra-year peak at the end of the fourth quarter of each year. This is primarily to do with the working-capital cash-flow profile of the sector, with the first half of the year typically showing a cash outflow whilst the second half displays working capital cash inflows, when many customers, especially defence ministries, pay the bulk of their bills to contractors....
