Aerospace Manufacturers Will See Relief from CARES Act
Connecticut has long been a national leader in aerospace manufacturing, with some of the most prestigious names in the industry employing thousands of people within our borders, along with hundreds of vital members of the supply chain. While the industry continues to adjust to the unprecedented disruption caused by the Coronavirus Disease 19 (COVID-19) outbreak, the recently approved $2.2 trillion stimulus package—known as the CARES Act (Coronavirus Aid, Relief, and Economic Security Act)—will bring the industry some relief, which will come as good news for Connecticut.
The impact felt on aerospace and aviation in the recent weeks since the COVID-19 crisis began to intensify cannot be denied, nor can its impact on Connecticut. Air travel has dramatically declined over these past few weeks, and for Connecticut, that causes concern for not only those local manufacturers who design and build the engines and operating systems, but also for the suppliers who support them. This is why the CARES act will prove so important in helping those companies endure and, ultimately, continue to grow once the issue is finally behind us.
First and foremost, according to published reports, the CARES Act provides nearly $80 billion in loans and grants to the aviation industry, as well as $10 billion in airport grants and another $100 million set aside for “general aviation facilities.” Additionally, the aerospace industry in Connecticut will benefit from the loan pool established in the CARES Act of $454 billion for states, municipalities, and businesses in general.
On top of that and not to be understated, the CARES Act established the $349 billion Paycheck Protection Program (PPP), which is designed to provide a direct incentive for small businesses (companies with fewer than 500 employees) to keep their workers on the payroll by providing each small business a loan up to $10 million for payroll and certain other expenses. Under the PPP, if employees are kept on the payroll for eight weeks, the U.S. Small Business Administration (SBA, which administers the program) will forgive the portion of the loans used for payroll, rent, mortgage interest or utilities. Up to 100 percent of the loan is forgivable, and business owners can apply through their lender.
While the major aerospace companies certainly do not qualify as “small businesses,” their hundreds of irreplaceable suppliers certainly do. These are the smaller manufacturing floors, machine shops, tool and die businesses, fabricators, casting companies, bearings manufacturers and others that are essential to the overall aviation and aerospace industry—and many of these companies have been an integral part of Connecticut’s small business community for decades.
Also available for small businesses under the CARES Act, which could directly benefit many Connecticut aerospace suppliers:
· Refundable tax credits are available for private-sector employers that are required to offer COVID-19-related paid leave to employees.
· The employer side of certain payroll taxes are deferred through the end of 2020 and not due until end of 2021 and end of 2022, with 50% of the liability being paid at each date. (Any business that does not have a loan forgiven under the PPP is eligible for the payroll tax deferral.)
· An employee retention tax credit is available for struggling businesses that are not eligible or choose not to participate in the PPP; these are businesses that have been forced to fully or partially suspend operations, or that have seen a significant drop in revenues, which may be eligible for a 50-percent credit for wages paid to furloughed or reduced-hour employees.
· A new SBA Economic Injury Emergency Grant Program. These grants provide an emergency advance of up to $10,000 to small businesses harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL).
In the immediate aftermath of last week’s passage and signing into law of the CARES Act, the aerospace industry has expressed optimism in its future. This was clearly seen in the comments of Eric Fanning, President and CEO of the Aerospace Industries Association, who called it “a blueprint to aid the American people, our employees, and the industries that sustain our national and economic security. For aerospace and defense, this legislation offers tools and incentives that can help provide some support and stability during this crisis.”
This should be seen by Connecticut manufacturers rooted in aerospace and aviation—in design, research and development, production and supply chain support—as a sign that there are indeed better days ahead. In just the past 20 years these companies endured through both the aftermath of the September 11 terrorists and the Great Recession of 2008-09. Connecticut has made itself essential to the American aerospace through innovation, nimbleness and the ability to adapt quickly to changing industry needs. With the support of the CARES Act, these companies have a path forward to not only maintain their current operation, but to continue to thrive well into the future.
Janet Prisloe, CPA, is a partner and leader of the manufacturing practice with blumshapiro, the largest regional business advisory firm based in New England, with offices in Connecticut, Massachusetts, Rhode Island and Virginia. The firm, with a team of over 500, offers a diversity of services, which include auditing, accounting, tax and business advisory services. blum serves a wide range of privately held companies, government, education and non-profit organizations and provides non-audit services for publicly traded companies. To learn more visit us at blumshapiro.com.
Written by Janet Prisloe, CPA