By Bill Bowler
Long considered a bellwether of industrial resilience, the Aerospace & Defense industry is flying through turbulence. Supply chain disruptions, program delays, and rising capital costs have converged to create a wave of distress. Furthermore, the industry is dealing with mid-sized aerospace suppliers reeling from last year’s Boeing 737 MAX production halt, overleveraged defense contractors facing covenant breaches, and a drying up of capital. We interviewed Tim Hassenger of Riverbend Special Situations Group (RSSG), a boutique advisory firm specializing in the most precarious corporate scenarios, to gain insights into the effects on the low to mid-market space. “We’ve done more than our fair share in commercial aerospace,” he told Opus Connect.
RSSG’s niche is what Hassenger calls “the hard stuff”—situations involving distress financings, covenant breaches, and urgent sell-side mandates. And few sectors today present more complexity than Aerospace & Defense. When Boeing suspended production of the 737 MAX in January 2024, a linchpin of the global aerospace supply chain, the shockwaves hit hundreds of small and midsize suppliers. “You could imagine what that did to a middle market commercial aerospace business that was 60, 70% Boeing product,” Hassenger recalls. “A very difficult situation.”
From Lift-Off to Liquidity Crisis
We often view the Aerospace & Defense sector through a lens of innovation and government spending but the reality for many mid-tier suppliers is far less secure. Too often these firms operate with concentrated customer exposure, thin margins, and limited capital access. The halt in 737 MAX production, for instance, exacerbated underlying vulnerabilities. As Hassenger noted, RSSG was called in to “help raise capital for situations like that and try and figure out how to put those businesses together.”
The problems in Aerospace & Defense are part of a bigger rise in financial trouble across many industries. Morningstar expects 2%–3% of high-yield bonds to default this year. By the end of 2024, nearly 4% of bonds were already considered distressed. In this challenging environment, Aerospace & Defense is in an especially difficult position, facing both broader economic pressures and its own industry-specific setbacks.
The level of pain is underrepresented by publicly available data. While forecasts from Deloitte and PwC focus on defense spending and supply chain modernization, few sources quantify distress within the sector. Anecdotal and transactional data, however, paint a sobering picture—one that RSSG sees firsthand. The firm’s surge in aerospace-related mandates underscores the extent to which liquidity constraints and customer concentration are quietly destabilizing a segment long considered resilient.
Rate Pressure and the Covenant Crunch
Compounding the challenges are rising interest rates. Hassenger explained that “most asset-based structures and many term structures” were floating and that had resulted in a “three-fold increase” in financing costs for many borrowers. For suppliers in Aerospace & Defense—many of whom are leveraged from earlier growth cycles or private equity ownership—this creates a cash flow chokehold. But the implications go deeper than the monthly interest bill.
“Anything that has to do with how much cash is being generated by this business to cover senior debt” becomes a trigger point, Hassenger warns. Falling interest coverage ratios have increased covenant breaches across the market. In Q3 2024, the average interest coverage on the LSTA US Leveraged Loan Index fell to 4.0x from a peak of 6.0x in late 2022.
Even companies that can make interest payments now face difficulty refinancing. “Before all the interest rate increases, you know, we were pretty efficient at replacing that debt. Now, we’re not so sure that we can actually replace it and there is less appetite for risk,” Hassenger observes. This affects the Aerospace & Defense supply chain with particular force: suppliers must manage long production cycles while financing parts, tooling, and labor—often with little negotiating power over pricing or payment terms.
Selling into the Headwind
RSSG’s approach is to guide troubled companies toward exit strategies, working exclusively on the sell side. “Our clients 100% of the time ask us to help them sell a company,” says Hassenger. That may mean a six-week sprint or a six-month process—either way, liquidity pressures leave little room for delay. In Aerospace & Defense, these are often legacy family-owned or sponsor-backed businesses that no longer have the capital to sustain operations through downturns or program disruptions.
The market for these assets, however, remains active. Despite distress, buyer interest persists—particularly from private equity firms seeking bolt-on acquisitions to expand existing platforms. This strategy is widespread: roll-up deals accounted for more than 80% of all lower-middle-market transactions last year. “A distressed business might not be a new platform investment,” Hassenger acknowledges, “but they would definitely consider it as a bolt-on.” This dynamic has played out even in unlikely places. “We had a Residential HVAC service business in Florida that was doing horribly,” he says, “and there was a surprising amount of PE interested in it as a bolt-on.”
In Aerospace & Defense, that logic applies to MRO (maintenance, repair, and overhaul) companies, niche component suppliers, and precision manufacturers. “Some of these little distressed things find a good new home to people that have something that’s already platformed,” Hassenger says. For strategic buyers with cash and scale, distress can be an opportunity to secure valuable capabilities at discount prices.
Turbulence Ahead
The distress cycle in Aerospace & Defense is unlikely to abate soon. With over $475 billion in high-yield bond maturities due before the end of 2027 and another $674 billion in combined bond and loan maturities in 2028, the clock is ticking. Aerospace suppliers are not exempt from this maturity wall. For those without the scale, capital, or customer diversity to withstand continued rate pressure or customer volatility, the market may offer few lifelines.
RSSG, for its part, expects to stay busy. “We want to throw a little wider net from a public recognition perspective and not just be painted into a corner saying, all those guys do is distressed,” Hassenger said. But in sectors like Aerospace & Defense, where distress is increasingly widespread yet underreported, it seems RSSG’s specialization in “the hard stuff” is not only prudent—it’s prophetic.
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June 2025
