Following the COVID-19 pandemic, there has been a strong resurgence of air travel due to prolonged pent-up demand. The aviation and aerospace industry has not only recovered to pre-pandemic levels, but also anticipates a strong growth potential with a compound annual growth rate (CAGR) of 7.8% from 2023 to 2032[1]. However, with this resurgence, many aviation businesses face the challenge of rising costs of operations.
To this, the government introduced various measures to help Singapore’s aviation and aerospace companies address immediate industry challenges, bolster competitiveness and secure climate resilience. It is also hoped that these measures will continue to anchor Singapore as a world-class aviation and aerospace hub to capitalise on the sector’s growth.
Addressing Immediate Challenges
A key challenge that the aerospace sector faces is financing. Recent enhancements made to the Enterprise Financing Scheme (EFS), which aims to help Singapore enterprises access financing more readily, can provide a financial lift to aerospace companies. For small and medium enterprises (SMEs), the EFS now includes a boosted SME Working Capital Loan where the maximum loan quantum is raised from S$300,000 to S$500,000 from 1 April 2024. This enhancement aligns with the sector’s typical high cash burn rates and long business cycles and enables aerospace companies with continued access to adequate capital for their operational cash flow needs.
Complementing this, the extension of the SkillsFuture Enterprise Credit (SFEC) by another year to 30 June 2025 supports Singapore enterprises as they invest in upskilling and reskilling their workforce. This is especially critical for an industry that is at the cusp of major technological advancements, which includes sustainable aviation fuel, artificial intelligence and advanced air mobility. To stay competitive and relevant, workforce transformation is inevitable.
Additionally, a suite of other tax measures, such as the Corporate Income Tax (CIT) rebate of 50% and a CIT Rebate Cash Grant of at least S$2,000 for eligible companies, also further alleviates tax burden and provides additional liquidity, especially for SMEs that are most impacted from rising operational costs.
Catalysing Growth And Bolstering Competitiveness
A key part of the Aerospace Industry Transformation Map 2025 is to help SMEs fly high on the global stage by facilitating growth through internationalisation and partnerships with other companies in the sector. The Partnerships for Capability Transformation (PACT) scheme, first introduced in 2010, has now been enhanced to further encourage collaborations between large corporations and local enterprises. These enhancements include an expansion in activities to cover capability training, internationalisation, and corporate venturing.
The PACT scheme can also foster partnerships that enhance Singapore’s aviation sector by driving technological advancements and developing new capabilities, giving companies a competitive edge globally.
At the same time, Singapore demonstrates its commitment to stay attractive to foreign investors through the strengthening of its suite of incentive tools. This includes the introduction of the Refundable Investment Credit (RIC) scheme, a tax credit awarded based on qualifying expenditure incurred for supported activities. Where the RIC is not fully utilised against taxable income, it has a cash refundability mechanism that kicks in within four years from when the company satisfies the qualifying conditions.
The RIC covers activities such as investing in new productive capacity, carrying out R&D and innovation activities as well as implementing solutions with decarbonisation objectives. This is particularly relevant to the aerospace and aviation industry, which is heavily characterised by hefty expenditures on innovation, sophisticated equipment, advanced facilities and, more recently, sustainability. The refundability mechanism also provides assurance for companies looking to undertake ambitious projects requiring significant upfront investments.
Championing Climate Resilience
In a sector that contributes to a sizeable carbon footprint, the aerospace industry is facing tremendous pressure to accelerate adoption of sustainable practices and technologies. One way is switching to biofuels to reduce dependence on fossil fuels and lower carbon emissions. Globally, more than 100 countries have committed to reduce the carbon intensity of aviation fuel by 5% in 2030[2]; locally, all flights departing from Singapore from 2026 will be required to use at least 1% sustainable aviation fuel (SAF), with an aim of increasing it to 3% to 5% by 2030[3].
To this, Singapore Budget 2024 has a notable pillar on encouraging companies to step up on its sustainability efforts. Enterprise Singapore has expanded the scope of the Energy Efficiency Grant to support local enterprises in the manufacturing sector. Companies conducting manufacturing or maintenance, repair and overhaul activities can now defray up to S$350,000 of their costs in purchasing qualifying energy-efficient equipment. In addition, SMEs adopting green solutions to reduce their carbon footprint can access the EFS – Green scheme. Large companies developing their first sustainability reports to meet mandatory climate-related disclosures may also tap on the new Sustainability Reporting Grant, which covers up to 30% of the qualifying costs, up to S$150,000.
Navigating The Path To Success
Singapore’s aviation and aerospace industry stands at a crucial crossroad as numerous other nations are making substantial investments to enhance their own competencies in these fields. As Singapore’s aviation sector adapts to these positive changes, there is an opportunity for companies to reassess their strategy to incentives as they chart their growth in Singapore and the region.
The authors are Tracy Tham, Associate Partner from EY Corporate Advisors Pte. Ltd., Swee Thiam Teh, Partner from Ernst & Young Solutions LLP, Singapore and Muhammad Faiz Bin Mohamed Noh, Associate from EY Corporate Advisors Pte. Ltd.
The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organisation or its member firms.
References: [1] “Aerospace market size 2022 to 2032 (USD billion),” Aerospace Market, Precedence Research, accessed on 10 May 2024 via www.precedenceresearch.com/aerospace-market#:~:text=The%20global%20aerospace%20market%20size,period%20from%202023%20to%202032 [2] “Top technology trends in aerospace and defense for 2024,” SAAB RDS, 16 January 2024, accessed on 10 May 2024 via https://saabrds.com/top-technology-trends-in-aerospace-and-defense-for-2024/ [3] “CNA Explains: What is sustainable aviation fuel and will it change how we fly?,” CNA online, 22 February 2024, accessed on 10 May 2024 via https://www.channelnewsasia.com/sustainability/sustainable-aviation-fuel-cna-explains-levy-carbon-emissions-4141226