How will Brexit affect the UK Aerospace Industry?
The UK aerospace industry is the second largest in the world and is one of the traditional economic backbones of the UK economy. As a multi-billion pound industry, its influence has a global impact.
The big UK companies such as Rolls-Royce and BAE Systems, regularly feature in the top ten list of aerospace companies in the world. The industry is partly successful due to its specialist nature, which requires collaboration between companies to share the risks and rewards, especially in the research, development and innovation of new technologies.
With future advances, which are aimed at improving efficiency and reducing green-houses gas emissions, the UK is well placed to play a major role in the overall technological development. These include the digitisation of activities and electric propulsion of the next generation aircraft.
The UK aerospace industry and its global influence
The UK aerospace industry has been at the forefront of aircraft design, development and manufacture ever since the first airships were constructed, including the most recent Airbus A380.
Some of the aircraft advancements have been achieved in partnership with other EU countries. In terms of the military applications, the UK has contributed to the design, development, operation and continued airworthiness of aircraft such as the Panavia Tornado, the Euro fighter Typhoon and the Airbus A400M.
According to data from the ADS Group, the UK aerospace industry generated £35 billion in turnover in 2017, with £30 billion in revenue from exports which grew 39% between 2012 and 2017. The sector directly employed 123,000 people and 3,900 apprentices.
The EU aerospace policy
The EU commercial aerospace sector had a turnover of EUR 140 billion (£127 billion) as at 2013 and has a trade surplus because the products are exported all over the world. The EU has implemented a number of policy actions to address key issues such as competitiveness, trade, research, environmental action and a common air
transport policy. The UK is a significant player within the EU along with France, Germany, Italy, Spain, Poland and Sweden.
The supply Cchain and movement of skilled personnel
A study conducted by the Department for Business, Innovation & Skills in 2016, concluded that the UK is not keeping up with the procurement spend observed for the rest of the world. It also concluded that there is a shortage of skilled manufacturing personnel. However, the study did highlight that the UK's competitive advantage is in propulsive systems and aero-structure manufacturing capabilities. If the UK leaves the EU without the necessary agreements in place, this would mean many of the components and sub-assemblies that are supplied will be subjected to tariffs or restrictions when sent from the EU. Multi-national companies with operations in both the UK and EU depend on the free movement of their workforce just like the components and sub-assemblies. Any restrictions placed on movement will result in logistical problems due to lack of readiness, additional administrative controls and checks, additional procurement and immigration paperwork. These factors will increase the time it takes to manufacture products, and will increase the cost of manufacture.
Strategic partnership
The strategic partnership between the UK and the EU has allowed companies to set up manufacturing facilities across the continent at locations that harness knowledge sharing, local supply chain and skills capabilities. Without the strategic partnership, it is expected that there will be no protection for companies that have facilities in the UK.
Potentially, UK-based facilities will not be entitled to the benefits of sustainable
competition provided to all EU manufacturers. This may result in marginalisation
and sale of assets and a potential relocation of operations to mainland EU.
Investment in the UK
According to Boeing, the commercial global outlook for the aviation sector is forecast to have a market value of $6.3 trillion USD (£5 trillion) by 2037. Currently, the UK receives investments through the strategic partnership with the EU. Recent notable investments in UK facilities totalled £667 million. A key survey of investors conducted by KPMG and the ADS Group, prior to the 2016 referendum, concluded that EU membership was a positive, with non-EU membership posing a risk of uncertainty in the post-EU climate.
Factors that were given include the importance of movement of skilled workers, access to engineering resources and the freedom to trade with customers, group companies and suppliers across the EU. The effect of Brexit and a ‘no deal’ scenario would be felt in the long run and would impact future investment decisions.
Market access and competitiveness
Market access for EU members is seamless with trade agreements in place between the EU and other countries. The EU regulatory commission known as the European Aviation Safety Agency (EASA) has Bilateral Aviation Safety Agreements (BASA) with countries such as the US, Canada and Brazil. Access to these markets is guaranteed through membership with the EASA. The UK government commissioned a study which concluded that the globalisation of regulations means that there is negligible gain for the UK to pursue separate regulations. In terms of competitiveness, a ‘no deal’ scenario will diminish the ability of UK based companies to compete globally.