UK aerospace industry fears loss of leading edge after Brexit
Shift to composite materials in Airbus wings spurs interest from France and Germany
Stephen Cheetham says he is “scared witless” about the impact of Brexit on British manufacturing.
But the chief executive of PK Engineering, a small aerospace supplier in the West Midlands, is pressing ahead with a £500,000 investment in new equipment to keep up with the demands of its clients.
“For us that is a very big investment, but I see business opportunities today and I think I would be a fool not to invest,” he says.
PK Engineering, which employs just over 40 people and makes precision machined parts, is not the only supplier to the aerospace industry with mixed expectations.
For many UK aerospace companies, business has never been better; the order backlogs at Boeing and Airbus offer the best part of a decade’s work and production levels are accelerating to record levels.
Last year, the UK aerospace sector grew 6.5 per cent to £31bn, 87 per cent of which was exported. Aerospace has seen average annual growth of close to 10 per cent between 2011 and 2015, outpacing the wider manufacturing industry, according to ADS, the industry lobby group.
But uncertainty over the terms and conditions of Brexit has raised questions about the next generation of aircraft programmes, with other countries lining up to challenge some of the UK’s key positions.
Within the next year Boeing is expected to decide on the launch of its next new aircraft, likely to be a single-aisle, mid-range passenger jet. Airbus will have to respond and a new era of aircraft innovation will begin.
“As work on research and development goes on, there will be opportunities to pull work away from the UK,” says an executive from one of the UK’s biggest aerospace companies.
The UK is already falling behind its continental European rivals on key aerospace infrastructure, such as test beds for engines and aircraft structures, that supports the development of high-value design and cutting edge technology, according to a recent report by Roland Berger for the Aerospace Technology Institute.
Airbus, one of the UK’s biggest employers in the sector, will face pressure to bring jobs back to France, Germany and Spain, its original stakeholder countries, say several suppliers. “We are very worried about the impact of Brexit on the whole Airbus discussion,” says one.
The UK plays a leading role in wing technology, one of the most critical and lucrative parts of aircraft manufacture, and work that other countries are keen to grab.
Britain’s position weakened during the shift from aluminium to lighter composite materials. While UK companies designed and manufactured virtually the entire wing for Airbus’s superjumbo, the A380, the top and bottom skins of the wing for the newer A350 went to Spain and Germany, both keen to accelerate development of their aerospace sectors.
“There is a constant move by Germany to get as much wing work out of the UK because it is the most valuable,” says the aerospace executive. “There will be countries looking at the UK’s position as the world’s second-largest aerospace sector and thinking that if it wasn’t [in the EU] this could actually benefit them.”
“There is a recognition there is a threat there,” said one government official, citing this as the spur to government investment last year in a new £37m wing integration research facility in Filton, north of Bristol.
Access to highly skilled EU labour, to Europe’s research projects and funding and its relationship with Airbus are critical to Britain’s position as the world’s most important aerospace sector after the US.
“In the UK that is particularly important because we do not manufacture a whole aircraft any more,” says Malcolm Scott, corporate development director of the ATI.
Many companies are worried that their competitiveness will be dulled by restricted access to their employees in continental Europe. About a quarter of Rolls-Royce’s workforce is in the EU outside the UK, and like many aerospace companies these workers are often transferred at short notice to deal with temporary production challenges. “Free movement is a big issue for us,” said one senior executive.
Some foreign companies are rethinking investment into the UK, say industry bodies.
Andrew Mair, chief executive of the Midlands Aerospace Alliance, said he is aware of one big aerospace company debating whether or not to put further money into the UK. “In terms of attractiveness . . . in terms of political stability, the UK goes down,” he says.
Concerns are also mounting over the UK’s membership of the European Aviation Safety Regulator, which certifies aircraft, engines and their components.
If the UK opts to create its own regulatory regime, and UK suppliers still have to seek certification from EASA, costs would rise.
Although aircraft and their parts are exempt from tariffs under World Trade Organisation rules, there is a niggling fear that competitors could encourage governments to find loopholes during exit negotiations that would raise the cost of business for UK companies. For example, the UK’s aerospace supply chain could be hit if EU exemptions for the raw materials used to make those components are reversed.
“We are worried about where the dividing line will fall,” said the boss of one leading aerospace company. “What counts as a component? We need to make sure [ministers] don’t do anything stupid when they are negotiating woollen socks against nickel alloy.”
Finally there are worries that the decision to go it alone could lead to big non-tariff penalties such as costly delays at borders if the UK withdraws from the customs union.
Without long-term commitments from government on how EU funding will be replaced, how regulations will change, and on continued access to international talent, the UK’s aerospace industry could face a crisis of competitiveness, several aerospace executives say.
The industry is working hard to pass that message to ministers, arguing that time is running out if the UK is to be well placed to win business in the next aerospace cycle. David Jones, minister at the Department for Exiting the EU, met executives from Airbus and Rolls-Royce before Christmas to hear their concerns. “He was asking the right questions,” says one executive who was present.
But the government’s plan for Brexit remains a “black box”, says another. If Britain leaves the EU and “we have to start negotiating on a sector-by-sector basis, that will take time, and every single day that goes past we will be less competitive.”