A report from trade association SBAC says UK aerospace and defence industry faces a challenging future.
The UK aerospace sector, while well-placed in the global market, faces serious short term and long term challenges as the global civil aerospace industry repositions in the recession, according to an annual strategy report from the Society of British Aerospace Companies (SBAC).
The sector has shown the first signs for several years of a shift from long term growth to a flat projection, with concerns that negative growth could occur from 2010 should certain challenges converge. Industry turnover was flat in 2008, the growth from 2007 to 2008 being only one per cent in real terms.
“We are expecting some tough years ahead,” said Ian Godden, chief executive of SBAC.
The pressures on the aerospace sector include the two-way pull of “dollarization” and the emergence of high growth strategic markets in the Middle East, Asia Pacific and India, coupled with the growth of state sponsored start-up enterprises specifically aimed at competing with the UK and Europe’s prime and tier one companies.
Civil aerospace, which SBAC’s report focuses on, is a robust industry that generates good returns to all its stakeholders, according to the organisation. It is one of the UK’s largest exporting industries, generating over £20bn per year in value added revenue. It employs over 113,000 people directly and a further 350,000 indirectly. It adds £2.8bn annually to the UK balance of trade and total sales have been growing steadily since 2001. Though employment in the sector has fallen, SBAC credits this to the increased productivity and more highly skilled workforce the industry has procured. All in all the sector takes in 2,600 companies across all regions of the country.
Including the defence sector, the UK has a disproportionately high percentage of the global aircraft manufacturing market. Its 17% share is second only to the US.
The report identifies several opportunities for the civil aerospace sector to consolidate its strong position. These include, in the medium term, the emergence of the A320/737 series New Short Range (NSR) replacement programmes and the unmanned aerial systems (UAS) market offering future growth prospects.
In the short term, new programmes like the Airbus A350XWB and A400M, the military aircraft, the Boeing 787 ‘Dreamliner’ and Bombardier CSeries offer substantial opportunities to the UK sector. The wing sections for the CSeries and the Airbus A380 planes are already built in the UK and these models are known particularly for their environmental credentials, a key battleground in the global industry. New regional and business aircraft are also targets for the UK sector, along with emerging platforms from new prime contractors such as China, India, Japan and Russia.
But several events have conspired to put the position of the sector as a whole in doubt, says the report. The recession, a contraction (real and anticipated) in defence spending, a fall in research and development investment, and a continuing fall in employment in the sector, combined with the dollar exchange rate (for UK defence companies building in the US) and foreign competition, mean the industry needs more government support. The threat of protectionism was also a real risk, said SBAC, which it said it was fighting by lobbying government to procure joint statements with the US government to safeguard existing trade relationships and to shun protectionist tactics.
The fall in R&D investment is distorted this year, it says, in that a large number of programmes have moved out of R&D in their natural cycle and does not define a long term trend.
Govt help needed
However “significant investments are required from industry and government if the UK aerospace sector is to keep its current leadership position and to exploit the emerging growth areas,” says the report. And the UK urgently needs to adopt a leadership role in the development of future air traffic management systems and associated procedures, it adds.
Greater investment in developing skills is needed. The report says the future fortunes of the industry depend on the outcome of the skills and education initiatives that are underway. These involve universities, the sector skills councils, industry, and SBAC itself. In this area there were some positives; there was a 7% rise in the number of people applying to work in the aerospace and defence sector in 2008. And salaries in the civil aerospace sector are 54% above the UK manufacturing average, according to SBAC.
The report recommends that the Government and industry should direct investment into the sector to:
• Fund the content of the National Aerospace Technology Strategy (NATS)
• Cover the Ministry of Defence and joint MoD//civil development requirements
• Ensure UK leadership is maintained in the key enablers (e.g. next generation air traffic management)
• Continue to work on creating greater efficiency in the supply chain
Other key recommendations involve nationally controlled intellectual property and securing high value manufacturing, and that UK industry has full and open access to the new programmes in emerging markets of China, Japan and Russia. Greater engagement with and investment in a space technology with European partners was recommended.
SBAC acknowledged the combination of factors challenging the sector was severe and said much rested on forthcoming statements concerning the Government’s commitment to projects like the A400M aircraft – the model due to replace the RAF’s current fleet ofVC-10 and TriStar aircraft. An announcement on this is expected from the Ministry of Defence in early July. “There are some very important decisions to make,” said Godden. “We are at a turning point as an industry.”
The UK Civil Aerospace Strategy Report was written by Bruno Esposito, SBAC’s director of civil air transport. More on the SBAC’s report findings will be updated this week.
A video interview with Ian Godden, CEO of SBAC covering manufacturing risks and opportunities in the sector will appear on themanufacturer.com in June.