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UK Aerospace and Aviation Sectors Need Long-Term Furlough Scheme By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

 

 

 

Leaving affordability aside, the announcement from Chancellor Rishi Sunak yesterday that the Government had decided to extend the Coronavirus Job Retention Scheme [HMG paying 80% of furloughed staff current salaries up to £2,500 per month) until the end of October was universally welcomed and rightly so. The Chancellor also announced new flexibility arrangements will be introduced from August in order to assist currently furloughed workers to return to work part-time with their employees then being asked to pay a percentage towards the salaries of those able or required to return.  

Notwithstanding GDP decline and that will see headline writers delighting in the use frightening terms such as ‘Britain in worst ever recession’ a couple of months from now we all know deep down that there have to be are limits to what the state can and should do. Chancellor Rishi Sunak and the senior team at HM Treasury are to be praised for what they have been prepared to do to ease the financial burden on employers and employees and let no-one criticise them for having gone several steps beyond what most of us had dared thought possible let alone achievable.

Predicting with any degree of certainty when the economy will recover is all but impossible and I am not about to enter into that debate. However, I agree with the now seemingly general consensus that coronavirus will have cost HMG around £300 billion (in borrowings) before it is done and dusted. There will of course be additional permanent costs such as an NHS which will be even more demanding of increased funds. How, when and if the overall cost of the current crisis is repaid is for another day but suffice to say here that with the outlook for the economy next year likely to be negatively impacted by short term residual effects of Brexit whatever the government decides in respect of a need to either raise taxes or run with a permanently higher level of borrowing and accept the additional interest cost burden of that, they will I fear be in a hiding to nothing from their critics.

Assuming improvements relating to ‘R’ continue, inch by inch we can expect to see more parts of the economy open up. But what about those areas of the economy that are likely to be stuck fast for years rather than months. Tourism and travel industries will be dead for the rest or the year and, food sector apart, even when allowed to open, I venture to suggest that the retail sector will also be in for a torrid time over the next couple of years.

As we look into what additional lockdown releases are likely to be allowed over the coming weeks and months, I would expect public houses, café’s, restaurants and hotels to be allowed to restart trading sometime in July or August. However, chances of achieving profitability through the rest of this year are to say the least, very poor. No one really knows of course but I suggest that the additional cost of social distancing requirements on the above sectors will see footfall levels cut by 50% or more on the same period in the previous year.

I have already written this week in respect of aerospace manufacturing and general aviation sectors and the fear that the industry will take many years to recover from the impact of COVID-19. With additional burdens of social distancing requirements on airlines and for passengers at airports, temperature checks, possible requirements for airlines to leave the middle seat on rows empty, requirements to wear mask and maybe gloves not to mention the 14 day quarantine requirement on passengers entering the UK, all that I can say is that the outlook remains grim.

So far, apart from the ability of all companies engaged within general aviation, airlines, airports and aerospace manufacturing to make use of the now extended Coronavirus Job Retention Scheme, Chancellor Rishi Sunak has done very little else to support aviation through what will undoubtedly be the worst crisis it has ever faced.

I cannot stress the value and importance of the aviation industry to a nation such as ours and turning a blind eye to the long-term nature of problems faced by the aviation industry is not on. The writing is on the wall and the challenges for the industries concerned never greater than now. The Government must open its eyes to the full implications faced by an industry that is close to collapse.

For a start, all airlines registered in the UK should be offered long term facilities guaranteed by the Government. Next, in order to ensure that airlines, airports and all those companies engaged in the important UK aerospace manufacturing industry are able to retain sufficient levels of highly skilled staff and engineers, the Government needs to provide a separate and more permanent ‘furloughing’ scheme that would act as a bridge for survival through to the other side. The same themes should also apply to all companies engaged in pilots training in the UK such as CAE.

Of particular concern is the difficulty faced by the thousands of small and medium sized enterprises in the UK who in turn supply the primes. They are struggling not only to survive but also to understand the range of complicated measures including loans, grants and furloughing schemes made available by Government in order to understand whether such measures are applicable to them.

The wider lack of support for UK airlines on a playing field that is when we look at how Air France/KLM and Lufthansa are now being actively supported by the EU in order for them to not only survive the Coronavirus crisis but no doubt also, to emerge even stronger that they had been at the start of the crisis is a justifiable concern of UK airlines. In a post Brexit arena, the UK government cannot afford to allow competitor airlines that are receiving EU support to have any advantage.

As to the many companies engaged in the UK commercial aerospace manufacturing industry including names such as Airbus, Rolls-Royce, GKN, QinetiQ, and Meggitt, HMG should be bending over backwards to ensure that each can not only survive but come out on the other side even stronger. 

CHW (London 14th May 2020)

Howard Wheeldon FRAeS 

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon

hwheeldon@wheeldonstrategic.com

@AirSeaRescue  

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