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UNDERSTANDING THE NEED TO INVEST IN AEROSPACE AND DEFENCE By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

 

gkn27 Apr 15. In 2013, according to figures from the Office for National Statistics (ONS) the UK aerospace industry had a turnover of £25bn, directly employed 84,000 jobs through 634 individual sector companies and it contributed £9.4bn to the economy. In fact the UK enjoyed a 17% share of the global aerospace sector in 2013 and I doubt that when the figures for 2014 are published much will have changed.

We are very fortunate to have a multitude of small and medium sized companies manufacturing aerospace components in support of large UK commercial aerospace industry players such as Airbus, Rolls-Royce, Messier Dowty and GKN. Their success is our success and whether by accident or design there is no doubt that the aerospace manufacturing industry that we have today is brilliant not only at what it does but also in the value that it brings to employment, skills and the economy as a whole. The point at issue is that if we wish to stay in the strong position that we are now we will need to be not only efficient and competitive but also innovative. That means continuing to invest in new technology and materials that will make flying cheaper, safer, quieter and even more environmentally friendly. Industry gets the message and so too has government.

The UK aerospace industry has everything to play for right now and if, heaven forbid, in the future it was to lose out to the ever increasing amount of global competition that would love to take a larger market share it would have no one to blame but itself. But the industry cannot do everything by itself and it does need to know that the government is on-side at all times and that it will continue to provide a satisfactory amount of incentive that allows the group of important industry players to continue investing in the UK.

Other useful statistics that help show the vital importance that the aerospace industry is to the UK include those from the Economic Policy and Statistics Section of the House of Commons which reported that the UK exported £10.5bn of aerospace related goods in 2013/14. That figure is I suspect roughly equal to the total level of imported goods including completed planes manufactured by Boeing, Airbus plus other smaller aircraft manufacturers and purchased by UK airlines such as British Airways, EasyJet, Flybe and others.

The very apparent success is just part of the story and the reality is that the UK aerospace industry is larger than the above figures imply. Indeed, through research carried out by the Centre for Economics and Business Research on behalf of the UK aerospace, defence and security trade association ADS the conclusion was that the combined number of aerospace related jobs in the UK was 109,000 direct and 120,000 indirect. Their view was that the total amount of aerospace related revenue generated was £27.8bn of which exports accounted for £24.7bn. The difference between the two figures is not an issue and can be put down to what each group has decided to include. For my part I believe that the ADS figures most probably provide the best overall guide.

For the record, in 2013 the value of aerospace related exports had grew and overall the sector itself grew by 9.4% on the year before. This makes the average annual level of growth around 7.1% since 2008. Thus is brilliant and there should be a lot more of that to come provided of course that we continue to invest in research and development, to invest in product and also that we remain competitive and efficient at what we do.

Bodies like the Aerospace Growth Partnership which had been the first of several ‘growth partnerships’ formed between government and industry and that have been a central plank of Coalition Government industry policy since 2010, has been doing an excellent job of work  furthering the potential for UK aerospace industry growth.

Another feature and one that should in the years to come provide a large scale benefits to the industry both small and large is the £30m Aerospace Research Centre which was opened at Ansty Park, Coventry in January this year. This partnership between industry and government and that is equally funded by both is intended to provide a central national facility for ground breaking aerospace research using as it will, experts from all the world’s leading aerospace companies.

Creating new technology is crucial and it is projects like this that will define the future success of the industry. Investment in skills is done well by the companies themselves but far more needs to be done by government to encourage those in our schools and universities to look at engineering as a future career. Skills retention is just as important as ensuring that we retain the ability to manufacture all of what we need. While the strength of the UK aerospace industry today might suggest that all is well more needs to be done to ensure that twenty years from now we will have sufficient engineers and all the other required skills in order to meet the needs of whatever the global aerospace industry might be demanding by then.

The UK Aerospace industry is one of the most important industries that we have and yet one might be forgiven sometimes for believing that in the eyes of the public, the media and some politicians the most important manufacturing industry that we have might be automotive assembly. The latter is a very important industry of course and it does employ very many thousands of jobs although when it comes to building and retaining skills and adding value I am not sure that it brings so much as some might believe to the overall economy.

That said, companies such as Tata which owns Jaguar Land Rover deserve huge admiration and respect for how they have continued to invest so heavily in Britain in terms of product research and development, engineering and manufacturing. Many other carmakers have too including BMW Mini, Bentley and Rolls-Royce Motor Cars and several other smaller players. And of course, it would be remiss of me if I was to fail to mention the massive investment in vehicle assembly that companies such as Toyota, Nissan, Honda, Vauxhall and from an engine manufacturing perspective, Ford also brings to the nation in terms of economic value through employment and exports.

While the UK automotive industry may be considered effectively self-sufficient provided of course that it can still enjoy the benefits of the UK remaining a member of the European Union it is I believe also true to say that if the UK aerospace industry is to continue to thrive and prosper it will need to know that it has the support of the UK government behind it.

Successive governments, Tory, Labour and more recently, the Coalition Government have continued to provide the vital elements of support that the industry needs. But these are difficult times in politics and who knows what government we are going to get next. Thus we are left to hope that whoever may be the next occupant of No 10 and No 11 Downing Street understand the message of just how crucial the aerospace industry is to the UK.

For now the aerospace industry is certainly alive, well and very healthy (note that a doubling of the amount of air traffic over the next 15 years and by 2032, expectation 29,000 new large civil airliners, 24,000 business jets, 5,800 regional aircraft and 40,000 helicopters will be required provides a formidable positive outlook for the aerospace industry as a whole) but there can be no room for complacency. And if that is true for aerospace what about defence?

It seems to me that around every corner there is a hostage to fortune awaiting defence. We have a truly amazing defence industrial base in the UK and yet there are too many that fail to get the message of just how important it is to the UK economy, to skills retention and to our ability to manufacture and export. Industry has not stood still and it has been very active investing in its own future. We need to move away from the era of criticism and begin to realise what companies such as BAE Systems have done to make themselves more efficient and agile. The taxpayer has been well served by the efforts that companies such as BAE Systems has made to bring down the costs of defence equipment.

The hope is that we can move forward into a new era of government from a position of strength. The MOD is getting what it wants and it too is making itself more efficient in terms of how it does procurement. Defence exports have provided a crucial element of success for the UK over the years and they will continue to be hugely important in the years to come. We have great aerospace related defence products in the form of Typhoon and Hawk manufactured by BAE Systems and in the case of the former, with its European partners and our great success as a manufacturer of complex weapons through MBDA and radar through Selex is second to none. Success breeds success so they say and we are fortunate to have a number of large US based companies that have invested heavily in the UK. Lockheed Martin has invested in various segments of the UK economy not just in defence. Raytheon is yet another very fine example of a US owned entity continuing to invest in UK manufacturing. Thales, AgustaWestland and Selex are other large and very important companies with large scale operations in the UK and that work alongside the MOD in support. Northrop Grumman, L-3 and Boeing are all heavily invested in technology and product and in supporting the MOD customer as do companies such as Babcock and Marshall Aerospace. The list is long and all bring tremendous value to the UK economy. It would be very remiss should I fail to mention the defence aspects of Rolls-Royce, Airbus, GKN, Atkins, Serco, QinetiQ, Cobham, Meggitt, Cosalt and many other smaller and medium sized enterprises that perform a major function in defence as well. I may hope that the new Government, whoever it is, gets the message about the importance of defence and of what all these constituent defence companies bring not only to the defence table but to the wider economy as well.

I note with interest that the Daily Telegraph mentioned a new report entitled ‘A Benefit, Not A Burden’ published by the Policy Institute at Kings College reminds us that the UK defence industry contributed around £8bn to the economy last year and that it sustains 350,000 jobs. I am not sure whether UKTI DSO gets the mention it deserves in this but I certainly hope that it does for the very valuable role that it plays in defence export support.

Of course I commend any reminder of the value that defence brings to the UK economy and all of what Kings says is probably true although it does sound a touch dated. Even so the report warns that the lives of service personnel could be put at risk if the next government fails to protect the defence industry. Perhaps they might better to have said that the government must invest in sovereign capability and that all costs we must retain all current elements of critical technology. Of course buy off the shelf has a place and always will but let’s ensure that we don’t find ourselves one day in a position of having no choice.

As the report suggests the point is that failure to safeguard defence companies could mean more British casualties as the armed forces lose their technological advantage over opponents. Noting the anticipation by industry of more defence cuts to come following the 10% that has been taken out of the defence budget since 2010, the report reminds that none of the main political parties appears to be prepared to commit to maintaining (the agreed working toward) spending 2% of GDP on defence that Nato members signed up to in Wales.

None of this is particularly new of course and as I have yet to read the report in full I will keep my powder dry. In fact the FT notes that the Kings Policy Institute report warned that the next government risks making flawed decisions in spending because of a lack of data on the value of the UK defence industry to the economy. Given the amount of historic data collated by academia and others out there I find this a rather interesting observation although I do accept that in terms of defence there has in recent years emerged a rather large gap in the level of representation and support that defence receives from its trade association compared to that provided by them to aerospace and security sectors.

CHW (London 27th April 2015)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel: 07710 779785

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