April 12 2004. Following smartly on our story last week highlighting the BAE job losses and the lack of government concern, Nick Cook has highlighted further concerns for the aerospace industry writing in the FT.
For smaller companies in Britain’s aerospace industry, these are worrying times. Up to half the UK’s aerospace component manufacturers could be overcome by bankruptcy and business failure within two years because of growing competition from low-cost suppliers in countries such as China, India and the Czech Republic, according to a study to be published this week.
The research identifies 15 countries in Asia, eastern Europe and South America that are winning orders from UK prime contractors and their main subcontractors at the expense of small and medium-sized British companies.
These so-called “Tier 3 and 4” suppliers represent the last link in a UK supply chain that, in spite of consolidation over 30 years, is still able to design, develop and build civil and combat aircraft.
Without the SMEs – mainly companies that machine and forge critical components – Britain would no longer retain that end-to-end capability.
“Our research shows that the prime contractors and Tier 1 suppliers are using and obtaining significant benefits from low-cost suppliers,” says Bert Hunter, managing director of Bravura Consulting and author of the report, A Study into the Loss of UK Aerospace Jobs to Low Factor Cost Countries. “The key drivers for this are market access requirements and continued cost reduction pressures.”
The report’s conclusions, published in this week’s Jane’s Defence Weekly, are seen as another contributor to a “perfect storm” of present and impending troubles – flat defence spending, concerns over possible cuts in the UK’s order for Eurofighters, the weak dollar, uncertain financial markets and cost reduction pressures. Some analysts believe it could break over the British aerospace industry before the year ends.
Compounding these worries is a threat of restrictions on technology transfer from the US. Such a move would affect the working of “offset” agreements with companies such as Boeing whereby, in return for orders from British-based customers, the US company undertakes to source elements of the finished aircraft from British suppliers.
Moreover, as Asian governments are starting to become bigger buyers of aircraft, there are signs that they are using their leverage to ensure that an increasing proportion of those aircraft is manufactured in their own countries. This involves the transfer of sophisticated technologies, which in turn makes low-cost Asian suppliers more able to compete with smaller UK companies that have traditionally enjoyed a technological lead.
“Historically, Western economies provided the brains and the low-cost sources provided the brawn but this is no longer the case,” Mr Hunter says. Asian companies are matching a developing ability to provide high-quality, low-cost aerospace components and sub-systems with the significant buying power of their governments for new products such as the Airbus A380 and the Boeing 7E7. China is likely to be the most impor tant market for civil aircraft after the US by 2020.
Requirements to provide off-set commitments on these and other programmes, the relentless pressure on prime contractors to reduce costs and the ability of e-commerce and e-collaboration technologies to transcend national barriers all point to an increased reliance by companies such as Airbus and Rolls-Royce on low-cost suppliers. A case in point is GKN Aerospace, which has sub-contracted a third of its work on the Honeywell AS907 turbofan – an engine destined for the latest Bombardier business jet, the Challenger 300 – to Polish
industry and is looking to increase this level further. “The pressure on cost is inexorable,” says Fred Aughton, head of aerostructures at