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Despite the downturn in civil passenger travel that followed the events of 11 September 2001, continued uncertainty in the Middle East and the SARS crisis in Asia, the UK aerospace industry (UKAI) remains one of the most successful sectors of UK manufacturing. In 2003, the UKAI accounted for 0.6 percent of UK gross value added (GVA) and four percent of value added by the UK's manufacturing industry as a whole. The UKAI is also one of the UK's major export sectors, generating a trade surplus of just over £2.5 billion in 2003, compared with manufacturing overall, which had a trade deficit. The UKAI provides direct and indirect employment in the UK for around 255,000 people.
Although productivity levels in the UKAI are generally higher than the UK average, they remain disappointing when compared to the industry's main international competitors. However, there are signs that UKAI productivity growth is beginning to outpace these competitors. We also found evidence to suggest that there will be a further challenge for the UKAI as competition from emerging economies is growing. Given the choice, aerospace companies tend to invest where the conditions are most favourable and, in particular, where they can work in partnership with governmentfunded R&D. Subcontracting abroad by aerospace companies is increasing as a result of lower costs or more favourable incentives, such as public R&D investment.
The UKAI itself invests heavily in R&D, and is second only to pharmaceuticals in its R&D intensity. UKAI companies invest more in R&D than their international competitors. Of the top aerospace companies in 2003, four UKAI companies, Rolls-Royce, Cobham, Smiths and BAE Systems (which was ranked second behind only Finmeccanica of Italy) appeared in the top twenty in terms of R&D intensity.
UK Government support for UKAI R&D has fallen over the last few years. The recent re-organisation of DTI funding programmes has opened new opportunities for aerospace R&D funding through the DTI's Technology Programmes. Aerospace companies can also benefit from R&D tax credits and repayable launch investment. There is, as yet, little evidence of whether the new funding streams will compensate the UKAI for the loss of previous support programmes. However, evidence from the latest round of Technology Programme funding, where the aerospace industry received a quarter of the £60 million distributed, suggests to us that they might.
The work of the Aerospace Innovation and Growth Team (AeIGT) is a prime example of what can be achieved for an industry through the willing collaboration of its stakeholders. The UKAI is one of the most important sectors of the UK economy and we believe that, through their support for the AeIGT, this has been recognised by Government. With a target date for the implementation of the recommendations of the AeIGT's Report on the future of the UKAI of 2022, we believe it will be some time before a meaningful assessment of progress can be made with any degree of confidence. However, the progress which has been reported to us suggests that a good start has already been made.
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