Select Committee on Trade and Industry Fifteenth Report

3  The UK aerospace industry's current performance

Civil aerospace

39. The aerospace market is typically cyclical, with the cycles closely linked to global economic performance. Pre-2001 the civil aerospace sector of the industry was operating at full capacity with "record production levels of business".[82] Our witnesses told us that since 2001, a number of events had caused a slowdown in passenger air-travel (civil aviation sector),[83] which had led to a fall in demand for the UK's commercial aerospace products. The events our witnesses highlighted included: the impact of the global economic slowdown, which was exacerbated by the terrorist attacks of 11 September 2001 in the US; continued uncertainty in the Middle East, including the conflicts in Afghanistan and Iraq; and the SARS crisis in Asia.[84]

40. The DTI told us that the civil aviation sector was beginning to recover and that commercial aerospace manufacturers were: "planning to increase production rates in 2005 with further increases planned for 2006 and beyond".[85] Datamonitor have forecast that the global civil and defence aerospace sector will grow at an average annual rate of four percent between 2003 and 2008, with the highest growth, at six percent, expected in 2007.[86] By comparison, Oxford Economic Forecasting (OEF) have estimated that the UKAI will expand over the same period by just over eight percent per annum, with the highest growth, 12 percent, expected in 2004.[87] In the long run, worldwide air-passenger travel is expected to rise significantly, creating growth in the market for civil aircraft. In terms of aircraft demand, the DTI have forecast that 15,000 aircraft carrying more than 100 passengers will be required to be delivered worldwide between 2002 and 2021.[88] Rolls-Royce have forecast that for the period 2004 to 2023 there will be a total of 43,000 aircraft delivered, including the production of 20,000 jets carrying more than 110 passengers.[89] However, the DTI told us that talk of a recovery may be premature, as some airlines had continued to struggle with continuing high oil prices which threatened their financial performance.[90]

Defence aerospace

41. Defence aerospace markets are typically less cyclical than civil aerospace markets, with performance more closely linked to a country's defence budgets than its economy. The DTI told us that the US defence budget is expected to increase by around 30 percent in real terms through to 2009, whereas the UK and European defence budgets were likely to decline slightly. This would affect the strategies of many UKAI companies, particularly those with major US and European subsidiaries: "the nature of defence research and technology and equipment procurement will evolve over time to place a greater emphasis on the military capability of networked systems and a lower emphasis on platforms, although these will remain important and the change will be gradual given the UK's [and other Governments'] committed buys of aircraft, ships and land systems".[91] Even given the expected increase in demand for defence aerospace products, our witnesses told us that access to defence markets in other countries remained a problem.[92] In many cases, government controls were in place so that UKAI would not be able to gain a fair market share of this growth.

Market access

42. The globalisation of the aerospace industry on the supply (production) side has not been matched on the demand side. This has not been such a major problem for the civil aerospace side of the industry but has remained so for the defence side.[93] Our witnesses told us that, with the notable exception of the UK, national defence markets "remain largely entrenched" and closed to foreign entry.[94] The SBAC, in particular, told us that a lack of defence market access, especially in the UK's main markets of the US and EU,[95] could undermine the recent improvement in the performance of the UKAI, post 2001.[96] The main stumbling block they identified to wider market access for the UKAI was the question of technology transfer: "if we cannot supply, particularly on the defence side where you know we have issues around technology transfer etc., that is quite a significant issue for us on which we have to make progress. Also, we need to keep the playing field level".[97]

43. The restriction of technology transfers between countries can mean that indigenous firms have an unfair advantage when bidding for national contracts. For example, under the US's International Traffic in Arms Regulations (ITAR): "it is unlawful: to export or attempt to export from the United States any defense article or technical data or to furnish any defense service for which a license or written approval is required by this".[98] US aerospace companies undertaking a US Government contract do not have to be concerned about the transfer of technology across borders when they are the single contractor. In comparison, a US company which collaborated with a UKAI company or a UKAI company which bid on its own, is placed at an unfair advantage as it has to ensure that there will not be an export of technology which the US Government may consider sensitive. The penalties for any person or company found to have wilfully violated the ITAR are stringent.[99]

44. Some UKAI companies have attempted to 'circumnavigate' the ITAR by acquiring US aerospace companies as subsidiaries.[100] However, UKAI companies may not reap the full benefits of R&D carried out within their subsidiary, as, under the ITAR, they may be unable to 'export' the technology back to the UK.[101] A lack of access to overseas aerospace technologies can also have a secondary impact. The SBAC told us that where the MoD had invested in US aerospace programmes, UKAI companies had established subsystem design and manufacturing positions, as demonstrated by the JSF, Airborne Stand-Off Radar (ASTOR), and Hawk fixed-wing trainer. They believed such programmes would be in service for over 30 years so that: "it is essential that the UK also achieves overall positions on these programmes to ensure that the systems concerned can be supported, upgraded and modified throughout their service life, with the necessary transfer of technology to enable this to happen".[102] If UKAI companies were to retain the capability necessary to offer ongoing maintenance and support for UK Government defence equipment in the UK, as opposed to migrating to the US through acquisition, the SBAC told us that it was critical that mechanisms were introduced to allow transatlantic technology transfer.[103]

45. The Government appears to have been keen to effect a solution to the problem of technology transfer from the US. In 2002 the Government stated: "A key aim is to conclude successfully current negotiations on a waiver from the US International Traffic in Arms Regulations, which would allow the export of unclassified defence items and technology to UK companies for UK and US use without a requirement for US export licences".[104] The Defense Authorization Act for Fiscal Year 2005 was signed into US law in October 2004. Despite the inclusion of a provision granting an ITAR waiver to the UK in the original Senate version of the Bill, it was eventually dropped from the final agreed text of the Act, following strong opposition from the House of Representatives. However, during conference negotiations on the Bill, concessions were agreed between the Senate and the House to allow preferential treatment to be given to the UK, and Australia, with respect to export applications for ITAR-controlled items.[105] This, the SBAC told us, had "allayed some of UKAI's concerns".[106]

46. While giving evidence to the Quadripartite Committee on Strategic Export Controls in January 2005, the Foreign Secretary told the Committee: "We were greatly disappointed that the Congress deleted the provisions for an ITAR exemption from the Defence Authorisation Act. We welcome the fact that language was included in support of the expeditious processing of export licence applications and we were discussing the way forward with the US administration. It has been a constant source of discussion between the Prime Minister and President Bush, Secretary Powell and myself and our officials. It is disappointing. The administration did its best. On these issues it is for the Executive to propose and for Congress to dispose and they came to a different view. It is disappointing, particularly given what a close and reliable ally we have been for the United States through thick and thin".[107] It remains to be seen if a provision to grant a full ITAR waiver to the UK will be re-introduced in the Senate in the next Defense Authorization Bill for FY2006, which is scheduled to be examined during 2005. Along with our colleagues on the Defence, Foreign Affairs, and International Development Committees, we are extremely disappointed that the US Congress has deleted provisions that would have enacted an ITAR waiver for the UK.[108]

47. We asked for the views of the DTI on what UKAI companies could do to overcome the problems associated with technology transfer, given that an ITAR waiver would not be immediately forthcoming. They told us: "You [companies] just have to be patient and work through it. In terms of the ITAR waiver, it is fair to say that we are slightly disappointed that it has not been possible to conclude this yet but all we can do is continue in our efforts to work with the US authorities to try and achieve it".[109]

48. The UK aerospace industry (UKAI) requires Government help to reduce barriers to trade in terms of technology transfer, especially in the US. We recommend that the UK Government should continue to press the US Administration to support increased access to US technology for UKAI companies through an International Traffic in Arms Regulations (ITAR) waiver for UKAI companies.

Emerging international competitors

49. Despite high barriers to entry, new competitors are continuing to emerge in developing economies, typically driven by government support and a desire to create an indigenous aerospace design and manufacturing capacity.[110] Examples of emerging competitors in the civil aerospace market given to us by our witnesses included Chinese and Russian efforts to develop regional jet programmes. Sir Michael Jenkins, President of Boeing UK, told us the Chinese authorities were looking to build around 150 regional airports within the next decade.[111] Overseas partners, such as General Electric, Boeing and SNECMA were currently assisting in the design process for a 70-seat Chinese regional jet in order to gain market access for their engine and systems products.[112] However, Sir Michael remained uncertain whether China would become a major aircraft manufacturer of its own regional jets, just because indigenous demand had been demonstrated. He cited the example of Japan which had deliberately chosen not to manufacture its own aircraft but had instead decided to concentrate on making subsystems for the main aircraft producers.[113]

50. Boeing suggested to us that their 'duopoly' with Airbus in the sale of large civil aircraft could be under threat in the long-term from incumbent regional aircraft producers such as Bombardier of Canada and Embraer of Brazil, which could move into producing larger aircraft in the future.[114]

51. Examples of emerging competitors also exist in defence aerospace markets. Korea has flown its own 'advanced' jet trainer and Taiwan has developed its own jet fighter aircraft: "albeit with limited success".[115] The DTI told us that these efforts were being assisted by 'licence build agreements' with foreign companies, where existing manufacturers licensed the assembly of aircraft 'kits' to lower-cost economies. Such agreements allowed these countries to acquire the skills of aircraft integration and assembly: "the first step towards developing a full indigenous capability". [116] This would provide further competition for the UKAI.

52. There has also been some concern amongst the UKAI community that increased competition from low-cost economies could cause problems at the bottom end of the UK aerospace supply chain. In March 2004, a report commissioned by the Farnborough Aerospace Consortium predicted that between 30 and 50 percent of the UKAI's smaller suppliers could close due to competition from low-cost economies.[117] The report found that larger UKAI companies had become aware of, and were making use of, firms in lower-cost economies. At the same time, UKAI SMEs were less aware of these benefits and were more likely to suffer from the increased levels of competition.[118]

53. We conclude that the challenge from the emergent competitors, be they lower-cost economies or other developing economies, is growing. Subcontracting abroad is increasing as a result of lower cost or more favourable incentives, such as public R&D investment. As far as we can see, there has been no official study into the 'threat' from emerging competitors to the UKAI. Research which has been carried out has tended to focus only on UKAI's developed competitors. We recommend that the UK Government should undertake a study of these emerging aerospace industries as soon as possible to gauge the future challenge to the UKAI.

Investment in R&D

54. The SBAC told us that the UK's success in aerospace markets stemmed directly from its R&D investment, which: "stimulates innovation and knowledge creation, supports research in universities, and has considerable spin-off benefits into non-aerospace activities".[119] Investment in R&D also allowed UKAI to: "achieve sustained productivity growth and competitiveness, to ultimately deliver a positive contribution to the UK economy both nationally and in the regions".[120]

55. R&D of all types is difficult to measure and compare, partly due to difficulties in defining the boundaries between research, technology acquisition, development and product development, and partly because relevant information is not always made public, or is not compiled on a consistent basis. Moreover, business-funded R&D varies from year to year, for example according to a company's cycle of product development, or because external funding has reduced the need for company funding.[121]

56. However, the evidence suggests that the UKAI invests heavily in R&D, and is second only to pharmaceuticals in its R&D intensity (R&D as a percentage of turnover) in the UK. Between 1996 and 2003, UKAI R&D expenditure averaged 0.2 percent of GDP and ten percent of total R&D in the UK.[122] In 2003 alone, UKAI-funded R&D investment was just over £2 billion,[123] and there were three aerospace companies featured among the top-ten UK R&D investors: BAE Systems (ranked No. 3), Airbus (ranked No. 7) and Rolls-Royce (ranked No. 10), investing £1.7 billion between them.[124]

57. According to SBAC figures, the average R&D intensity for a UKAI company was 12.3 percent of turnover in 2003,[125] and for the EU the figure was 14.5 percent.[126] Figures given for the proportion of companies' own R&D as a proportion of turnover vary widely: BAE Systems 13.1 percent, Rolls-Royce 5.0 percent, Cobham 4.9 percent, Smiths 4.2 percent, and Alvis 1.7 percent.[127] Some companies have increased their R&D expenditure, notably BAE Systems and Airbus; others, such as Rolls-Royce have reduced theirs.[128] International comparisons of aerospace companies' R&D intensity performance show that UKAI companies invest more in R&D than their international competitors. For example, of the top twenty aerospace companies in 2003, BAE Systems was ranked second, only behind Finmeccanica of Italy in terms of R&D intensity (Rolls-Royce was ranked 8th, Cobham 9th, and Smiths 11th).[129]

58. R&D spending by the UKAI contributes to productivity in the aerospace sector and in the wider economy too. Recent research by Oxford Economic Forecasting, undertaken for the SBAC, estimated that the cumulative effect of R&D spending by the UKAI at this level has boosted UK GDP by around 2.5 percent, most of which had been experienced outside the aerospace sector. The SBAC told us that this suggested: "aerospace punches above its weight in terms of its overall contribution to GDP".[130] Since R&D expenditure by aerospace companies comes out of their profits and those profits are being squeezed, it is clear that companies are unlikely to be able to increase their own expenditure on R&D to any degree in the future.[131] However, what matters is not so much what companies themselves are spending on R&D, as the level of overall national aerospace R&D expenditure, including public support for R&D, and how this compares with that of the UKAI's main competitors.


59. The UK is "strong on aerospace research and technology, with a resilient academic science and engineering base, and significant industry funding for applied research and technology".[132] The DTI told us that the Government had provided £141 million of support for UKAI R&D since 1997.[133] This had been provided mainly through the Civil Aircraft Research and Technology Demonstration (CARAD) programme.

60. Government funding, provided through CARAD, was aimed at helping 'key' sectors of the UKAI to maintain a technology base, which would be needed for UKAI companies to remain competitive in world markets. Funding was provided for long-term, pre-competitive R&D into airframes, avionics and aero-engine systems in the UK aerospace industry, universities and research establishments. When the CARAD programme was originally introduced, part of the funding was channelled through the then Defence Research Agency. This enabled the UK civil aerospace sector to gain access to the UK's leading aerospace research organisation. An example of the projects which were granted support through CARAD, was the construction of the European Transonic Windtunnel (ETW) for airflow testing, a collaborative project with Germany, France and the Netherlands, which is located near the Cologne/Bonn airport in Germany.[134] CARAD has now closed but existing projects will run to completion until 2007, with funding of £50 million during this period.[135]

61. The SBAC told us that UK Government investment in aerospace R&D had reduced "substantially in recent years […] investment in civil aerospace R&D via the DTI fell from £104 million in FY1972 to £21.1 million in FY2004".[136] Further, MoD air applied research funding had also fallen from £250 million to £185 million in the last six years.[137] The SBAC suggested to us that this had had "a major impact on the overall aerospace sector".[138]

62. We asked the DTI why the Government had ceased direct support to the UKAI for R&D through programmes such as CARAD. They told us: "what we have moved away from programmes which are geared to supporting particular sectors to programmes which are cross-sectoral in nature. If you take technology programmes, that is probably to the benefit of the aerospace industry because the amount of funding that they were able to access under the previous DTI technology funding was relatively limited, about £20 million a year. They [the UKAI] do not have a special fund for aerospace but they have access to a technology fund and as one of the two sectors in the UK, along with pharmaceuticals which are high R&D, that gives them probably more opportunity than they have with a smaller, dedicated fund".[139]

63. The support given for R&D under the DTI's Technology Programme (technology fund), for which the UKAI can now apply, includes the Collaborative Research & Development (CR&D) grant and Knowledge Transfer Networks (KTNs).[140] CR&D grants are designed to aid UK companies to take advantage of technological developments by reducing their financial risks. Grants are available for support of between 25 percent and 75 percent of the R&D costs. KTNs are aimed at helping UK companies find out what is new in technology, or national and international policies which may be of benefit to them. The KTNs can also aid UK companies to find suitable collaborative partners.[141]

64. DTI funding for the UKAI through the latest Technology Programme call for applications (April 2004) amounted to around one quarter of the £60 million distributed.[142] The Government also announced that just under £19 million of public funding (including money from the April 2004 DTI Technology Strategy call) will be made available for a National Composites Network to: "disseminate composites technology for the aerospace, automotive and other market sectors".[143] EU funding is also available for the UKAI from the Framework Programmes for R&D, of which around €800 million (over four years) has been earmarked for aerospace programmes. The DTI told us that the UKAI tends to gain between ten to 15 percent of this figure,[144] which translates to between £14 million and £21 million per annum.[145] The next call for Technology Programme applications was announced on 15 March 2004.[146]

65. UKAI companies are also eligible for R&D tax credits, through the Inland Revenue, and launch aid through the DTI. As the DTI told us, CR&D, KTNs and R&D tax credits are non-sector specific. We looked at these programmes in detail in our recent inquiry into the knowledge-driven economy and we do not discuss them further here.[147] However, launch aid remains a Government programme which is specifically aimed at supporting the UK's civil aerospace industry.

Repayable launch investment (RLI)

66. The UK civil aerospace industry receives assistance from the Government in the form of 'launch aid'. 'Launch aid' is a misleading name, since it implies a straightforward subsidy, whereas the money is intended to be repaid to the Government with interest. A more appropriate term, and the preferred term used within the industry, is 'repayable launch investment' (RLI).[148] The DTI describes RLI in the following terms: "Launch Investment is a UK government investment in the design and development of civil aerospace projects. It is repayable at a real rate of return, usually via levies on sales of the product. The government shares in the risk, as the company may not achieve sales at the level or price forecast. Launch investment is available only to the aerospace sector as outlined in the Civil Aviation Act 1982".[149]

67. Aerospace projects are characterised by high costs and long payback periods.[150] RLI is intended to remedy a deficiency in the capital markets, which arises from the reluctance or inability of companies or institutions to finance the heavy 'front-ended' development costs of new aerospace projects, since the return is high risk and long-term.[151] By providing RLI, the Government shares in the risk of a project, as a company may abandon the project or not achieve the level of sales, or the price, forecast. Aerospace projects are also highly international, and so RLI enables the Government to secure 'valuable' projects for the UKAI, which might otherwise be carried out elsewhere.[152]

68. The provision of RLI is entirely discretionary. There is no formal scheme, promotion or budget for RLI. Each application is considered on its merits against a range of established criteria and also, by the Treasury, against public expenditure constraints.[153] We asked the DTI what the process was, once an application had been made by a company, including how and when repayments were made. They told us that applications are subject to a rigorous evaluation with the following characteristics:

—  In applying for RLI, companies have to set out the nature of the project and their business plan for delivering it. The DTI undertakes market, financial and technical analysis of the project, including assessing the wider economic benefits to the UK;

—  Applicants must demonstrate that the project is commercially and technically viable, and that it would not go ahead without Government support;

—  Once an evaluation is complete, a recommendation is made to Ministers;

—  There is no guarantee that a positive recommendation to support a project will result in an offer to the applicant, and the decision to put public funds into a project is balanced against other public sector funding priorities; and

—  If RLI is offered to a company, a contract is negotiated which sets out the terms and conditions. Each project is different and therefore the terms and conditions of the contracts vary. They have evolved over time to take account of policy developments and to meet the UK's international obligations (for example, if European Commission permission is required); then

—  After the contracts have been concluded, the DTI holds regular meetings with the company concerned to monitor the progress of the project. [154]

69. RLI payments are made for eligible development costs to companies in the early years of a project. Repayments, when paid, are usually based on a per-aircraft or per-engine levy. These are set at a level to achieve the repayment of RLI with a target rate of interest and within a specified period of time.[155]

70. RLI is open in principle to any UK-based aerospace company. In the past, RLIs have tended to be large projects and relatively few in number. Since 1982, four companies—Airbus, Rolls-Royce, Westland Helicopters (now part of Finnemeccanica of Italy) and Short Brothers (now part of Bombardier)—have been provided with RLI. RLI has been granted to Airbus for the A320 and A330/A340 programmes and most recently for the A380 'super-jumbo' programme (£530 million). Rolls-Royce has been granted RLI for the development of the RB 211 engine, the Trent 'family' of engines, and recently the latest Trent 900 engine (£450 million) for the A380. Westland Helicopters have also received RLI for the development of the EH101 military utility medium lift helicopter, while Short Brothers received RLI for the development of the Lear 45 medium sized corporate jet. The DTI has noted that all these programmes have either repaid at their expected rate of return or are on course to do so.[156] Government expenditure on RLI from 1982 to 2003/04 was just over £2,039 million, while repayments amounted to just over £1,639 million.[157]

71. All our witnesses agreed that the continuation of RLI was essential for the UKAI to remain competitive.[158] The SBAC believes that RLI has been: "fundamental to maintaining leadership in technology, skills, product innovation and environmental enhancement. Aerospace firms are internationally mobile and will continue to be attracted by government support. Without RLI the UK civil aerospace industry will contract and the UK will lose a world class industry".[159] Mr Iain Gray, Managing Director of Airbus UK, told us: "Launch Investment is a hugely important part of Airbus. If we did not have the Launch Investment mechanism here in the UK, I do not believe we would have had the level of work that we have enjoyed both within our own company and the supply chain in the UK over the last decade".[160] Clearly there have been many UKAI projects which could not have proceeded, or would have required much greater foreign participation, but for RLI. Indeed, if the criterion that projects are supported only if they would not otherwise go ahead has been fully applied, none of the projects assisted would otherwise have proceeded.

72. Nevertheless, the industry has criticisms of the way the scheme operates. Mr Colin Green, Vice-President of the SBAC and President—Defence Aerospace at Rolls-Royce, told us that the programme was designated as a 'one time only' source of funding for a project as opposed to being part of an annual budget: "the overriding criticism we have had in the past has been that it is by its nature a one-off decision […] We [the SBAC] would like to see it being more recognised as a normal way of doing business rather than being treated as a one-off in every case".[161] The Royal Aeronautical Society (RAS) told us: "the difficulties faced by equipment manufacturers in qualifying for Repayable Launch Investment will undermine UK competitiveness as their financial and technical risks increased".[162] Although UKAI equipment companies are not specifically excluded from applying for RLI, according to the information given to us by the DTI, no equipment company has received launch aid since 1982.[163] Equipment manufacturers wishing to obtain RLI, such as Dowty in 1986-88, appear to have been discouraged from applying. This could be because the development of equipment costs less, has shorter timescales, and the probability of making a commercial return within a reasonable time scale is much higher for equipment manufacturers than for makers of airframes or aero-engines.[164]

73. We believe that the development of aerospace equipment has become increasingly complex, risky and expensive and in some cases these investments may represent a proportionally larger financial commitment by the companies concerned than investments which are currently supported by repayable launch investment (RLI). We recommend that the DTI adopts a more positive attitude towards applications by equipment makers for RLI, and that it takes into account the size and resources of equipment companies when assessing whether or not projects require RLI to go ahead.


74. We believe an important criterion on which Government support for the UKAI should be assessed is how it compares with the support given by foreign governments to the UKAI's main competitors and collaborators. Unfortunately, such comparisons are difficult to make, since not only do methods of support vary from country to country, but much of the support given to individual companies by governments is treated as confidential, especially for defence-related R&D.[165] However, Dr Sally Howes, Director General of the SBAC, told us that the AeIGT Report on the UKAI had estimated that support for research and technology (R&T) ( a stricter definition of R&D) by the US Government had provided investment to US civil aerospace companies worth £620 million in 1998, compared to government support of £120 million in Germany, £50 million in France and £20 million in the UK.[166] These figures suggested that the public support given to the UKAI for R&D was less than that given to the aerospace industries of the UKAI's main competitors by their governments.[167] However, the AeIGT Report readily admitted that its conclusions took no account of government support for UKAI R&D through RLI and R&D tax credits.[168] Further, since the report was published, increased support for the UKAI through the DTI's new Technology Programmes has also become available.

75. We asked the DTI if they could shed some light on the overall level of government support provided to the UKAI's main competitors through programmes such as RLI. They told us: "in order to get an idea of this you would need to see individual contracts. You would need to get into the detail of the agreements that the governments strike with the companies and of course that is highly commercially sensitive".[169] We were concerned with the apparent lack of UK Government information about the support given by other countries to their aerospace industries and asked the DTI how they would know other countries' aerospace industries were not being subsidised beyond 'reasonable grounds'. They told us: "there are a number of checks and balances in the system. For some launch investment, the European Commission will scrutinise the details. Under the 1992 agreement [The 1992 EC/US Agreement on Trade in Large Civil Aircraft], there are some transparency arrangements which we had in the US, where both sides would provide the other with details of support given to industry".[170]

76. We recommend that the Government conducts a study into the subsidies which are available to other aerospace industries within the EU. If such a study suggests that the UK's European competitors are giving aid to their aerospace industries which could infringe state aid rules, this should be reported to the European Commission at the earliest opportunity. If other EU Member States appear uncooperative, the UK Government should ask the European Commission to carry out its own investigation of assistance given to the aerospace industry across the EU.

77. We conclude that 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 Technology Programmes, such as the Collaborative Research & Development grants and Knowledge Transfer Networks programmes. Aerospace companies are also able to benefit from R&D tax credits. There is, as yet, little evidence as to whether these new funding streams will compensate the UKAI for the loss of the Civil Aircraft Research and Technology Demonstration (CARAD) programme. However, evidence from the distribution of latest round of Technology Programme funding, where the aerospace industry received a quarter of the £60 million, suggests to us that they might.

82   Appendix 7, para 2.1 Back

83   US airlines have been estimated to have lost a combined $20 billion in revenues during 2001 and 2002. Source: DTI/AeIGT, An Independent Report on the Future of the UK Aerospace Industry, June 2003, page 57 Back

84   For example see Appendix 7, para 2.1; Appendix 9, section 3; and DTI/AeIGT, An Independent Report on the Future of the UK Aerospace Industry, June 2003, page 57, para 5.3.1  Back

85   Appendix 9, section 3 Back

86   Datamonitor, Global Aerospace and Defense, May 2004 Back

87   OEF, UK Sectoral Prospects: Autumn 2004, October 2004  Back

88   DTI aerospace industry website (7 March 2005):  Back

89   Rolls-Royce website (7 March 2005):  Back

90   Appendix 9 Back

91   Appendix 9, section 3 Back

92   For example see: Appendix 14, para 3.2.3 Back

93   Q 255 Back

94   See Appendix 14 para 3.2 Back

95   Q 58 Back

96   Q 48 Back

97   Ibid. Back

98   International Traffic in Arms Regulations (ITAR), part 127.1 Back

99   Ibid., part 127.3 Back

100   Appendix 4  Back

101   Q 136 Back

102   Appendix 14, para 3.2.5 Back

103   Ibid. Back

104   MoD, Defence Industrial Policy, MoD policy paper number 5, October 2002  Back

105   HC Library, their reference: ENQ2005/2/119-IADS Back

106   Appendix 14, para 3.2.6 Back

107   Defence, Foreign Affairs, International Development and Trade and Industry(Quadripartite Committee on Strategic Export Controls), First Joint Report of Session 2004-05, Strategic Export Controls, HC 145, 23 March 2005 Back

108   Ibid. Back

109   Q 217 Back

110   Appendix 14, para 3.1 Back

111   Q 258 Back

112   Q 214 (DTI) Back

113   Q 259 Back

114   Ibid. Back

115   Appendix 9, para 4.5 Back

116   Ibid. Back

117   Bravura Consulting for Farnborough Aerospace Consortium, The True Cost of Subcontracting Work to Low Cost Economies, March 2004 Back

118   Ibid.  Back

119   Appendix 14, para 4.2 Back

120   ibid,, para 4.0 Back

121   Trade and Industry Committee, British Aerospace Industry, para 63 Back

122   Appendix 14, para 4.2 Back

123   Ibid., para 4.3 Back

124   DTI, The 2004 R&D Scoreboard, October 2004, page 30 Back

125   SBAC, Facts and Figures 2003, July 2004, page 21 Back

126   AeroSpace and Defence Industries Association of Europe, Facts and Figures 2003, October 2004, page 35 Back

127   DTI, The 2004 R&D Scoreboard, October 2004, pages 4 and 66 Back

128   Ibid., page 4 Back

129   Ibid., page 66 Back

130   Appendix 14, para 4.2 Back

131   ibid., para 2.1.2 Back

132   Appendix 9 Back

133   ibidBack

134   Trade and Industry Committee, British Aerospace Industry, para 64 Back

135   Appendix 9, section 7 Back

136   Appendix 14, para 4.5 Back

137   Q 20 Back

138   Appendix 14, para 4.6 Back

139   Q 202 (Mr Alty) Back

140   Appendix 10, section 2 Back

141   Ibid. Back

142   Q 219 Back

143   Appendix 9 Back

144   Ibid. Back

145   Assumes €1=£0.692. Source: AeroSpace and Defence Industries Association of Europe, Facts and Figures 2003, October 2004, page 37 Back

146   DTI, £100m Boost for Great British Ideas, press notice P/2005/091, 15 March 2005  Back

147   Trade and Industry Committee, Progress towards the knowledge-driven economy, Eighth Report of Session 2004-05, HC 432 Back

148   Appendix 14, para 6.3.1 Back

149   DTI website (9 March 2005): Back

150   Appendix 9, section 7 Back

151   Q 203 Back

152   Appendix 9, section 7 Back

153   DTI website (9 March 2005): Back

154   Appendix 10, section 1 Back

155   Ibid. Back

156   Ibid. Back

157   Ibid. Back

158   For examples see: Appendix 2, para 3.3 and Appendix 14, para 6.3.1 Back

159   Appendix 14, para 6.3.1 Back

160   Q 70 Back

161   Q 41 Back

162   Appendix 13, para 5 Back

163   Appendix 10, section 1 Back

164   Trade and Industry Committee, British Aerospace Industry, para 85 Back

165   Q 204 Back

166   Q 20 Back

167   See Qq 164 and 116 Back

168   DTI/AeIGT, An Independent Report on the Future of the UK Aerospace Industry, June 2003, page 49 Back

169   Q 207 Back

170   Q 208 Back

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