Select Committee on Trade and Industry Ninth Report

Conclusions and recommendations

Recent challenges faced by Airbus

1.  Since its creation almost 40 years ago, Airbus has developed into a major player in the large civil aircraft market and, until recently, has been ahead of Boeing in terms of orders won. In the past twelve months, however, the company has faced a number of challenges. These include a loss of competitiveness resulting from the weak US dollar; cost overruns and delays on the A380 aircraft; and the need to find finance for its new A350 XWB programme. Overcoming these difficulties will be crucial to the company putting itself on track to recovering its market position in the future, and meeting the challenge laid down by its rival, Boeing. (Paragraph 12)

A350 XWB work allocation

2.  Against a backdrop of BAE Systems' sale of its stake in Airbus, and technological competition in composite materials from other countries, we commend Airbus UK and the Government for securing a 20% work share for the A350 XWB programme. Leadership on design and assembly, as well as manufacture of the wing trailing edge, and front and rear spars, should secure the future role of Airbus UK for the foreseeable future. (Paragraph 19)

Airbus's restructuring

3.  The future of wing part manufacturing at the Filton plant is dependent on Airbus finding a risk-sharing partner for the site. This will assist its transition from metallic to carbon fibre composite design and manufacturing technology. Airbus UK is still in negotiations with interested companies, although a conclusion is expected very soon. Both the industry and the Government are confident that a suitable partner will be found which will help ensure the future of wing part manufacturing at the site. We are encouraged by these developments and share the participants' optimism. (Paragraph 22)

4.  Whilst job losses are regrettable, we accept that the 1,509 that Airbus plans to shed in the UK represent a fair allocation of redundancies from the 10,000 jobs, which will be lost across the company. We hope Airbus UK will work with the unions to agree appropriate measures to implement these cuts gradually. We are concerned, however, that the recent change in the French Presidency risks leading to a re-opening of negotiations among the parent countries on the implementation of Power8. We encourage the UK Government to work towards avoiding this possibility, and, in the event of any suggestion of new arrangements that may be less advantageous to the UK, to show the same commendable dedication and determination it showed in arriving at the current agreement. (Paragraph 25)

5.  greater levels of outsourcing for the A350 XWB represent both an opportunity and a threat to the UK. It is a challenge to which we believe supply chain firms here will be able to rise—a view shared by the Society of British Aerospace Companies. (Paragraph 27)

6.  We congratulate Airbus UK and the Government on securing the role of Centre of Excellence for Wing and Pylon. Overall leadership of wing development, manufacture and assembly for future programmes will give the UK a major involvement in composite technology and help ensure the company's presence in the UK in the longer term. (Paragraph 29)

Government's future role

7.  Without a significant UK shareholding in Airbus, the Government's bargaining position vis-à-vis the other parent countries has been weakened. Whether the emphasis of the UK Government's negotiating strategy for Power8 and the allocation of A350 XWB work packages was on the 'carrot' or the 'stick', the approach worked in terms of achieving a successful outcome for the UK. This is encouraging, given that it is the only modus operandi now available to the Government. We hope, though, that through its negotiations, the Government has not undermined the undertakings agreed with EADS designed to ensure that work package decisions affecting the UK are taken on commercial grounds, free from political interference. (Paragraph 34)

8.  Ongoing investment in research and technology (R&T) development is vitally important for Airbus to remain competitive with Boeing in the long term. European governments therefore have an important role to play in leveraging greater funding for R&T from the aerospace industry. In this context, the UK Government has begun to fulfil its part by doubling its expenditure on civil aerospace R&T to an annual figure of around £45 million. We welcome this increase, but note that it is still well below the £70 million per annum the industry says it needs to implement the National Aerospace Technology Strategy. Given the likely fiscal tightening under the 2007 Comprehensive Spending Review the main way in which the sector is likely to raise its funding further is through more successful applications to the Government's Technology Programme, vis-à-vis other industries. We welcome, too, reforms to the Technology Strategy Board, which should help address concerns regarding the long-term sustainability of R&T funding for aerospace. (Paragraph 42)

9.  Looking forward, following the implementation of Power8, we hope that European governments do not engage in potentially wasteful competition between partner countries on overlapping R&T support. Rather, governments should seek to develop a co-ordinated approach to R&T that ensures the long-term competitiveness of Airbus versus its American rival. (Paragraph 43)

10.  The UK's civil aerospace industry is spread widely across the UK, with a few examples of clusters, such as at Broughton in north Wales, and Filton in the south west. Because of the importance of the sector for many regions, the Regional Development Agencies (RDAs) are now playing an important role in providing R&T funding to the industry. Both Airbus UK and the Society of British Aerospace Companies expressed to us their concern at the level of co-ordination between the regions in the delivery of the National Aerospace Technology Strategy (NATS). We welcome the reforms the DTI has put in place to reduce the administrative burden for firms seeking support but we urge the Department to keep these arrangements under review. We hope, too, that it will engage fully with the RDAs to ensure they work together, and not in competition. Aerospace is an international business and, where UK public support is appropriate, it must not be fragmented. (Paragraph 48)

11.  we support the EU in its WTO case against the US, noting the very high level of public subsidy Boeing receives, not just domestically, but also through other countries involved in the 787 Dreamliner programme. We urge all those responsible for negotiations on the dispute to recognise the scale of Boeing's support coming from other countries and particularly from Japan. (Paragraph 51)

12.  A key challenge for the UK relates to the research and technology required for future Airbus projects—in particular, the anticipated replacement of the single aisle A320. Around 70% of the estimated potential demand for aircraft over the next 20 years is expected to be single aisle. The Managing Director of Airbus UK, Iain Gray, said to us the company is "at a crossroads", but that "with the right levels of investment, the right commitments from the company, from government and the supply chain, Airbus has a rosy future and can secure its share of what is a 22,000 aircraft market over the next 20 years". In turn, the DTI told us: "the UK now has an opportunity … to assure ourselves of a strong position in the world" and that this is dependent on proper investment in R&T and skills, and on maintaining a business environment that allows the UK's aerospace industry to continue to flourish. We agree. (Paragraph 53)

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