The impact of Brexit on the aerospace sector Contents


Background on the aerospace sector

1.The aerospace sector is a key contributor to the UK’s manufacturing economy. The manufacture and repair and maintenance of air and spacecraft1 accounts for 0.7 per cent of total UK output and 7 per cent of manufacturing output.2 It employs 114,000 people. These jobs are spread through the country, with important hubs in, for example, the South West, the East Midlands, the North West, Wales and Northern Ireland.3 The sector is also highly productive, having output per employee levels 18 per cent higher than the manufacturing average and 49 per cent higher than the economy as a whole. Productivity has grown by 3.7 per cent per annum since 1990.4

2.UK aerospace growth has remained robust since the vote to leave the EU in June 2016, supported by record rates of international aircraft deliveries.5 The volume of both production and repair and maintenance of air and spacecraft grew 8 per cent in the UK in 2017, far outstripping overall economic growth and up from 6 per cent and 5 per cent respectively in 2016.6

3.Aerospace is a trade-orientated sector. Exports amount to around £15bn a year, about half of the sector’s £32bn turnover, and imports come to around £14bn. The sector is further characterised by a high degree of concentration (large firms account for over 90 per cent of turnover and employment),7 strong returns to economies of scale and “deeply integrated, pan-European supply chains”.8 UK aerospace exports are highly dependent on participation in the European and global supply chain, since the sector is highly specialised in a few key areas. The bulk of exports are of parts (predominantly wings, fuselage, landing gear and engines) rather than whole aircraft.9 The OECD estimates that around 40 per cent of the value-added in UK aerospace gross exports originates abroad.10

4.The global market for civil aircraft is dominated by Boeing and Airbus, both benefitting from economies of scale at a continental scale in order to be internationally competitive. Airbus describes itself as “structured around a four ‘home-country’ model which relies on the seamless flow of goods, people and intellectual property across France, Germany, the UK and Spain”.11 The other major firms present in UK civil aerospace are Rolls-Royce, Bombardier, GKN and Leonardo Helicopters.12

5.There are inherent advantages to incumbency in aerospace, and the UK sector has capabilities in certain specialisms not currently matched elsewhere in the world.13 Nonetheless, the UK faces stiff global competition. Airbus told us that “every single site in Airbus, whether it is in the EU or outside the EU, has to compete for every piece of investment” and that “other countries would dearly love to design and build wings … We actually do build wings in China now, and believe you me they are knocking on the door as a result of the situation we are in in this country.”14 Moreover, the repair and maintenance sector enjoys less of an advantage from incumbency and could lose competitiveness rapidly.15

6.According to the Department for Business, Energy and Industrial Strategy (BEIS), “Within the EU, there is a high degree of collaboration between companies and governments (UK, France, Germany and Spain, in particular) to apportion risk, costs and capabilities to achieve economies of scale”.16 The Aerospace Growth Partnership between government and business was formed in 2010 and notably resulted in the setting-up of the Aerospace Technology Institute to advise on sectoral technological strategy.

Our inquiry

7.This is the third in a series of reports we are publishing on the impact of leaving the European Union on specific sectors of the economy.17 In the absence of any published impact assessment, this report contains our assessment of the consequences for the aerospace sector of different outcomes of the negotiations and seeks to establish what type of withdrawal agreement would most benefit the sector and, consequently, the UK’s broader economic interests. We aim to inform public debate and influence the Government’s negotiating approach and priorities.

8.As part of this inquiry we received ten submissions of written evidence from businesses and other stakeholders. We took evidence in public from some of them and from the Secretary of State for Business, Energy and Industrial Strategy, the Rt Hon Greg Clark, MP. Similarly, we have seen the full, unredacted versions of the aerospace sector analysis carried out by the Government and its Cross Whitehall Briefing on exiting the EU. During a visit to Brussels we held private meetings with UKREP18 and with the General Aviation Manufacturers Association. We are very grateful to all those who have contributed to our inquiry.

1 SIC codes 30.1 Manufacture of air and spacecraft and related machinery and 33.16 Repair and maintenance of aircraft and spacecraft

2 Office for National Statistics (ONS), UK GDP(O) low level aggregates, February 2018

3 ONS, UK business register and employment survey (BRES), Table 2, October 2017 and House of Commons Library Briefing Paper, The aerospace industry: statistics and policy, November 2017. Regional figures are SIC 30.1 only.

4 Staff calculations and ONS, UK GDP(O) low level aggregates, February 2018 and Employee Jobs by Industry, December 2017. Figures are for SIC 30 Manufacture of other transport equipment (so include shipping etc).

6 ONS, Index of Production time series database, 9 February 2018 release

7 BEIS, Business population estimates 2012–2016, November 2017 and HMRC, UK Trade Info, Data by SITC code, retrieved 28 February 2018

8 ADS Group (BRS0006)

9 Unite the Union, (BRS0003)

10 OECD.Stat, TiVA Nowcast Estimates, accessed February 2018. Figures are for Manufacture of other transport equipment (so include shipping etc).

11 Airbus, (BRS0012)

12 Exiting the European Union Committee, DExEU Aerospace Sector Report, December 2017

13 UK Trade Policy Observatory, (BRS0005)

16 BEIS (BRS0011)

17 The Committee published its Second Report of Session 2017–19, Leaving the EU: implications for the civil nuclear sector, HC 378, on 13 December 2017 and its Fifth Report, The impact of Brexit on the automotive sector, HC 379, on March 2018. Further reports will be published on the pharmaceuticals and processed food and drink sectors.

18 The UK Permanent Representative to the European Union.

Published: 19 March 2018