While politicians, citizens and business people digest the shock of the UK’s 23 June referendum vote to leave the EU, one word crops up repeatedly in any attempt to anticipate the implications: uncertainty.
Those implications – political and economic – will without doubt be shaped by the simple fact that the UK is, after Germany, Europe’s second-largest economy, roughly on a par with the other big countries – France and Italy. But for the aerospace industry, the UK is in a league of its own. Second globally only to the USA, British aerospace companies generate £31.1 billion ($42 billion) in sales – including £27 billion of exports, £8 billion of which goes to the EU – supporting 128,000 direct and 154,000 indirect jobs, according to the latest figures from the UK’s ADS industry association.
How much the UK’s hefty presence in aerospace moderates the forces of change remains to be seen. Much, clearly, will depend on the terms of the UK’s divorce from Europe, and much will depend on how business leaders decide to react – which will depend largely on the outcome of political negotiations. As ADS chief executive Paul Everitt noted after the vote: “The aerospace, defence, security and space industries will work with government to minimise the negative impacts of the decision to leave the EU, creating an environment in which these strategically important sectors can continue to prosper.”
He added later: “Thursday’s outcome was not the one UK industry would have preferred. Where we are today is in a challenging environment. There are a number of challenges, in the short term, medium term and long term.
“We will have to get used to…day to day volatility [over the next few months].”
Critically, says Everitt, in the short term it is vital for government to try to calm the markets and continue to work together with industry “to send that message of stability and that the government remains committed to industrial strategies”. Also important, he stresses, is a government determination to maintain the UK’s access to the single market and European talent pool.
Major UK aerospace manufacturers took a similarly cautious – and disappointed – line. GKN was firmly in the “remain” camp but after the vote stated: “As we said we believed that it would be better in the long term for UK business if Britain remained a member of the EU. However, GKN is a global company with less than 15pc of activity in UK. We do not anticipate negative impact to the overall group and we will work hard to try to ensure UK operations do not lose out over the long term.”
BAE Systems stated: “We respect the decision by the British people to leave the EU. While we await the outcome of the UK’s negotiations with the EU, we do not anticipate any immediate or material direct impact on our business.”
And, as Rolls-Royce put it: “Although this is not the outcome the company would have chosen, Rolls-Royce remains committed to the United Kingdom where we are headquartered, directly employ over 23,000 talented and committed workers and where we carry out a significant majority of our research and development. The UK’s decision will have no immediate impact on our day-to-day business. The medium and long term effect will depend upon the relationships that are established between the UK, the EU and the rest of the world over the coming years.”
But at least one notable UK firm – Britten-Norman, the country’s sole remaining privately owned aircraft manufacturer, which makes the Islander and Defender utility aircraft at its plant on the Isle of Wight, sees itself as working in a very different environment than the big players – and came out clearly in support of a British exit. Though for 45 years it has relied in part on sub-assemblies made in Romania, which itself recently joined the EU, Britten-Norman said:
“Many of the former household names of the UK aircraft industry have now either been forced into liquidation or else been conglomerated into multinational organisations that are able to withstand the barriers to entry that have been progressively erected within the industry. Regulations are, for the most part, written around the largest entities in European aviation, primarily focussed on Toulouse, and are inappropriate for small to medium sized entities where a leaner, more entrepreneurial approach is required to remain competitive and to be internationally successful.”
For the UK’s airline industry, the implications of a British exit from the EU may prove more immediate – and highly negative, in the opinion of Peter Morris, chief economist at Flight Ascend Consultancy:
“The first context is the EU aviation regulatory framework, within which the UK and its airlines have prospered mightily, inside and outside Europe. In an upcoming divorce, of course, we will no longer be in the realms of common sense, and we cannot take a continued framework for granted. Anything from travel visas to a return to bilateral route negotiations is on the table. All we can say is that it will surely never be that good again for UK-based airlines and their passengers.
“This leads on to the aviation supply side. If an airline now looks at business prospects in an EU (ex-UK) market of 440 million population, the business potential there far exceeds that of a UK market of 60 million.”
Source: FlightGlobal.com
