Aerospace: an international success story

Aerospace: an international success story

Sector Overview

  • Gross Value Added: £5 billion[61]
  • Jobs: 100,000[62]
  • Jobs/wider supply chain: 230,000
  • Exports: £20 billion
  • Exports to EU: 27% of total
  • UK global market share: 17%
  • Companies: 490 companies
  • Companies (wider supply chain): 3,000 companies,
  • 230,000 employees
  • UK Turnover: £24 billion [63]

The UK is home to the world’s second-largest aerospace sector.[64] With world-class capabilities in the development, design and manufacture of some of the most sophisticated and high-value parts of modern aircraft, the UK’s aerospace sector is an international success story.

The sector is also notable for the large number of small and medium-sized businesses active in the UK, with more SMEs active in the UK than in France, Germany, Italy, Spain and Norway combined.[65]

75% of the UK’s civil aerospace gross output is exported.[66] The UK’s focus on the supply of parts, systems and services - rather than assembly - means that demand for products is focused around the major manufacturers. In 2011, sales to the EU showed the strongest growth (16.9%) followed by the US (13.3% growth).[67]

Global Trends

By 2030 growing demand will require more than 27,000 new planes and 40,000 helicopters worldwide. With orders alone worth over trillion[68] and a growing market for services and maintenance, the UK is well positioned to take advantage of these opportunities.

Global demand is split between emerging markets where air travel is expected to grow significantly, and mature markets where airlines are replacing existing capacity with more fuel-efficient models.

Cost pressures and tightening environmental standards are the key drivers of change in the sector. With fuel costs representing a third of airline operating expenses,[69] the reward for developing new technologies that help reduce costs is significant.

Increasing R&D intensity means that international co-operation will be vital to the future competitiveness of the UK. €7 billion of civilian aerospace research and development was funded by companies, the EU and national governments in Europe in 2011.[70] EU expenditure is proportionally twice as high as US spending.[71]

The UK government’s support for the sector has been an important additional element supporting the UK’s competitiveness. The recently announced Aerospace Technology Institute will see £2 billion of government and industry funding over the next seven years to help the UK maintain its competitive advantage. [72]

The growing importance of service provision to support products After-sales services like maintenance and technical support are growing at over 4% annually. However, for UK companies, gaining access to foreign markets often requires companies to overcome significant non-tariff barriers.

Case Studies: the UK aerospace industry rests on complex supply chains

Bombardier Aerospace: The largest manufacturer in Northern Ireland produces advanced composite wings for the new Bombardier CSeries aircraft, fuselages and advanced composite structures for Bombardier commercial and executive aircraft, as well as supplying aircraft engine nacelles to Airbus, Rolls-Royce and General Electric.

AgustaWestland: Britain’s only helicopter manufacturer, AgustaWestland is deeply embedded in the UK’s advanced manufacturing base and directly employs 3,280 people while supporting a further 10,000 jobs in the supply chain, including 650 small and medium sized enterprises.

Park Air Systems: The world’s leading manufacturer of ground-to-air communication systems for civil and defence aviation environments, Park Air Systems have been highly successful at opening up new markets in their field . In 2012, Park Air Systems exported products to over 80 different countries. The highly-successful medium-sized business has won contracts around the world supplying radio systems for airports in developing and developed markets. They are well placed to capitalise on the increasing demand for air travel in Africa, Asia and South America

GKN: A leading tier one aerospace business, GKN has 7 UK plants in addition to major operations in elsewhere in Europe and in the USA. GKN works with all the major aircraft manufacturers producing a range of parts including complex, high-value metallic and composite aero-structures and engine components, and transparencies.

Advantages of EU membership: the EU has helped drive technological development

The creation of a pan-European market for research and development has been a powerful driver of innovation and productivity. Programmes like Horizon 2020 and FP7 have harnessed the EU’s ability to facilitate cross-border collaboration reducing cost and risk in technology development and driving critical mass, as well as integrating private-sector and university innovation funding in the aerospace sector.[73]

The creation of a common labour market has helped European aerospace companies whose operations are often highly specialised work effectively across national borders. Employees from across the Airbus Group are able to transfer across the groups major sites in France, Germany, Spain and the UK.

The EU’s open capital markets have been a major boost to helping companies fund the development and commercialisation of cutting-edge technology and finance sales of products to customers in the UK and abroad.

Challenges of EU membership: the Emissions Trading Scheme has created a backlash

The EU’s introduction of an emission trading scheme for air travel in the EU without agreement from the sector’s major international trading partners has caused tensions and has led to significant delays and cancellations of orders with key customers including China.

75 %

Percentage of UK civil aerospace output exported

Forward Agenda: UK aerospace needs continued access to the EU Single Market

The UK aerospace industry is part of complex pan-European supply chains. The maintenance of pan-European innovation strategies, giving companies and research institutions access to EU and national funding to promote and fund R&D, is essential to ensure that the EU industry as a whole is well placed to capture new opportunities.

The industry needs access to skilled labour – particularly across the EU given where the UK’s value chains are located.

Ensuring that access to finance for customers and supply chains is not adversely impacted by changes in financial regulation particularly, in areas such as the use of financial instruments for raising debt and managing risk, will be important.

Long-term clarity on EU energy, energy security and climate change policy, to provide greater certainty for firms to make decisions about market conduct and structure, and investment in new technologies, is vital.


References

[61] ONS, 2010

[62] ELMR

[63] Aerospace Growth Partnership, ‘Lifting Off – Implementing the Strategic Vision for UK Aerospace’, 2013

[64] Aerospace Growth Partnership, ‘Lifting Off – Implementing the Strategic Vision for UK Aerospace’, 2013

[65] ADS, evidence to House of Lords European Union Select Committee on ‘The Effectiveness of EU Research and Innovation Proposals’, 2013, available at

[66] ADS website, ‘Aerospace’, accessed September 2013, available at

[67] House of Commons Library, ‘The UK Aerospace Industry’, 2012

[68] Aerospace Growth Partnership, ‘Lifting Off – Implementing the Strategic Vision for UK Aerospace’, 2013

[69] IATA website, ‘Fact Sheet: Alternative Fuels’, accessed September 2013, available at

[70] ACARE, ‘Towards a European Strategic Aviation Research, Development, Testing & Evaluation Infrastructure: Report of the Independent Expert Group’, 2013

[71] Booz & Co, ‘The Global Innovation 1000: Comparison of R&D spending by regions and industries’, accessed September 2013, available at

[72] Aerospace Growth Partnership, ‘Lifting Off – Implementing the Strategic Vision for UK Aerospace’, 2013

[73] ADS, evidence to House of Lords European Union Select Committee on ‘The Effectiveness of EU Research and Innovation Proposals’, 2013, available at