UK aerospace body calls for EU membership beyond 2019

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UK aerospace and defence trade association ADS is pushing for the UK to remain an EU member state during a post-Brexit transitional period, until the country's future trading relationship with the bloc has been determined.

Speaking before the UK parliament's Business, Energy and Industrial Strategy Select Committee, which is looking into the impact of Brexit on the country's aerospace sector, ADS chief executive Paul Everitt said today that member companies wanted the current "status quo" to be maintained throughout any transitional period following the UK's scheduled departure from the EU in March 2019.

"For us, status quo means retaining our EU membership during that period," says Everitt. "That's important for our sector because much of our regulatory framework is shaped by our membership of the EU."

He says: "The reason why we think it is the best deal to stay an EU member state during the transition is because we have a whole series of bilateral agreements that would have to be negotiated and in place at the moment that we cease to be an EU member state."

As it currently stands, he notes, "that would be at the end of March 2019".

Everitt said that UK government proposals to implement a transitional period on "current terms" were "reassuring". But he urged policymakers to have "some of kind of formal recognition" that there will be a transitional period. Such commitment should "ideally" be made by year-end, he says – adding: "certainly as early as possible in 2018".

Leaving the EU without a deal would be the "worst possible outcome from an industry perspective" and lead to a "chaotic" situation, Everitt said.

Despite the demand for a transitional phase, he called on the government to create clarity rather than having an indefinite period of gradual or prolonged change: "We are very keen there is only one step from current conditions to the future ones and having a clear period for us to implement that [change]."

Asked whether two years would be enough, he says a 24-month transition would be a "good start – certainly better than none". However, he added: "Whether that is sufficient will depend on what a final deal looks like".

Airbus UK senior vice-president Katherine Bennett – who also spoke at the hearing, along with the UK Royal Aeronautical Society's president-elect Simon Henley – said that "some firm decisions" were needed "as soon as possible".

She said that "we are fortunate" that no large investment decisions regarding potential new aircraft developments are on the "near-term" agenda. But she cautioned that "soon" there may be a need to make plans for future programmes, adding that "uncertainty breeds uncertainty".

In the space sector, conditions seem to have started to deteriorate for UK suppliers since the Brexit vote. Henley says several UK companies have reported being excluded from bidding processes for Europe's Galileo satellite navigation programme.

Henley acknowledges that the UK's membership of the European Space Agency (ESA) is not part of the Brexit talks as it is "not an EU body". But he notes that many ESA projects are EU-funded – including Galileo - where there is a requirement for suppliers to be in a member state.

He says: "We are already seeing that contracts are turned away from UK industry because of the uncertainty."

Everitt says that UK suppliers, which work on certain space projects, including Galileo, have been required to specify where their supply chain will be located after March 2019.

The UK's space industry is Europe's largest and that "UK businesses have done particularly well from those space programmes", Everitt says. He notes the UK space industry employs around 40,000 people with an annual turnover of "[£]14 billion" ($18.5 billion).

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"The Brexit process is not one that is helping our reputation as sort of solid, global citizens," claims Paul Everitt, chief executive of the UK aerospace and defence trade association ADS.

Speaking during a 21 November parliamentary hearing on the impact of Brexit on the country's aerospace sector, Everitt said aerospace suppliers depended on "globally" recognised regulatory oversight in order to address international markets.

Noting that the Americas, Europe and China represent three major regions for aerospace manufacturing, he says: "If we don't have a regulatory regime that is recognised globally, then we cannot sell our products."

Should the UK not remain under European Aviation Safety Agency jurisdiction when it leaves the EU in March 2019, an "alternative arrangement" must be in place.

"At the moment, our fallback position is that we would invite the European Aviation Safety Agency or the [US] Federal Aviation Administration to certify our facilities and our products – and we would pay [them] for the privilege of doing that," he says.

This would involve a "school of special measures" under which international authorities would "come over and help us out". But Everitt adds: "That's not a long-term solution, because the costs are many, many times what our current cost base would be."

In the "very short term", Everitt says UK suppliers will have "no choice" but to absorb the additional costs to continue serving existing contracts. But in the long term, he suggests, that could make UK suppliers less competitive. "It would be much more difficult to persuade people that they should be continuing to invest in the UK and stick with the UK," he says.

The UK Royal Aeronautical Society's president-elect, Simon Henley – who also spoke at the hearing, along with Airbus UK senior vice-president Katherine Bennett – is doubtful the country's Civil Aviation Authority is in a position to reassume responsibilities that have been handled on a European level since EASA's establishment.

"There is no indication, if anything there is negative indication, that all our expertise – UK [regulatory] expertise vested in EASA – will want to come back," he says. "Professionally, it doesn't make sense. If you are working in a global body, there is very little attraction professionally to come back to work in a body with a smaller scope. So we would almost have to start again, and those resources are really not there."

He notes that EASA was established over several years that included a five-year interim phase during which national regulators collaborated through the Joint Aviation Authorities organisation. "That was with all expertise actually being pulled from existing bodies," Henley adds.

"I think the [UK] CAA would feel very nervous to stand up in two years or even two and a half years," he says. "That's a very ambitious target to rebuild that capability."

For Airbus, the prospect of the UK handling all regulatory requirements on a national level is likely to reduce the influence of the country's aerospace sector on an international stage. Referring to the UK aerospace industry as a whole, Bennett says: "We have the largest aviation sector in Europe. Surely we should have a strong voice."

However, she says re-establishment of national authorities will be a step back from ongoing efforts to align regulations at International Civil Aviation Organization (ICAO) level. "We don't want double regulation... Going back to the CAA days is not optimal for anyone in this industry," Bennett says. She notes that greater international harmonisation by ICAO is "where we want to go", adding: "We don't want to go back to a little-island mentality."

Bennett says the potential re-establishment of a national UK regulatory regime would have no impact on Airbus's ability to influence EASA's rulemaking, because "we can make our points known" through the airframer's presence in other EU member states. But referring to the country's entire aerospace sector, she says: "I think it is a shame for the UK."

ADS's Everitt acknowledges that existing customers of UK aerospace companies will not "willingly or easily" find alternative suppliers, because "there is always a cost associated with realigning supply chains". Nevertheless, he warns: "Clearly, depending on what the future looks like, people would make those decisions."

Asked whether a reassertion of national regulatory authority by the UK would help the country's aerospace sector to find new international business opportunities post-Brexit, Everitt says: "A chaotic departure from the EU would make it even more difficult to encourage businesses to want to invest here and customers to see us as a place to purchase goods and services."

He indicates, in particular, the importance of EASA's regulation being aligned with the FAA's, and says any national post-Brexit regulation will need to be similarly harmonised.

"Our route to market is very much facilitated by the regulatory regime. So without that regulatory regime, we don't have a route into global market, whether these are European, US or China, because of the mutual-recognition arrangement," he says. "So not having that arrangement will make it more difficult for us to be able to access those important markets."

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For all its corporate reshaping, Airbus is still a highly political animal, and remains attuned to the winds blowing from Berlin and Paris.

With that in mind, there can be little question that Katherine Bennett, the head of its UK operation, knew exactly what she was saying when she warned parliamentarians that Brexit risked jeopardising the future of its wing production in the country.

Airbus has two sites in the UK: Filton, near Bristol, and Broughton in North Wales, the latter making the wings for the airframer’s entire civil range.

Wing expertise is, as Bennett puts it, the “jewel in the crown” of aerospace design and manufacturing.

Of course, it would not be easy for Airbus to simply up sticks from either site, particularly during a period when its focus is on getting its products out of the door, and doing so at a faster rate than ever.

The airframer will not place at risk output ramp-ups now, but the litmus test will be the next programme, or the one after that.

Will Airbus continue to invest in its UK sites if they cannot remain competitive against other locations? Bennett thinks not, pointing out that other countries are already “knocking at the door”.

Although parts for transport-category aircraft are tariff-free under World Trade Organization rules, added customs bureaucracy and varying certification standards are the sort of headaches Airbus can well do without.

One also imagines, although Bennett did not say it, that if the UK is unable to give Airbus the assurances of a “soft Brexit”, then it would much rather invest in any of its three home markets, or even a potential partner like Poland, than give more money to les rosbifs.

Short of ending the whole Brexit madness, the next best thing will be for the government to present the country’s aerospace industry with tangible solutions to the issues it will be facing in less than 18 months’ time.

Brexiteers blame Brussels for the deadlock, citing an unwillingness to engage in trade talks, but the fact remains that these problems were predicted from day one.

The UK government believes the country’s aerospace and high-tech manufacturing sectors are vital components of its future growth, post-Brexit.

It is right to think so, but unless there is a cohesive and coherent strategy underpinning those words, the industry will be unable to fulfil its promise.

It is not too late to bring order from this shambles, but the clock is ticking.