Foreign visitors hoping to catch a glimpse of the legendary British stiff upper lip could be in luck this week at the Farnborough International Airshow, with the UK aerospace industry having to put a brave face on the June 23 referendum vote that is set to cast the country out of the European Union (EU). The industry faces uncertainty as to what the so-called Brexit vote will mean in practice, with many leading executives having warned that life outside the EU could result in curtailed investment, restricted trading opportunities and roadblocks to key partnerships.
Britain’s lame-duck Prime Minister David Cameron is expected at Farnborough this morning, but even if you get his ear for five minutes, it seems unlikely he’ll be able to tell you how the next act of the Brexit drama will play out. Whoever succeeds him following an internal Conservative Party vote to be counted on September 9, will face the task of leading a divided government into negotiations that will determine the terms under which the UK will leave the EU—and, critically, the extent to which the country may (or may not) have access to the single European market.
Speaking with AIN on the eve of the Farnborough show, Paul Everitt, CEO of British industry group Aerospace, Defence, Security and Space (ADS), said that while he and his colleagues had strongly advocated keeping the UK in the EU, he nevertheless feels that the long-term health of industry is safe. “It is important that we help overcome the impact of uncertainty [about the terms for Brexit] on future investment in the industry,” he commented. “We could wait until we understand all of the details of the negotiations. But if we do that, we risk having lower than ideal levels of investment for the next two years.”
ADS has urged the British government to start offering stronger tax incentives for companies to invest in the UK’s aerospace and defense sector, to help overcome any reservations investors may have over the country’s future status. “They need to send a strong signal about the attractiveness of the business environment here,” Everitt said.
Referring to the many complexities to be resolved by the UK/EU negotiations, Everitt said that, “We need to have unfettered access to the single market because we want to make it as easy as possible for our industry to do business across Europe. We are the largest aerospace and defense market in Europe; it doesn’t make sense to arrive at a situation where we have artificial barriers.”
However, top EU leaders have clearly indicated that Britain cannot expect unconditional access to its single market without making major concessions on issues such as free movement of labor across EU borders, and this is a major sticking point for many Brexit supporters.
Speaking at the UK’s Royal International Air Tattoo show last week, UK defense procurement minister Philip Dunne played down the dangers posed by Brexit. “It does not mean we are retreating into a shell,” he told reporters. “We have the strongest defense and security supply chain in Europe. A senior person in the aerospace industry told me this week that we will be broadly unaffected.”
Brain Drain?
Quite apart from the loss of new inward investment, the UK industry is very concerned about threats to recruitment and partnerships if EU citizens lose the right to work in the country. Also in question is whether UK firms can continue to benefit from EU-funded research and development programs. “We are looking into how this could be resolved, because UK influence could be diminished,” warned Everitt. “But the bigger concern is about us being able to access a wider talent pool.”
Phil Seymour, CEO of UK-based consultancy the International Bureau of Aviation (IBA). maintained that in the long-run Brexit need not permanently disable British industry, although he warned that it could impact growth among low-cost carriers in Europe. “There will be some uncertainty, and the sooner we have a government getting on with Article 50 [the two-year process determining the terms under which the UK leaves the EU] the better,” he said. “When I consider previous issues like 9/11, the SARS crisis and the first and second Gulf Wars, these things all became blips [in terms of their impact on the industry]. If Airbus decides it needs to make wings somewhere else, they wouldn’t just be able to make this change overnight, so I like to think that would have an impact.”
Orders Slow
Along with other industry observers, IBA is expecting a relatively quiet Farnborough show, with newly announced business not expected to get anywhere close to the record $200 billion-plus figure achieved at the 2014 event. “New product launches, like those we saw around 2009 and 2010 with the [Airbus] Neo and the [Boeing] 737 Max, create a lot of sales momentum,” Seymour commented. “But now there are no significant new aircraft types being launched. Although we will see some new orders this week, they will be fewer in number and in some cases will involve confirmation of existing options.”