Story ID: 334
European Aerospace Braces for Hard Brexit
By: Cathy Buyck
Caption: UK’s exit from EASA could halt aerospace production lines, warn executives.
Word Count: 1092
A former Airbus CEO used to say the company is the part of Europe that works. The UK’s impending departure from the European Union, however, could change that and is set to cause severe disruptions to Airbus’ four-country setup and supply chain across Europe.

“Let’s be clear: Brexit in whatever form, hard or soft, will be damaging for us, for the industry, for the UK," Airbus CEO Tom Enders said at a press briefing in London ahead of the 2018 Farnborough Airshow. He remained tight-lipped on which, if any, contingency plans for next March the company had enacted and an executive told AIN the group is still hoping that reason will prevail. The UK’s future involvement in the EU satellite navigation system Galileo and its membership of the European Aviation Safety Agency (EASA) are just two of Airbus’ Brexit headaches that permeate its four main businesses.

The European Commission (EC) was clear-cut in its April “Notice to Stakeholders,” notifying aerospace entities in the UK that any EASA aviation licences, approvals, and certificates would cease to be valid from March 30, 2019, unless both sides agreed to implement the transition period that would come into force until the end of 2020. As it stands now, no agreement has been reached.

UK prime minister Theresa May's government handed its white paper proposing a softer Brexit to the EU on July 12, and talks are taking place this week.

The paper’s proposals for a UK-EU free trade area for goods and continued participation by the UK in EASA make “good progress in addressing concerns expressed by our industries,” commented Paul Everitt, CEO of UK aerospace trade body ADS. “There is now little time left before the UK leaves the EU to reach the comprehensive agreement for a smooth Brexit we need to avoid the disruption of no deal,” he stressed, as he again called on Brussels to permit EASA and the UK Civil Aviation Authority (CAA) to engage in dialogue with industry to make the necessary preparations for a no-deal outcome.

The consequences of a UK exit from EASA and the exclusion from EU-level bilateral aviation safety agreements with large aerospace producing countries like the U.S., Canada, and Brazil are “significant,” ADS said. If EASA approvals no longer apply to the UK, then any aircraft containing engines, parts, and spares manufactured or maintained in the UK will not be able to fly under EASA’s jurisdiction, nor will any aircraft possessing a type certificate (TC) associated with a UK design organization approval (DOA). Holders of EASA TCs in the UK would not be able to deliver products such as engines and propellers to EU manufacturers, thereby stopping aircraft production in the EU.

Airbus upholds the grim outlook. A worst-case-scenario Brexit, with the UK leaving the EU next year without any agreement in place, will lead to a potential standstill of the OEM’s production, said Guillaume Faury, president of Airbus Commercial Aircraft.

To prepare for discontinued airworthiness and/or interruption to the flow of parts due to customs controls, Airbus would require a three-month buffer in components with suppliers. This might be challenging to achieve, Feury admitted.

“Our suppliers would have to start producing one-third more during the next nine months. They are already at maximum production capacity owing to our ramp-up,” he explained.  More than 10,000 original aircraft parts originate in the UK and move between some 100 sites in the UK and EU-27 around 5,000 and 10,000 times during the production cycle of an aircraft. Airbus has more than 4,000 suppliers in the country. Every week of unrecoverable delay would lead to up to €1 billion weekly loss of turnover, Airbus’ Brexit risk assessment revealed.

Rolls-Royce has given up waiting for political consensus and started the process to move its Design Organization Approval (DOA) for large engines out of the UK, to its business jet facility in Dahlewitz, near Berlin. The move has been done in consultation with the UK government and is “a precautionary and technical action” to insulate against a hard Brexit, a spokesman for Rolls-Royce said. “We are not confident the UK CAA will be able to re-establish the required certification capabilities on day one of a hard Brexit,” he said, noting the action can be rolled back when a binding Brexit transition deal covering EASA is completed.

“Prudent companies are preparing for a hard Brexit. I do not see how, with the amount of capital tied up in the industry, you could choose not to prepare for a disorderly Brexit,” noted Samuel Engel, senior v-p of aviation at global consulting services company ICF. He sees the EC’s stakeholders notice on EASA as a negotiating position—“a little thing to say, hey we have some power,” Engel said—and does not expect that the UK CAA’s regulatory framework, in case they will be forced to recreate their own, will be very dissimilar to EASA’s. Much of EASA’s work and standards are driven by the UK CAA, he said.

Having to comply with a new UK-based aviation safety rulebook will create a new administrative burden and raise costs for aerospace companies and airlines, but “I do not see it as a qualitatively different challenge. It will be a new regime, but a familiar one,” according to Engel. Besides, he added, “these are global companies and are used to operate in multiple jurisdictions.”

The industry, however, loathes multiple regulatory regimes that add complexity and doubts the UK will be able to take over EASA’s tasks. “The expertise that existed within the CAA has long since gone, and much of it is used at European level,” said International Airlines Group CEO Willie Walsh. According to ADS, it would take five to 10 years for the country’s civil aviation authority to rebuild the necessary certification capability to take over from EASA.

The UK CAA has always maintained that UK non-participation in EASA is not a viable option, but the agency now seems to be preparing for a hard Brexit—even despite PM May proposing a soft Brexit.  “Our preparatory work includes adjusting existing systems so that they could continue to work in exactly the same way as now, but with the UK government and the CAA fulfilling regulatory functions independently of the EU,” the CAA said on its website. This includes creating the capability required for the UK to fulfill state of design responsibilities independently of EASA.