DN - Defence Notes

Paris Air Show: Holding patterns for investment in UK aerospace

13th June 2019 - 06:00 GMT | by Helen Haxell in London

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Holding patterns in aerospace are no longer being associated solely with the skies but also on the ground as the possible impact of a non-effective Brexit strategy lingers on for industry.

The ADS Group has long held the position that a no Brexit deal would be the worst outcome for the UK when it eventually leaves the European Union.

In 2018, Paul Everitt, chief executive at ADS, shared that aerospace businesses were seriously concerned about the costs of operating in the UK post-Brexit and the potential for those costs to climb higher as a result of withdrawing from the EU. 

So even though the withdrawal date has moved to the final quarter of this year, it is becoming clearer that the impact of Brexit on investment in UK aerospace has stemmed around the necessity for minimal delay in this area to the country, this is a sentiment that was shared by ADS in July 2016; notably, a year prior to the referendum.

On 11 June 2019 at a pre-Paris Air Show press briefing, ADS Group shared that SMEs were not in a position financially to undertake further contingency planning ahead of the next date for the UK’s withdrawal from the European on 31 October and some simply did not have the ‘appetite’ to.

Jeegar Kakkad, chief economist and director of policy for the ADS Group, said: ‘I think companies have already put in place as much contingency planning as they can. That's tying up working capital and those that have buffer stocks it just made sense to hold on to them rather than winding down and winding them back up again.

‘The concern is whether [companies] take any further contingency planning or if they have done as much as they can. But what happens after the 31st [October] they just don’t know yet. We’re in a holding pattern essentially from industry,’ he added.

Kakkad went further to say that looking more widely at the sector, the ADS Group estimates that in terms of contingency planning, companies have likely spent £600 million ($763 million) in this area as they weigh up the impact of Brexit to business. However, SMEs just do not have the financial capacity to do this and thus hold onto cash unlike prime companies which are able to proactively spend in the realms of exigency in the event of Brexit.

Whilst the ADS Group confirmed that there had been no visible financial stress at this moment, the organisation has encouraged its members to speak strategically with its banks on overdrafts or lending options.

‘What we have seen is that the rate of growth in the UK, in the supply chain, is significantly lower than elsewhere in the industry at large. And indeed into 2017-2018 the UK supply chain demand dropped against a significant increase elsewhere,’ Everitt commented.

The major concern for UK aerospace business, voiced by ADS Group, is a ‘slow but steady erosion’ of the nation’s competitiveness, he said.

‘This is about erosion and competitiveness in the medium term and then missing out on major investments over the longer term.’

A further example of a holding pattern this year was during the 29 March to 12 April timeframe which saw no US or European customers ‘placing any tenders with UK suppliers’, Kakkad said. He continued that existing orders were not being lost but new orders were not received for the future.

Whether political decision-makers will release aerospace industry from current holding patterns is likely to be determined in the latter half of this year otherwise UK aerospace growth looks set to continue with being grounded.

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