TIM ROBINSON reports from a landmark RAeS Conference on the effect of the UK leaving the European Union on Britain’s aviation, aerospace and space sectors.

On 27 October, the Royal Aeronautical Society held a conference entitled ‘The Brexit Question’ to look at the fall-out of the UK’s momentous decision last summer to leave the European Union. While some opponents of ‘Leave’ campaign believe Brexit can be reversed or stalled, the practical debate has now shifted to how to unpick almost 40 years of regulations – and the potential effects on UK plc after Article 50 is triggered.

The conference, was especially significant, not only its topicality – but also in bringing together a wide range of speakers and viewpoints to address the extremely complex questions raised by Brexit – and its impact (economic, regulatory, research, education and skills) across the UK’s varied sub sectors.


Aerospace to be ‘at the heart’ of forging new links

The RT Hon David Jones MP, Minister for Exiting the EU stressed the importance of the UK aerospace sector in securing prosperity.  

Opening the conference was the Rt Hon David Jones MP, Minister of State for Exiting the EU. He noted that the EU Referendum was “arguably the most significant political event of our lifetimes." The UK Government’s goal, he said, was “to secure best possible access” to the EU single market for UK companies and industry. However, he said this would have to be balanced with a change in free movement rules.

Jones also said that the Government was looking to the UK’s aerospace sector to be the economic and trade spearhead in forging new links with the rest of the world. This sector, he said is “six times” more productive than the rest of the economy and will be “at the heart” of post-Brexit opportunities. "Your industry is crucial for building a new outward-looking Britain" says Jones of UK aerospace sector.

Finally, he noted that the RAeS’s Brexit conference was extremely useful for Whitehall in understanding the sector’s priorities and concerns in the run up to Article 50: "It is of enormous value in informing the British negotiating position."


Economic impact

Will the UK face difficulties in accessing EU aerospace R&D projects? (Airbus) 

The next session of the day saw a high-level look at the economic impact of Brexit on aerospace and aviation. Opening this part, Professor Keith Hayward gave an overview of the ‘known unknowns’ for the UK and aviation. Dividing the issues into three he assessed ‘low risk’ as the UK’s continued membership of ESA, EASA and SES among others. High risk, in Haywards view, especially in the event of a ‘hard Brexit’ were the UK’s  participation in EU-funded civil R&D and exclusion from EU military aviation initiatives. However, the biggest set of ‘unknowns’ lay in the medium risk category. These included the ability to influence future EU aerospace/aviation policy, access to precision Galileo satellite navigation signals, participation in the ATM SESAR initiative, along with involvement in military R&D programmes and aviation market access. Depending on whether Brexit became ‘soft’ or ‘hard’, could these risks shift to become lower or higher?

Meanwhile, Jeegar Kakkad, Chief Economist, ADS Group, gave his thoughts on the key challenges facing the UK aerospace and defence sector in the post-Brexit world. Kakkad was bullish on the effect of Brexit on the UK’s defence budget, saying it was secure even if there was a government  spending squeeze. As well as the strategic context, Kakkad said, Government would use defence spending as a signal of its commitment to NATO. While defence was secure, Kakkad revealed that the UK needed to be prepared for a “40% increase” in civil aircraft production by the end of the  decade – as manufacturers continue to ramp-up rates. Beyond this, he said, the UK needed to invest now “not wait until 2019” (the expected exit deadline) in aerospace and aviation technology, such as R&D in future wings, next-generation airliners and the AGP (Aerospace Growth Partnership) to
“Brexit-proof” the economy.

Meanwhile, Dr Simon Weeks, Chief Technology Officer at the Aerospace Technology Institute (ATI) also echoed Kakkad’s comments on the importance of R&D to the post-Brexit UK aerospace sector. With the ATI overseeing a £13.9bn aerospace R&D spend out to 2026, he said: “You can’t undervalue collaboration” in international R&T projects. He added: “the UK ranks higher than any other EU country in co-ordinating projects” with one of the highest levels of activity in European-level aerospace and aviation R&D. Despite the uncertainty, stressed Weeks “The ATI will continue to facilitate collaboration and funding opportunities between EU & UK partners.”


Turbulence for airlines

Expect a reduced ticket prices as airlines struggle to fill seats, said Chris Tarry. (easyJet)

Giving a presentation on the air transport industry outlook, aviation analyst Chris Tarry, CTAIRA had a bleak outlook for airlines due to the uncertainties of Brexit. There is, he said, already “insufficient demand" for airlines, “despite rising aircraft production” making for a "difficult environment" for British carriers. The direct effect of Brexit with GDP growth slowing would also curtail discretionary spending by UK consumers – on which airlines depend. In particular, he noted that a boost in inbound traffic of foreign tourists attracted by a low pound, would not balance out a drop in outbound UK holidaymakers due to slow GDP growth hurting discretionary spending. It would, be a tough time for airlines in the short term.

As well as slowing demand for air travel from consumers, in the medium term airlines would have to adjust to the ‘new environment’ and face the challenge of potential regulatory change and its impacts on market access. Those consumers with money, however, said Tarry, can expect to find bargains as airlines reduced fares to fill seats.

Finally, while airport expansion was a hot topic at the time of the conference in October, Tarry argued that both airports should be given the opportunity to expand – and have the market decide. He also highlighted the need for the UK to boost less glamourous surface access, road and rail infrastructure – not just the prestige projects like Heathrow’s third runway.


The importance of positivity

'What needs to be in place on Day 1 of Brexit?', asked Alan Walker. 

The next speaker, Alan Walker, Head of Policy at The Royal Academy of Engineering (RAEng), explained that while Brexit had produced uncertainty – it was important to be positive too – which requires communication. The RAEng he said, had already produced a cross-institution report on the effect of Brexit on industry to inform politicians and decision-makers. Walker also welcomed the Government’s proposed Industrial Strategy - announced as a priority earlier in the summer. “Most opportunity for positivity, we think, is from the Industrial Strategy” he said. He also called for the  aerospace sector to make its voice known “We need a proactive response from the aerospace sector” adding “the RAeS is the perfect vehicle for this.”

However, Walker warned that on the UK’s engineering and STEM skllls gap it was “hard to see how it [Brexit] would not have an initial negative effect”. The key questions, he said, for the aerospace sector is “What can’t we replace when we leave the EU?” and “What needs to be in place on Day 1 of Brexit?”


Escape velocity for UK space?

The UK's fast-growing space sector could face extra competition after Brexit. (SSTL) 

Giving an overview of the impact of Brexit on the UK’s fast-growing space sector was Pat Norris, CGI and former RAeS Space Group Chairman. He stated  that the UK space sector now employs 30,000 people and has enjoyed 8-10% growth per year.

Norris observed that while the European Space Agency (ESA) was not an EU body, the decision to withdraw could have commercial and scientific  repercussions. Specifically, the only infrastructure that the EU actually owns is space-related. It currently operates 15 satellites and this will double in the next 5-6 years. “The EU is a big customer” for UK space, said Norris, and “that business is at risk as the consequences of Brexit.”

This might mean, that in the future, UK companies may find it more difficult to win further work on two of its biggest satellite projects (Galileo - navigation and Copernicus – Earth Observation). Anecdotal evidence suggests that foreign competitors are already hinting that UK cannot be trusted  in bidding for work on long-term programmes. The UK has invested over €800m in Galileo and received about an equal amount of contracts. There are  therefore fears that some 3,000 jobs in the UK could be at risk if the UK is cut out of this work.

Despite these concerns, since the RAeS conference, the ESA Ministerial has confirmed funding for the UK/Italian-led ExoMars mission in 2021. Additionally, with Britain committing €1.4bn to the space agency over the next five years, the Ministerial saw the UK become the lead nation in Earth observation for the first time ever – as well as satellite telecoms and navigation.

This top-level commitment from London to ESA may be able to offset some concerns so far – but UK space firms may face increased competition on EU-led space programmes.


Can the UK UAV sector fly free?

Escaping any restrictive EU regulations could be a boon for UK UAV operators. (Sky Futures) 

But if Brexit is a challenge for the UK airline and space sector, freeing Britain’s UAV sector could lead to a world of opportunity, noted Dewar Donnithorne-Tait, Director, Veitch Moir. The UAV (or RPAS) sector is an “innovation paradise” he said, with 600+ commercial UAV operators in the UK and 2,500+ in Europe as a whole. He argued that freed from EU rules and regulations, the UK RPAS industry would have more freedom to innovate and develop new service models. “I’m actually quite positive” he said. In particular, he pointed out that the UK and the rest of Europe diverge on many issues such as privacy and human rights – which have implications on the use and exploitation of civil UAVs. Sweden, for example, has banned all cameras on consumer drones unless a special license is acquired.

Freeing the UK from any Brussels-inspired overbearing regulation of this fast-moving dynamic sector, could mean that British UAV service providers  (especially in EASA’s ‘specific’ category for UAVs in ‘middle ground’ that lies between full-up certified airframes and low-end consumer toys) may flourish without too much hardship. Unlike manned aviation, the embryonic and quickly-changing nature of drone regulations means that flying free of one potential source of stifling restrictions could end up being positive for the UK UAV sector.


STEM and skills fears

BAE Systems' £15.6m Academy for Skills & Knowledge, opened last week, is the single biggest investment in UK aerospace skills - but is it enough? (BAE Systems)

"Whatever else, Brexit is a wake-up call to our education system" said Neil Carmichael MP for Stroud and Chairman of the House of Commons Education Committee. Giving a presentation focused on skills and education, he warned that despite its high-flying aerospace sector, UK industrial productivity is “28% behind Germany and 19% behind France.” The failings of the UK educational system, he said, “had been recognised 40-50 years ago” – hence why the UK aerospace sector imports foreign engineers and skilled workers. For example, he noted that the UK was the only European country that doesn't insist on maths or language in its post-16 education. Meanwhile, he said the aerospace industry is used to the mobility of staff, with global companies moving engineers to new sites and new projects. Airbus, for example, has 1,200 Britons working for Airbus in other EU
countries (double the number of employees from the EU in the UK) and 50,000 employee trips a year between its different Airbus sites.

What, then, does this mean for the UK aerospace’s demand for skilled workers if post-Brexit the freedom of movement is curtailed, restricted or  simply perceived to be more difficult? “We’ve already seen a 9% drop in EU students applying to UK universities this year,” he said – a comment echoed by RAeS Past-President Jenny Body who observed that the Society’s own careers service had “already noticed a lot of anxiety from young people in the previous couple of months” over Brexit affecting their career options.

However, Carmichael indicted that part of the issue was the structure of the UK engineering sector – There are "far too many small businesses, a few big ones and not enough medium sized companies" compared to competitors such as Germany, he argued. There, he said, education and training colleges are considered part of the industrial supply chain in Germany and are a product of long-term industrial planning.

In short – the session on education and skills highlighted the educational gaps in the UK. While Britain had world-class research and elite universities – it was failing to produce the kind of lower-skilled workers that perhaps technical colleges and polytechnics used to produce. Short of UK workers the aerospace industry had, like other sectors, been reliant on the free movement of labour to keep it supplied.

Today there is a realisation of the need to boost apprenticeships and vocational skills for the UK to be able to compete global – but is it a case of too little, too late?


Untangling the red tape

Simon Phippard, Bird & Bird, outlined some of the legal challenges ahead.

With reportedly over 100 laws, directives and regulations involving the travel and aviation industry that need to be examined, it was no surprise that the conference included a hefty session on aviation standards and regulations.

Giles Kavanagh, Partner, Holman Fenwick Willan, succinctly asked what many were thinking: “What will the law be on the day of Brexit” regarding air safety regulations? He explained that EASA rules are “not directly incorporated into UK law, but are applicable as a function of EU membership.”

Kavanagh wryly observed that given the CAA’s role in setting up and providing expertise for EASA: “There is an irony in UK stepping away from a framework that has been created by Brits.” ”On Brexit, he asked “will the UK leave EASA and repatriate expertise back to EASA?”

Meanwhile, Simon Phippard, Of Counsel, Bird & Bird, outlined the potential legal consequences of Brexit on UK airlines. What, for example, happens to internal market traffic rights for UK airlines? This is a key concern given that how liberalisation has powered Europe’s low-cost airline growth over the past two decades. Transatlantic traffic agreements, too, are also an unknown out of the EU-US Open Skies agreement. Will this revert to the previous Bermuda II agreement, asked Phippard. He warned that those expecting a bonfire of red tape after Brexit could be disappointed – as a “Great Repeal Bill of EU regulation may involve a lot of law-making” - especially if the UK decided to recreate EASA rules with the CAA. “My own view” said Phippard is “anything other than continued [UK] participation in EASA would be completely bonkers."

This view was echoed by a representative from the UK CAA, Policy Director Tim Johnson, who stated that the CAA “would like to see a close relationship with EASA" post-Brexit adding: “There is a strong case for UK to remain as close to EASA as it is today.”

While a part of the DfT and therefore politically neutral - Johnson revealed that post-Brexit the CAA would like to see “traffic rights, at a minimum, that are equivalent today - along with passenger rights.” But post-Brexit there also could be opportunities for the UK to revamp aviation regulation – for example foreign ownership of airlines and airport slot allocation. However, while these were the body’s preferred views, he stressed that the CAA was reliant on policy direction (for example Single European Sky and airspace modernisation) from Government. How difficult the CAA’s task becomes then depends on politicians and their ability to secure a ‘soft’ or ‘hard’ Brexit.

 

‘Brexit - an opportunity’ says Airbus

Blues skies ahead? (Airbus)

Finally, the end of the day saw a keynote from Paul Kahn, President of Airbus UK. While in the run-up to the referendum, the pan-European giant had warned of the dangers of Brexit, at the RAeS Kahn gave an upbeat presentation. Airbus, he said, had been against leave, but now: “we need to ensure that Brexit becomes an opportunity.” He added: “I think “Brexit – an opportunity?” should become less a question and more a statement of ‘Brexit: an opportunity!’”.

However, while he was positive about opportunities, Kahn was consistent in his message as to the company’s chief concerns about withdrawal from the EU. It is against tariffs with Khan saying: “Tariffs would simply be a nightmare. Fortunately, under the 1980 WTO Plurilateral agreement on trade in civil aircraft, commercial aerospace is largely tariff free. This has been a driver for facilitating cross border trade and should be a reassurance that tariffs are unlikely.”

Kahn also stressed the need to remain part of EASA: “As an industry we have done huge amounts of work to get to where we have a concurrent FAA and EASA certification process, as we did with the A350. Currently certification from one agency gives a clear path to certification with the other. To add a third, new process would make no sense at all.”

He also said that he would like some guarantee of UK space sector opportunities: “Brexit could have significant implications for the UK space sector. This is centred around current and future EU-led space programmes, which are funded by member states’ contributions to the wider EU budget.” Kahn said: “We must now work to ensure that British companies are evaluated fairly when assessing current and future contracts.”

The final point for Airbus, said Kahn, was: “what we need from Brexit, is the ability to freely move our people around our sites with an absolute minimum of red-tape.” He warned: “if a plant manager in Toulouse needs additional temporary workers or problem solving on an assembly line, he won’t call Filton or Broughton if he has to fill in a form or wait for a visa. He’ll ring Hamburg or Seville instead. That would be a shame!”

On support to the sector, Kahn noted that aerospace was an industry where product cycles were measured “in decades” and which required huge R&T investment which “rapidly runs into billions”. “Without Government support we cannot rely on the market to provide this sort of long-term R&D investment” he said.

He went on: “I don’t think you can argue in the US, Russia or China, for example, a free market exists in aerospace, space and defence. In these sectors UK Plc is fighting for market share globally. We need Government, industry and the academic sector to work together to gain and retain competitive advantage.”

He also called for the ‘brilliant’ AGP to be “be scaled up to spread the benefits further and lift our industry to fresh heights.”

Concluding, Kahn said: “While there is some turbulence on the radar, I am expecting a strong tailwind. There is uncertainty while we wait to see what out looks like, and we can’t take future success for granted. But if Brexit is managed correctly, with an industrial policy to match, I truly believe this can be an exciting time of opportunity for British industry.”

 

Summary

The UK aerospace should be robust enough to survive Brexit - but can it also prosper from it? (Rolls-Royce)

In short, this conference was a unique chance to hear a wide-ranging and nuanced set of views about Brexit and aerospace. While there remain large challenges ahead, the UK still has a firm foundation in a strong aerospace sector that is still number two in the world. As a global industry the UK aerospace sector is well placed to weather Brexit & seize opportunities.

As one industry veteran admitted on the sidelines: “We will be fine – as long as the Government doesn’t do anything stupid.” Bringing these high- level industry experts together meant that this conference was vital as the UK heads into uncharted waters.

For R&D it was generally agreed that the AGP and ATI had positioned the UK well to keep its place in a post-Brexit world – and the Government’s new Industrial Strategy was also warmly welcomed. However, the question must be asked – will these initiatives need to be boosted or expanded? Some think so. There are signs that the Government as listening. November, for example, saw the Prime Minister commit to boost UK R&D by an extra £2bn a year by 2020/21 to back emerging technology from the UK’s research base.

The conference did reveal however, that different sub-sectors can expect to experience Brexit in different ways – short-term pain for airlines,  potential freedom for UAV operators and increased competition for the UK’s space industry. However, one panellist observed that given the effect on the travelling public – market access will be the number one priority for Whitehall to secure – over and above everything else. Given the complexity of the task and the multiple sectors involved, more than one speaker suggested that a ‘transition’ agreement would need to be in place on Day 1 of Brexit.

Another strong theme to emerge during the day was that despite occasional gripes from some, EASA had served the UK and EU well in advancing aviation safety and harmonising regulations. More than one person noted that it would be ‘insanity’ to withdraw completely from this organisation and attempt to return all of its powers to the CAA. However, if 2016 teaches us anything, it would be foolhardy not to assume that the Government would not consider this option. Industry then must be vocal in putting its view forward – as the Minister for Exiting the EU told the conference: “talk to us, keep us close”.

And while many in the industry and academia worried about the free movement of workers, it must be remembered that even before the latest era of ‘globalisation’ – aerospace and aviation has always been a global industry – with the most skilled pilots, designers and engineers finding work outside their place of birth. Witness names like Samuel F Cody, Alexander P de Seversky, or Bill Boeing’s first engineer Tsu Wong. International collaboration and partnerships in aerospace – which knows no boundaries or limits apart from lift-drag ratios, then, are embedded in its DNA and will survive Brexit.

Finally, the effect of Brexit in many cases - whether it is airline fundamentals, engineering skills gap, or the need for long-term R&D might be said not to have caused these issues, but to have amplified and exacerbated existing challenges that the UK aerospace sector already faces. Despite the uncharted territory ahead and with a clearer outline of the issues, the conference, oddly enough, ended on a note of optimism. The focus must now turn to making Brexit into a real opportunity.

Tim Robinson
6 December 2016