BRIEFING PAPER Number 00928, 8 November 2017 The aerospace industry: By Philip Brien statistics and policy Chris Rhodes Contents: 1. Overview 2. Companies in the aerospace industry 3. Industry outlook 4. Aerospace trade 5. The impact of Brexit 6. Government policy 7. Further information www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 The aerospace industry: statistics and policy Contents Summary 3 1. Overview 4 1.1 General official statistics 4 1.2 Employment by region 5 1.3 ADS statistics 6 2. Companies in the aerospace industry 7 2.1 Boeing 7 2.2 Airbus 8 2.3 BAE Systems 8 2.4 Rolls-Royce 9 3. Industry outlook 10 4. Aerospace trade 11 4.1 Trade tariffs 11 5. The impact of Brexit 13 5.1 Industry confidence 13 5.2 Future investment 13 5.3 Access to skilled labour 13 5.4 The role of the EASA 14 5.5 Innovation in the UAV sector 14 5.6 Higher prices in the supply chain 14 6. Government policy 16 6.1 Industrial strategy 16 6.2 Aerospace Growth Partnership 16 6.3 Aerospace Technology Institute 17 6.4 Supporting aerospace exports 17 6.5 Devolved administrations 18 7. Further information 19 Cover page image copyright: Airbus Lagardère - Trent 900 engine MSN100 by Dr Brains. Licensed under CC0 1.0/image cropped. 3 Commons Library Briefing, 8 November 2017 Summary The UK aerospace sector had a turnover of £31 billion in 2016. It employs 95,000 people, with the greatest number of jobs in the South West and the East Midlands. Nearly 90% of what the sector produces is exported. The UK has some major companies in the global aerospace sector, with both BAE Systems and Rolls-Royce featuring in the global top ten companies by revenue. Further afield, Boeing (United States) and Airbus (Europe) are the largest companies in the sector globally. The outlook for the industry as a whole is generally positive, with recent growth in output expected to continue as demand for aircraft increases around the world. The UK industry has a strong pipeline of work, and trade bodies are reporting optimism in manufacturers. However, some observers are predicting that Brexit will have a negative impact on the aerospace sector, with particular impact being felt in industry confidence and international cooperation. That said, some people have suggested that parts of the sector may benefit from less regulation. Both imports and exports increased in 2016, relative to the previous year. The UK has run a small trade deficit in the aerospace sector for the past few years. Trade disputes have occurred recently, particularly with the USA placing tariffs on Bombardier jets which are manufactured in Northern Ireland. Aerospace is part of the Government’s industrial strategy, and a number of initiatives have been set up to boost research and investment, and to guarantee exports. The Aerospace Growth Partnership and the Aerospace Technology Institute have both been set up in recent years as a collaboration between Government and industry. 4 The aerospace industry: statistics and policy 1. Overview 1.1 General official statistics All official statistics covering the aerospace sector in the UK use the definition in the ONS Standard Industrial Classification, which is “Manufacture of air and spacecraft and related machinery”. Aerospace industry statistics, 2012-2016 Economic contributiona Turnover Number of enterprises Total employment £ millions % of UK total £ billions % of UK total Count % of UK total Thousands % of UK total 2012 6,148 0.39% 24.9 0.85% 280 0.02% * * 2013 6,780 0.43% 24.3 0.79% 285 0.02% 90.1 0.31% 2014 6,189 0.38% 25.6 0.78% 325 0.03% 91.7 0.31% 2015 7,601 0.45% 29.4 0.85% 325 0.02% 91.6 0.30% 2016 8,665 0.50% 30.6 0.85% 310 0.02% 95.1 0.31% Notes: (a) Output gross value added (GVA), industry-specific equivalent to GDP * = omitted from source data as it is potentially disclosive. Economic contribution and turnover figures are not adjusted for inflation. All figures are for SIC code 30.3, "manufacture of air and spacecraft and related machinery". Sources: Economic contribution: ONS, UK GDP(O) low level aggregates, 29 September 2017 Turnover, number of enterprises: BEIS, Business population estimates 2012-2016, most recent 13 October 2016 Employment: ONS, UK business register and employment survey, 2 October 2017 Despite making up only 0.02% of the businesses in the UK, the The aerospace aerospace industry contributed 0.5% of the UK’s economic activity in industry contributed 2016 (around £8.7 billion). It had a turnover of £31 billion in that year, £8.7 billion to the and employed 95,000 people. UK economy in The industry has grown reasonably consistently over the past five years, 2016, had a turnover of £31 with all the economic measures listed above having seen an increase. billion and The industry’s economic contribution to the UK was 40% higher in employed 95,000 2016 than in 2014, and the number of enterprises 14% greater. This people. continues a pattern of growth in most of the past 25 years. Year-on-year change in aerospace output, 1991-2016 % change in constant prices 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: ONS, UK GDP(O) low level aggregates, 29 September 2017 5 Commons Library Briefing, 8 November 2017 1.2 Employment by region Employment in the aerospace industry is not evenly distributed across South West the country. The largest proportion is found in South West England and England and the the East Midlands, which between them account for 43% of East Midlands employment across the whole of the UK. account for 43% of Employment in the aerospace industry, by region, 2016 employment in the UK aerospace Employment % of aerospace % of total employment industry. employment in the region North East 1,500 1.7% 0.1% North West 15,000 16.9% 0.4% Yorkshire and The Humber 1,000 1.1% 0.0% East Midlands 18,000 20.3% 0.8% West Midlands 6,000 6.8% 0.2% East 7,000 7.9% 0.2% London 800 0.9% 0.0% South East 8,000 9.0% 0.2% South West 20,000 22.5% 0.8% Wales 9,000 10.1% 0.7% Scotland 2,500 2.8% 0.1% Notes: Aerospace industry represented by SIC code 30.3, "manufacture of air and spacecraft and related machinery". Total employment percentages are relative to the non-financial business economy. Source: ONS, Business Register and Employment Survey, via Nomis, retrieved 23 October 2017 6 The aerospace industry: statistics and policy 1.3 ADS statistics ADS Group is a UK trade body representing the aerospace, defence, According to ADS security and space sectors. It releases annual reports on the state of the Group, the sector industry and its short-term outlook; the 2017 edition lists the following directly employs statistics. (These may not match the official statistics given above, 120,000 people because ADS use slightly different definitions of the industry and gather and saw their data in different ways.) productivity growth of 19% between • In 2017, the aerospace sector employed 120,000 people directly 2010 and 2016. (and a further 118,000 indirectly), with 68% of companies employing apprentices or trainees. • The sector had a turnover of £31.8 billion in 2017, up 39% over the past five years. • Nearly 90% of the demand for aerospace is from exports, coming to a total of £27.7 billion. • The industry saw productivity growth of 19% from 2010 to 2016, compared to 3% in the general UK economy.1 1 UK Aerospace Outlook 2017, ADS Group, 14 June 2017 7 Commons Library Briefing, 8 November 2017 2. Companies in the aerospace industry The aerospace industry is dominated by major companies in the USA and Europe. Boeing and Airbus are by far the largest companies, with revenues in 2016 of $95 billion and $74 billion respectively. UK companies BAE Systems and Rolls Royce are seventh and tenth in the world in terms of total revenue. Top 20 global aerospace companies by revenue, 2016 US$, billions Boeing, USA 94.6 Airbus, Europe 73.7 Lockheed Martin, USA 47.2 General Dynamics, USA 31.4 United Technologies, USA 29.4 GE Aviation, USA 26.3 BAE Systems, UK 25.7 Northrop Grumman, USA 24.5 Raytheon, USA 24.1 Rolls Royce, UK 20.2 Safran, France 17.5 Thales, France 16.5 Honeywell Aerospace, USA 14.8 Leonardo, Italy 13.3 L-3 Technologies, USA 10.5 Textron, USA 10.0 Bombardier Aerospace, Canada 9.9 Mitsubishi Aviation and Integrated Defense, Japan 9.5 Harris Corp, USA 7.5 Huntington Ingals, USA 7.1 Source: PwC, Aerospace and defense 2016 year in review and 2017 forecast, June 2017 2.1 Boeing Boeing is the largest aerospace company in the world, and was founded by William Boeing in 1916.2 It is headquartered in Chicago and does the bulk of its work in the USA, but also employs over 2,000 people in the UK and contributes substantially towards the UK economy, spending £2.1 billion with UK suppliers in 20163 and contributing over £100 million to bail out struggling UK airline Monarch in 2016.4 Boeing has seen strong profits in recent months, raising its profit forecasts in October 2017 for the second time in six months.5 2 Boeing history chronology, Boeing, 14 December 2015 3 About Boeing in the UK, Boeing UK, retrieved 3 November 2017 4 Boeing helped finance bailout of Monarch Airlines, Financial Times, 8 October 2017 5 Boeing raises profit forecasts after cutting costs, Financial Times, 25 October 2017 8 The aerospace industry: statistics and policy 2.2 Airbus The largest aerospace company in Europe, Airbus is headquartered in Toulouse, France.