Capital Costs and Skills Shortage Challenge UK Aerospace

The largest problem facing UK aerospace and defense firms, according to the nation’s trade association ADS, is the extraordinarily high inflation rates (of ten percent or more) and the skyrocketing borrowing rates (4.5 percent) imposed in an effort to lower them. The group’s CEO, Kevin Craven, confirmed this at a press briefing this week to present an overview of the performance of the British industry in 2022 that the resulting squeeze on finances is restricting companies’ ability to make the investments necessary to overcome ongoing supply chain bottlenecks that, in turn, are limiting output and consequently revenues.

The figures are generally promising, though, as they show that things improved in the year that followed the Covid-tainted 2021.

Revenues in the aerospace industry increased by 20%, from £22.4 billion ($27.8 billion) to £27 billion, while exports increased by £15.2 billion ($18.6 billion) in value and the value generated to the UK economy increased by £8 billion ($10.9 billion) in the same period.

Given the escalating geopolitical tensions, it may come as a surprise that the military industry’s figures showed a tiny fall in revenues and exports at £22.8 billion and £7 billion, respectively. Businesses engaged in security and resilience, which ADS also represents in addition to space operations, however, saw significant growth, increasing revenues to £23 billion.

“There is no doubt that investment is a challenge because to achieve production rate ramp ups companies know they need to invest in automation and new tooling, but the cost of capital has gone up significantly,” Craven told reporters at a May 16 press conference.

Revenues in the aerospace industry increased by 20%, from £22.4 billion ($27.8 billion) to £27 billion, while exports increased by £15.2 billion ($18.6 billion) in value and the value generated to the UK economy increased by £8 billion ($10.9 billion) in the same period.

Given the escalating geopolitical tensions, it may come as a surprise that the military industry’s figures showed a tiny fall in revenues and exports at £22.8 billion and £7 billion, respectively. Businesses engaged in security and resilience, which ADS also represents in addition to space operations, however, saw significant growth, increasing revenues to £23 billion.

In a survey of the group’s member companies conducted at the end of the first quarter, 75 percent said that they see the workforce and skills shortages significantly affecting their businesses. ADS pointed out that filling some vacancies, especially in the defense sector, can be especially complex, while acknowledging that finding solutions to the skills shortages and recruitment challenges remains one of the biggest nuts the industry needs to crack.

ADS has informed the UK government that it might help in a number of ways, including by removing post-Brexit visa restrictions on qualified workers from member states of the European Union. However, it continues to be a topic of disagreement within the current Conservative government, and future levels of funding for R&D in the UK may be in jeopardy due to pressures on the public purse.

It is difficult to predict the future of business given that the nation will hold a general election that must take place no later than January 2025 but will probably be called in 2024.  “Most businesses are seeking certainty about the climate against which to invest and it’s a challenging time with the election next year, because it’s hard to be sure what business conditions will be like,” said Craven.

The requirement for the UK’s local Civil Aviation Authority to handle certification and other regulatory activities that the European Aviation Safety Agency handled for more than 20 years is one particular cause for concern. According to the demand [from UK enterprises for type certification help, etc.], “The CAA is not adequately resourced,” he said. More could always be done, that much is true. The UK sector has a lot of potential to take use of cutting-edge technologies like electric propulsion, but we don’t think the CAA has enough funding. They have resources appropriate for a world that no longer exists.

However, in the first quarter of 2023, global aircraft deliveries backed by ADS member businesses rose by 8%.  While that’s still below pre-pandemic levels, ADS chief economist Aimie Stone said she expects stronger recovery by year-end and that her forecast might well be revised upwards by the end of the second quarter.

The UK government insists that inflation will start to move markedly in the right direction throughout this year; however, Stone told reporters, “It’s hard to say when or how this will trickle into our businesses.”