Last week saw the announcement of a rescue package for the aerospace industry in France worth up to 15 billion euros to secure the positions of large manufacturers such as Airbus and Safran – but also the supply chain of smaller companies that provide first and second tier components.
In both France and Germany, job retention schemes are set to last for up to two years, whereas the UK scheme is set to conclude by October and from August will require employers to pay back 20% of the salaries covered.
These developments have led to calls for the government to grant additional support to the aerospace industry in the UK from both Airbus CEO Guillaume Faury and the ADS (a trade body that represents aerospace and defence in the UK).
Bail outs are a contentious topic in the UK. During the 2008 financial crisis, the Royal Bank of Scotland and HBOS amongst others were bailed out at a cost of £45.5 billion pounds. The decision was seen as an essential one due to the UK economy’s high reliance on financial services and banking. However over the last few decades, successive governments have been more ambivalent about stepping in to support industry. Closures of coal mines in the 1990s and more recently the closure of steelworks in Redcar and the uncertain future of Port Talbot led to widespread public anger and discontent in areas where several generations of the same families had all worked in the local plants. In fact, it could be argued that part of the Brexit vote was driven by the failure of successive UK governments to find a long term solution to the transition of the country from reliance on primary and secondary manufacturing to reliance on a service economy for working class communities.
With respect to the aerospace industry – the UK government has had to invest heavily before – both for the development and entry into service of Concorde and to save Rolls Royce during delays to the development of the RB211 aero engine in the 1970s. Yet in the recent crisis the government response has been muted. There was the announcement of a new tranche of funding for the Future Flight Challenge – yet at £30 million this is modest and clearly aimed at development of small flying taxis rather than commercial passenger aircraft.
In fairness, state funding for aerospace is a thorny business. Over the past twenty years, disputes over the level of funding given to Boeing and Airbus have rumbled on at the WTO and recently led to the proliferation of tariffs on a wide range of products unrelated to aircraft. Yet it’s possible that in the current crisis, alternative solutions can be explored that wouldn’t violate rules, such as Boeing’s refinancing.
Another challenge in the West is the growing pressure on governments not to bail out industries seen as polluting or detrimental to climate change. I’ve seen a number of petitions circulating on social media calling for governments not to bail out industries, of which aviation is heavily featured in the accompanying photos, without commitments to decarbonisation. Yet this is not misaligned to the goals of the aerospace industry – and indeed the French investment package explicitly states that it targets zero emission aircraft. The same week as the French announcement, Germany announced a pledge to commit to hydrogen as a means of decarbonising its economy. This will include exploration of synthetic kerosene as aviation fuel.
Ultimately, commercial aircraft manufacture is not a speedy or low cost way to make a profit – and it never has been. Every successful programme has been supported either directly or indirectly by governments – either through the development costs being borne by defence (Boeing 707) or through repayable launch aid or subsidies (787, A380, A350). This is partly due to the fact that it is inescapably a high cost product. The exponential organisations of the past 10 years have tended to rely on the ability to scale up and down their workforce at will, work remotely and fail fast. Whilst all these techniques could be applicable to the development phase of aircraft – and indeed will be hastened by the current crisis – it is far more difficult to apply this in production.
Also, as long as we are unable to simulate fully the physics of flight – we will have to rely on expensive testing in ground based facilities and in flight to certify products.
There is of course the possibility that Google, Amazon or the indefatigable Elon Musk could turn their attentions to aerospace and use their capital to disruptively enter the market and operate at a lower cost than Airbus or Boeing (potentially by shoring up losses through their other revenue sources.)
Alternatively, it’s been known for at least two decades that the far East is likely to end up dominating aircraft manufacture in the way that it does for shipbuilding. Much of the drive to reduce development costs for new programmes for Boeing and Airbus has been the knowledge of this risk.
There isn’t a clear indication of what the long term UK strategy is in relation to commercial aerospace. It may be simply that the cost of a larger stimulus package is seen as too large to contemplate in the midst of the rest of the Covid-19 crisis. It may also be that the UK government is repositioning itself towards development of EVTOL and autonomous vehicles. Yet the advantage of commercial aircraft development and manufacture is that it provides a wide range of jobs and includes small and medium enterprises alongside the large giants. Part of the government’s stated mission is to level up the UK and address regional inequalities. Maintaining the aerospace industry is an expensive but effective way to do this.
What is certain, is that relying on past success and the current footprint of commercial aerospace in the UK is not enough, particularly in the latest crisis. Having a different long term strategy is painful and difficult. Having no strategy is inexcusable.