November is a busy month for UK aerospace sector statistics; the UK Office for National Statistics (ONS) publishes both the Annual Business Survey (ABS) and data on Business Enterprise Research and Development (BERD). Both reveal significant information on the structural health of the UK aerospace sector for the previous calendar year – 2017. The ATI analyses these key ONS datasets to understand what official national statistics reveal about the current state of the UK aerospace sector.
The overall trend for the UK aerospace sector is broadly encouraging:
- UK aerospace turnover, value added, and productivity have all been rising on average at around 4-5% per year since 2008; as is investment in research and development and capital equipment.
- The UK aerospace sector is highly productive with almost £100,000 of output per worker, capital and R&D intensive with greater 10% of value added reinvested and export focused with around 90% of output exported overseas – a jewel in the crown of the UK manufacturing sector.
In this article, several interesting findings from the ONS data are reviewed and discussed.
The rise of aerospace micro businesses
Business population data from ONS, reveals an increase in the number of UK aerospace manufacturing businesses to around 850 by the end of 2016. Around 700 are micro businesses, each employing fewer than 10 people. In fact, since 2008 the number of UK micro aerospace businesses has nearly trebled!
So what is driving this level of increase in UK micro aerospace businesses? It could be better measurement by ONS, i.e. the identification or classification of a greater number of micro businesses to the aerospace sector. It could be that there are a greater number of start-up businesses in the UK aerospace manufacturing sector. Some evidence from around the world and in the UK, does point towards an increase in disruptive innovation and a rise in aerospace start-up businesses.
Peter Willis, Senior Economist at the ATI, said:
Whatever the reason, the UK now accounts for almost half of the active aerospace manufacturing businesses in Europe. This is a potential growth opportunity for the UK, if these businesses can successfully grow and scale-up. The ATI is exploring options on how to best support start-up, scale-up and small business innovation
The continued rise of aerospace repair and maintenance
Part of the growth in the UK aerospace sector economic activity continues to be in the repair and maintenance segment. UK value added for aircraft repair and maintenance is up 25% since 2015, whereas it is roughly flat for aircraft manufacture. Aircraft repair and maintenance now makes up nearly 25% of UK aerospace value added (up from 15% in 2009) and is 60% more productive than aircraft manufacture – likely to be at least in part due to the relatively high margins and continued services revenues available. ATI has published a Through-Life Engineering Services (TES) Technology Strategy for the UK Aerospace Sector to identify the opportunities of transitioning to TES, and the technologies and capabilities required.
The fall in aerospace R&D expenditure
The latest figures from ONS for UK expenditure on aerospace R&D shows a 20% decline in 2017 versus 2016. However, in many ways, a fall in civil aerospace R&D is not surprising based on the market cycle. ATI’s recent INSIGHT Paper, The Evolving Aerospace R&D Landscape, illustrates some of the driving forces behind aerospace R&D much of which is linked to major product development. Entry to service for several big programmes including Airbus A220, A320NEO, A330NEO, A350-1000, Boeing 787-10 and 737MAX, in recent years, marks the start of a quieter period of R&D for the global industry.
James McMicking, the ATI’s Chief Strategy Officer, said:
This presents a challenge to maintaining engineering capabilities until new product development programmes are launched. In the background, UK aerospace is continuing to invest in future technologies that will shape the next generation of aircraft.
The divergence between turnover and value added
Finally, this statistics review has once again highlighted a continued divergence between growth in UK aerospace manufacturing turnover and value added. UK aerospace manufacturing turnover has grown at more than 6% per year since 2008, whereas value added has only averaged 3.5% annual growth. (The recent downward revisions in aerospace value added have made this trend more apparent once more).
Peter Willis said:
Previous ATI blogs have discussed this issue – and one explanation for it may be greater purchases of imported materials and components. This is a missed opportunity for the UK aerospace supply chain and means that the UK aerospace sector is probably growing more slowly than the global aerospace market and losing some market share.
This finding is supported by a previous study by the UK Department for Business, Energy and Strategy on the aerospace supply chain. That study showed the UK share of aerospace procurement by major aerospace companies has been falling, compared to supply chain procurement in the rest of the world.
There are several aerospace sector initiatives all aimed at tackling these issues in the UK aerospace supply chain. Continued support of SC21 (21st Century Supply Chains), Sharing in Growth (SiG), NATEP (National Aerospace Technology Exploitation Programme) and the Aerospace Growth Partnership (AGP) Supply Chain Charter, by the Aerospace Sector Deal, will be helpful in improving UK competitiveness.
For its part, the ATI is actively seeking opportunities to join some of the UK’s leading aerospace organisations with ambitious small and medium-sized companies (SMEs) for research and technology projects. ATI is open to direct engagement with ambitious small companies looking to participate in or lead ATI projects aimed at the most challenging strategic technologies facing the sector.