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Looking ahead

ATI's Senior Economist, Juan Fernandez, takes a look at the economics of civil aerospace in 2021.

By ATI Comms

03 June 2021 12:00:PM
Read time: 3 mins

The UK economy was estimated to have grown by 0.4% in February 2021, according to the figures published by the Office for National Statistics. This modest growth was partly driven by the manufacturing and construction sectors that showed signs of some recovery of activity. However, the UK gross domestic product is still 7.8% below pre-pandemic levels and the situation remains very challenging for the UK civil aircraft manufacturing.

Civil aviation has been one of the worst hit sectors by the existing pandemic. IATA figures for 2020 reveal air transport demand falling dramatically by 66% compared to 2019. This aviation shutdown pushed struggling airlines to defer deliveries or cancel orders. The outlook remains challenging with the slower pace of the vaccine distribution in the EU, and the new waves of the pandemic taking hold across Europe and Asia that will continue to supress international travel. Bookings for future travel made in January 2021 were down by 70% compared to 2020 according to IATA data.

There are reasons to start feeling more optimistic. Although there remains a long way to go, vaccines have proven to be exceptionally effective so far. Economic forecasts expect growth to pick up, and some analysts suggest that an increase in personal saving over the last year will lead to a rebound of spending some of which may go toward long awaiting vacations that involve flying. Additionally, demand for commercial airplanes and services is forecast to outpace global growth, doubling from pre-pandemic levels by 2030, according to the recently published Boeing Commercial Market Outlook (CMO).

The massive shock to aircraft demand and the aerospace supply chain has led many countries to bolster innovation and R&D activity. The French and German governments have increased R&D funding in civil aerospace for 2020, 2021, 2022, to support the recovery of the sector and encourage the delivery of technologies for 'green aircraft'. At the same time, with new players like India, Malaysia or China aspiring to become major aerospace hubs, it is critical the UK maintains its technology leadership during this time and ensure it is positioned for the growth and innovation revolution expected to follow this crisis.

The ATI has played a key role since its creation to reverse years of underinvestment in a sector characterised by large scale projects, higher-risks and long lead times for returns. The UK civil aerospace industry has tried hard to safeguard private R&D investment levels during this dramatic period, despite an unprecedented decrease in deliveries and revenues.

The presence and action of ATI has created incredible momentum and appetite in the sector for R&D and innovation. Despite the ATI programme being temporarily paused due to affordability, the ATI has a live portfolio of £300m/y and remains in discussion with companies and prospective applicants on a wealth of new projects, each representing opportunities to address aviation’s sustainability challenge, drive economic growth, create high-value jobs and positively impact regions across the country.

While the return of air travel demand could take as long as three to five years, we need to work together across industry and government to emerge stronger from the existing crisis and to unlock the true potential of the sector. Now more than ever, it is key to ensure the aerospace industry maintains its skills and competitiveness to excel and grow while addressing the opportunities presented by our net-zero emission goals.

 

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