CIT0083

Written evidence submitted by ADS Group

ABOUT ADS

ADS is the trade association advancing the UK’s aerospace, defence, security, and space industries. ADS has more than 1,200 member companies across all four sectors, with over 95% of these companies identified as Small and Medium Size Enterprises (SMEs). 

The UK is a world leader in the supply of aerospace, defence, security and space products and services. From technology and exports, to apprenticeships and investment, our sectors are vital to the UK’s growth – generating £78bn turnover a year for the UK, including £44bn in exports, and supporting over 1,000,000 jobs.

OVERVIEW

The Aerospace industry is going through an existential crisis as a result of COVID-19. The impact has and will continue to be stark for many of our member companies. Major companies have reduced the production of aircraft by around 30% as a result of the halting of international travel, global supply chain interruptions, and future orders being deferred.

The UK Aerospace sector has experienced significant and immediate impacts from the crisis due to its intrinsic link with the UK aviation sector. With airport and airlines facing a very challenging time ahead, UK aerospace businesses will be relying on other areas of income or will be looking to flexible with their production and output during a time of decreased demand.

Major impacts on ADS members include:

• Short-term supply side shocks, supply chain delays and issues accessing raw materials from international suppliers. This has led to slowing production rates.
• Changes in demand signals, lowering UK output as businesses respond to reduced customer requirements both in the short term and for the months ahead.
• Extensive use of the Government Job Retention scheme to avoid redundancies, however, not all jobs have been saved.

COVID-19 IMPACTS ON THE UK AEROSPACE SECTOR

ADS has complied analysis on the impacts of reduced global aircraft production rates, and how that impacts the potential value to the UK. Estimates suggest that the reducing of rates, creates delivery numbers well below previous forecasts and a value to the UK that is approximately £4.8bn below the aircraft deliveries value in 2019.

Reduced business activity in the commercial aerospace aftermarket and maintenance, repair and overhaul (MRO) sectors which have been significantly affected due to the sharp fall in global aviation activity. Aircraft deliveries in Q1 2020 were the lowest first figures on quarter on record, down 44.7% on 2019. Q2 2020 may see more severe negative impact on deliveries due to lockdown measures around the world. We need measures to enable our member companies to survive the current period and a long-term approach to ensure that they can thrive and focus on the strategic opportunities that lie ahead. Aerospace is essential to facilitate trade, connect people and business and is irreplaceable in this regard. ADS is calling for:

• A pragmatic and proportionate plan to resume flights as the crisis allows, in coordination with the aerospace and aviation industry, Government and international partners.
• An extension and flexing of the Job Retention Scheme, to support employees across our sectors, where recovery will take longer than other sectors.
• Rapid expansion of Government support for low carbon aerospace technology to secure the investment needed to decarbonise aviation.
• An evolution of business support for essential manufacturing supply chains. SMEs will need effective financial support as they adapt to the market transformation that will result from this crisis.
• Public procurement to be brought forward, particularly defence and space projects to help stimulate and sustain high-tech supply chains, innovation and UK strategic capabilities.

The aerospace and aviation are intrinsically linked, with the aviation section struggling, this has a severe knock on effect to the demand in new aircraft which then filters down throughout the UK aerospace supply chain.

BUSINESS SUPPORT MECHANISMS

The unprecedented measures announced by the Government thus far have been crucial for business, however it is felt that specific measures for manufacturing businesses could assist further given impacts being faced by manufacturers and supply chains. The access and payment of the financial support packages announced so far are also key to ADS member companies in the immediate term.

On the measures announced, businesses have indicated that they would benefit more from grants over loans. Issues include the time it will take to apply for loans when firms will be able to benefit from them, and under what terms of interest they will be given, when banks still have 20% liability. Loans risk pushing financial difficulties into the future for many businesses and impact their long-run viability, whereas grants provide immediate support from a cashflow perspective.

ADS members are making extensive use of the Job Retention Scheme. ADS believes that the Government needs to work with businesses going forward to have supporting mechanisms in place for when lock down and social restrictions start to be lifted and more people return to work. Given the demand signals from aerospace manufacturers and airlines, there is a real risk that the reduced demand will result in redundancies, especially if the furlough scheme is ended before demand returns and firms are still in difficulty.

RESTART AND RECOVERY IN AEROSPACE AND AVIATION

As business restarts, steps will need to be taken that sustains the economic recovery in the medium term and builds confidence over the longer term. The Government must work with industry to identify the measures needed to support SMEs, stimulate manufacturing, protect and build on the UK’s strategic capabilities and set a vision for long-term investment.

Aviation is a driver for economic growth and needs to be recognised as a geo-strategic industry. Sectors such as tourism, agriculture, pharmaceuticals, finance and many others rely on people and goods being able to travel freely by air. The success of the world economy and global trade is based in part on a well-functioning aviation sector. Despite the significant benefits of aviation, there are market failures and aerospace must rapidly decarbonise if it is to meet the climate change goals set out by countries across the globe. Without positive intervention now to keep the world moving and to sustain airlines and aerospace businesses, we face a real danger of a lost decade to make aviation sustainable.

With the right support the UK has the opportunity to become a world leader in sustainable aviation. As we move through the current crisis, the UK needs to capitalise on a rapid drive towards developing more sustainable aircraft. This requires both a thriving aviation sector and significant investment in new technologies now. The UK needs to demonstrate why international investors should continue to base their R&D in the UK. This can be achieved by the Government utilising this overcapacity and funding a project to develop a zero-carbon regional demonstrator.

Front loading funding for technology projects will help SMEs and large businesses. Currently the funding provides a percentage of funds every year to the project. This should be replaced by full funding for a specific length of time at the start of projects. This will allow companies to continue vital work on R&D. This should be complemented by further increases to capital allowances, R&D tax credits and the annual investment allowance to support businesses’ future investments. The Government should commit to doubling funding for the Aerospace Technology Institute to enable the UK to become a world-leader in hybrid and electric flight, supporting UK aviation’s commitment to net zero.

May 2020