Written evidence from Airbus Group (GPP 75)

 

 

 

 

Airbus Group welcomes this opportunity to respond to the Business, Innovation and Skills Committee’s consultation on the Government’s Productivity Plan. Airbus Group welcomes the Government’s decision to publish a plan on this area, as well as the scrutiny that this Committee’s inquiry will bring.

 

While Airbus Group is not in the position to comment on every question asked in the consultation, the response below outlines our views on the key issues effecting productivity and their importance to sustaining and enhancing economic growth and investment.

 

 

About Airbus Group

 

Airbus Group (www.airbusgroup.com) is a global leader in aerospace, defence and related services.

The Group – comprising Airbus, Airbus Defence and Space and Airbus Helicopters, generated revenues of €60.7bn in 2014 and employs a global workforce of around 138,600. This includes a 14,000-strong British workforce spread over more than 30 UK sites, generating annual revenues close to £8bn, making the Group the second largest aerospace and defence employer in the UK and a major contributor to the UK economy. Airbus Group UK is also among the Guardian newspaper’s top 20 graduate employers.

 

Building on a proud 100-year British heritage, the Group is driven by a strong portfolio of companies united by a common brand. Airbus, the largest UK commercial aerospace company and biggest civil aerospace exporter, designs in Filton, near Bristol and manufactures in Broughton, north Wales, wings for all models of Airbus aircraft.

 

Airbus Defence and Space combines the Group’s defence and space activities, making it the UK’s largest space company and the world’s leading commercial provider of military satellite communications; the biggest supplier of large aircraft to the RAF and a world-leader in cyber security. As Britain’s civil helicopter hub, Airbus Helicopters holds 55% of the UK’s offshore oil and gas helicopter fleet at Aberdeen, the world’s busiest rotary wing airport and is a key supplier of military helicopters to the Ministry of Defence – indeed every UK military pilot is trained on an Airbus Helicopter machine.

 

 

Introduction

 

With a global order book worth €857bn and a production backlog stretching to around 8 years, it is vital that we remain productive to deliver on our commitments and remain at the top of an extremely competitive world market. To do this we invest heavily in our “home countries” – the UK, Germany, France and Spain. The Group invests around £500m annually in R&D in the UK and has collaboration agreements with more than 20 British universities.

Aerospace and space are among most the productive sectors in the UK economy. Productivity across the UK aerospace, defence and space sectors has risen 30% since 2010, compared with just 4% across the rest of the UK economy as a whole.

 

Aerospace is a cornerstone of UK high- value manufacturing. It supports a highly- skilled, innovative, well-paid workforce and creates long-term jobs and careers for over 109,000 people directly, including around 3,300 apprentices and trainees, as well as over 120,000 jobs  indirectly. The average aerospace employee produces more than twice as much gross value added than the average UK employee, and 17% more than the average employee in the automotive sector. Average salaries, at £41,000 in UK aerospace, are over 50% above national average. The UK aerospace industry has an annual turnover of almost £28bn, and around 90% of production is exported.

 

The space sector is also a major success story for the UK economy. It has enjoyed a compound annual growth rate of 8.6% since 2008/09, while exports in 2012/13 were estimated at £3.6bn. 31% of turnover from the UK space economy is generated from exports, more than twice the export share of the UK as a whole.

 

Average UK space economy output per worker is 3 times higher than the UK average, while the ancillary services sub-sector has the second highest labour productivity (£274k) behind only the very capital intensive mining and quarrying sector. However, the space sector also has significant downstream benefits in terms of providing revenues and services for telecommunications, satellite navigation, broadband and weather forecasting, for example. This is all achieved on an investment rate of just 0.020% (on average) of GDP.

 

The UK defence sector also delivers world-class defence products and services, which assures the UK’s national security and that of many of our defence partners around the world. The UK’s world-class technology, skills and academic base underpins the defence industry’s ability to design and manufacture highly-sophisticated products and services, directly employing 162,400 people in high-skill, high-value jobs. With an annual turnover of around £22bn and exports of over £9.8bn, the sector also brings significant economic benefit to the UK.

 

 

Benefits of consistent & long term policy

 

The value of long-term investment rightly forms a major part of the Productivity Plan. Airbus Group UK supports the Government’s objective of ensuring that resources flow to their most productive uses. By seeking to rebalance the UK economy, the Government should continue to support successful modern industrial strategies, and help to stimulate innovation in high-productivity, export-intensive sectors - ensuring that investment in research is aligned to create critical mass in areas of strength.

Airbus Group UK welcomed the Chancellor’s endorsement of this aim at the opening of the Manufacturing Technology Centre in Coventry in January 2014 when he said;

“The government also needs to unashamedly back those parts of the economy that are a British success story – like car manufacturing, like biotechnology, like aerospace.

It’s not about picking winners, but helping British businesses to maintain their competitive edge.”

The last parliament saw a strong focus on a number of sector-specific strategies involving close cooperation between the private and public sectors, including the Aerospace Growth Partnership (a 7 year programme), the Space Innovation & Growth Plan and the Defence Growth Partnership.

 

Such strategies provided welcome clarity as to the direction of government policy over the long term, and so proved instrumental in encouraging industry to make long term investments in their UK facilities, workforce and R&D, all of which are crucial to ensure productivity remains high. This is crucial for industries such as aerospace, defence and space which often work to very long timeframes. Please see the case study in annex one for an example of how Airbus is investing in its Broughton facility to make single aisle wing manufacture more productive through the Step Change programme.

 

Each of the AGP’s initiatives, including the Aerospace Technology Institute, Sharing in Growth and the National Aerospace Technology Exploitation Programme, have been successful in improving the sector’s productivity growth. They also help the UK’s global competitiveness by creating a more productive, innovative supply chain capable of competing internationally on the basis of higher-value added activity rather than price-based competition on commodity products.

 

The wider benefits of such schemes are also now being seen on a large scale. Through the ATI, for example, over 100 aerospace R&D projects worth around £1bn have been announced, with more in the pipeline, in return for a government commitment of £150m per year. This could boost UK GDP by between £350m and £700m per year in the long term, the bulk of which would accrue outside the initiating firm. Conservatively, the spill-over benefits to the UK economy could amount to 70% of the one-off cost to the government every year.

 

These projects are involving 134 entities ranging from small to large companies, Universities and Catapult centres. By highlighting the ATI as a key mechanism for funding innovation, the Productivity Plan reinforces the value of long term approaches to boosting productivity and rebalancing the economy. Increasing aerospace R&D is also an important part of the explanation for why aerospace productivity is increasing, from an already high level.

 

Long term initiatives such as the ATI really do encourage long term investment by companies in the UK, as evidenced by Airbus COO Tom Williams’ comments at the opening of the ATI’s Cranfield headquarters in April 2014 when he was Airbus’ UK Chief Executive;

 

“ATI will help ensure sustained and targeted investment into aerospace research and development. Such forward thinking is vital and will help provide the cutting edge technological advances that are so important to the future success of our industry - helping keep the UK at the forefront of global aerospace, promoting long term growth and high value employment.”

 

The ATI and other institutions such as the UK Space Agency, also further boost the UK’s engagement with overseas organisations and participation in international initiatives, including European research and development programmes. The UK’s leading role in the European Space Agency’s ExoMars mission is a prime example of this. Major components and final assembly of the Mars Rover are now being undertaken at Airbus Defence and Space’s Stevenage facility instead of elsewhere in Europe thanks to target UK investment in space by the UK Government.

 

Airbus Group will continue to face increased global competition for future orders. Whether it is mature markets in Europe and North America, or emerging regions in the Middle East and Asia, Airbus Group must remain in a position to win business across the world. In the defence and security industries, reduction in domestic budgets means more countries and companies are competing for growth in export orders.

 

As outlined in the Productivity Plan, overseas trade increases UK productivity by allowing firms to specialise in sectors in which the UK has a comparative advantage. Airbus Group has welcomed the current government’s strong and visible support for exports from the Prime Minister downwards and this must continue. Airbus Group has in the past benefitted strongly from UK Export Finance, and welcomes the Plan’s statement that the British Business Bank will work with UK Export Finance to review the access to finance challenges facing SMEs looking to export, as this will help to benefit the wider supply chain for larger primes.

 

Competition in the aerospace, defence and space sectors is fierce and often highly politicised, so it is vital that government and industry are joined up at all stages of the export process, from initial promotion at home and abroad, through to deal closure. Advanced notice of when government ministers are travelling abroad is essential to enable UK companies to brief on key export opportunities and sales campaigns, and the same is true with regards to trade delegations and state visits by overseas  government representatives visiting the UK. 

 

The challenges of intensifying international competition, the rapid pace of innovation in the sector and a need to broaden our customer base will always remain. In order to improve productivity and deliver on its growth agenda, the government must continue to support successful Industrial Strategies through stimulating innovation in high-productivity, export-intensive sectors and ensuring that investment in research is aligned to create critical mass in areas of strength. 

 

 

The importance of R&D investment

 

The Productivity Plan makes clear the positive link between importance of long-term investment in R&D, skills and exports to improving productivity. However, in 2013, UK government financing of R&D was just 0.4% of GDP, well below that of other nations including the US (0.9%), Germany (0.8%), France (0.8%), Finland (0.9%) and South Korea (1.0%).

 

Future UK economic growth and competitiveness will derive increasingly from hi-tech and high-skilled industries which draw on the UK’s strengths in science, engineering and innovation. It is also the case that jobs follow technology, and Britain’s future as a hi-tech economy rests on its track record in investing in R&D and building on its bank of world-leading technologies.

 

Airbus Group welcomed the creation of the Catapult network, which has played a vital role in bringing together businesses, scientists and engineers to drive the commercialisation of technology. As noted in the Plan, it is encouraging that Innovate UK, working with Research Councils, has now identified further areas where a Catapult might be the right way to ensure the UK is at the forefront of commercialising technologies which offer global opportunities, and Airbus Group looks forward to the proposals soon to be announced.

 

Aerospace, defence and space are amongst the most R&D-intensive sectors in the UK and global economies. Hi-tech industries work against long-term horizons and require stable, long-term investment indicators or support by Government.  The UK’s hi-tech sectors are also competing with other national sectors which enjoy significant long-term public support. As a result of the AGP over £300m of collaborative R&D projects are already up and running benefiting companies of all sizes and universities across the UK. These projects are being delivered through the Innovate UK.

 

An increase in the support from government for R&D would be a key driver for industry to increase its own R&D investments. The AGP, DGP and the Space Innovation & Growth Plan can be viewed as recognition that some strategic UK industries require greater investment and R&D spend. This is all the more important for companies like Airbus Group UK which has a wide range of projects and initiatives which require long term R&D investment. With regards to our civil aircraft products, for example, we are currently focusing both on new products such as our A350 XWB, and improving existing ones, such as the A320neo and A330neo. Both endeavours require the latest cutting edge technology, which in turn needs extensive R&D before it comes to market.

 

Ensuring the UK’s science budget provides adequate resources to enable the UK to continue to meet its existing commitments and participate in international collaborative programmes would also encourage greater investment in R&D. Often such involvement also provides a good return on investment, both in financial terms and in “soft power” and recognition as a result of taking part.

 

The International Space Station Exploitation Programme, for example, saw the UK take a small stake in this international endeavour which resulted in an impact greater than the investment (in particular through “buying” the Tim Peake flight opportunity and the inspirational impact this has had on our young people). Participation also strengthens the UK’s negotiating hand in European Space Agency Ministerial Councils where participation levels and work-shares are decided.

 

Investment in UK sovereign capabilities also has the potential to boost productivity. The acquisition of a UK sovereign Earth Observation capability could utilise UK-built satellites to acquire imagery for the MoD and other government departments, removing the currently splintered market in the purchase and use of Earth observation data (much of this data also currently comes from foreign built and operated spacecraft). Data could also be sold on the open market creating additional revenues.

 

This model's advantage for the government is that it requires no large investments from Whitehall. The government would only have to become a long-term anchor tenant - to agree to put all the money it already spends on a range of Earth observation providers and services into the new, single national operation. This would also avoid duplication and increase productivity gains in many other sectors such as transport, agriculture and energy. A similar approach was adopted for the MoD’s Skynet military telecommunications satellite network.

 

As mentioned above, aerospace productivity is growing rapidly. However, one of the key challenges is maintaining levels of production to meet the demand for new aircraft. The current global aircraft backlog is over 12,000 aircraft – worth around 8 years’ worth of work in hand for UK companies. Despite meeting the increases seen over the last 5 years, major manufacturers such as Airbus are seeking to increase production rates at a much faster rate to meet this record order book (see case study below for an example).

 

Modern industrial strategies play a key part in enabling industry to meet these production rate increases - underpinning supplier confidence and allowing businesses to make investments in long term capacity to increase their own production levels and help to meet growing global demand. They also generate a cycle of increasing productivity that benefits the whole supply chain – as primes such as Airbus Group increase production, our suppliers receive more orders and income which enables them to invest in facilities and skills and so become more productive themselves. Given a major prime is only as good as its supply chain, this in turn enables us to become more productive in the first place.

 

 

The importance of skills to productivity

 

The maintenance of high productivity levels at both Airbus Group in the wider UK aerospace, defence and space sectors is ultimately dependent on the availability of high-calibre scientists, mathematicians and engineers willing to enter those industries. The science and innovation that underpins these sectors will only continue to deliver as long as there are skilled young people, interested in studying and careers in science technology, engineering and maths (STEM), coming up through the education system.

 

The government must ensure it continues to focus on the issue of promoting STEM education and careers to young people. Initiatives such as the Your Life campaign are to be welcomed and it is also important that these get support from industry while being aligned with its own needs and initiatives.

 

Airbus Group actively engages in numerous outreach events, training programmes and apprenticeships to ensure its future workforce is fully equipped with the skills needed to meet the challenges facing our industry. We invest in the development of future talent at an early age by supporting initiatives that enrich and enhance the delivery of education, particularly the STEM subjects. As a company we also seek to build the world of work into education and improve employability skills, as well as provide careers information and raise the profile of careers in the engineering and manufacturing sectors.

 

Airbus Group welcomes the Government’s drive to increase the number and quality of apprenticeships, and recognises that industry has a large role to play in this. However, we look forward to seeing more detail on the Apprenticeship Levy, however, are concerned about how the Levey, which will only apply to England, will effect companies with operations across the UK.

 

Airbus already supports around 100 STEM Ambassadors reaching out to local schools and colleges around our key UK sites at Broughton and Filton, and more than 4,000 apprentices have enrolled in a variety of Airbus schemes over the last three decades. It is vital that careers advice in schools is well-structured to ensure that young people understand that they have other options in addition to university, such as apprenticeships, and to help bust some of the negative myths that sometimes surround careers in manufacturing and engineering. Airbus Group also welcomed the

 

British universities also play a crucial role in ensuring the UK has a highly skilled workforce upon which high-value industries such as aerospace, IT and pharmaceuticals depend. A deep knowledge base also ensures that the country has a solid foundation on which to develop future ideas and products which will benefit UK plc. Investments and partnerships with universities often also have the additional benefit of focusing support outside of London into other regions of the UK where specialist expertise exists, such as with the south west and aerospace.

 

 

Tom Page

UK Public Affairs Manager

 

10 September 2015

 

 

 

Annex 1

 

Case study: Factory of the Future - Keeping UK wing production one step ahead

 

With an unprecedented order book, particularly for our best-selling A320 series of single aisle aircraft, Airbus needs to have a fully integrated production process to be able to deliver at the expected costs and deadlines.

 

The £48million Step Change project will see Broughton’sA320 Family wing manufacturing systems overhauled and replaced with state-of-the-art equipment, boosting the site's build capacity and efficiency. The existing production line for A320 family wings at Broughton remains based on a design first conceived in the 1980s. At that time no-one could have imagined the success that A320 Family would enjoy. The initial business case for 600 orders for this aircraft is today more than 11,000 orders, and the A320 Family is now the backbone of many short-and medium-haul airline fleets worldwide.

 

Funding for the research and development aspects of the Broughton Step Change project was announced at the Trade and Investment Summit in Newport, South Wales, in November 2014. The project is funded jointly by Airbus and the Aerospace Technology Institute, and will allow Broughton to meet the demands of future rate increases up to the target ramp-up of 50 wing sets per month, as well as any future increases beyond 50. The current Single Aisle (SA) assembly is spread across 20 main assembly jigs. The Step Change project is all about introducing a simplified system for SA wing production using a clear product flow throughout the process.

 

This will make way for new and more sophisticated technology to take its place. An improved working environment comes with this which is hugely important in terms of employee wellbeing.

 

Installation of the first new pulse line will quickly follow to enable production of wings from summer2016. Full rate capability will be achieved in summer 2018.

 

Benefits of the Step Change project include: