Today, in partnership with Santander, we publish our second quarterly sector bulletin. Following on from our inaugural report on the automotive sector, we have turned our attention to all things aerospace - its structure, global presence, recent performance, risks, opportunities and long-term trends. As our sector bulletin illustrates, aerospace - much like automotive - has become one of the great success stories of UK manufacturing, and as such a rather pleasant read.
We have picked out 7 key highlights from the report:
1) UK aerospace is the 2nd largest manufacturer and 4th largest exporter in the world
The UK aerospace industry is a global powerhouse, manufacturing everything from aeroplanes and helicopters to spacecraft, rockets and satellites. However it is in the manufacturing of parts for civil and military aircraft that the UK dominates, thriving on the back of its competitive advantage in the production of high-value technology-intensive products.
The sector is also highly export intensive with 59% of GVA travelling to overseas markets, the highest of any manufacturing sector.
2) UK aerospace has seen a rapid rise
Output in the aerospace industry has grown by a staggering 73% since 1990, with healthy growth rates being achieved on an almost yearly basis. This impressive rise, underpinned by the globalisation of value chains and an apparent insatiable demand for air travel, culminated in an annual turnover of £30billion in 2015.
3) International supply chains are evolving
International aerospace supply chains are long, globally interconnected systems, and as such, exposed to disruptive kinks, delays and bottlenecks. Consequentially, aerospace manufacturers are looking to evolve their supply chain, implementing lean principles to reduce supply chain length and improve efficiency. Central to this are OEMs decisions to outsource entire sub-systems to Tier 1 suppliers, rather than just piece parts, and the subsequent emergence of “super tier 1 suppliers”.
4) The outlook remains bright
Encouragingly the sector’s recent growth shows no signs of letting up, with 2016 seeing a new industry backlog record of 13,567 aircraft. This represents almost 10 years’ worth of work in hand for the UK aerospace industry, and potentially worth up to £200 billion at 2016 prices. Manufacturers’ are therefore able to enjoy the security of a strong pipeline of work for the coming years, a commodity afforded to very few other industries given the uncertain macroeconomic environment.
5) Further opportunities arise from emerging regions
Emerging regions, particularly in Asia, represent a growing market for aerospace manufacturers at various stages of the supply chain. New aircraft production programmes in these regions will be looking to develop a reputation for reliable and safe air travel, product development and cost effectiveness. As a result UK manufacturers could find themselves with increased demand for their proven and established products.
6) But risks remain on the horizon
Surprise surprise, the key risk is Brexit – and particularly future investment decisions given the uncertainty regarding future trade relations. Other risks come from ageing satellites and their vulnerability to cyber-attacks, as well as the defence industry’s over reliance on the Saudi Arabia market.
7) Technology technology technology
Innovation is synonymous with the UK aerospace industry, and in order to maintain its position as a global leader it must harness a number of technological advances in the coming years. Whether this is through the increased use of 4IR technologies such as 3D printing, integrating light weigh composite materials in production or developing alternative bio fuels to conventional kerosene. If the aerospace sector’s historic record in innovation is anything to go by, we would expect to see these new technologies becoming common place in the coming years.
You can read the full report here. Next time we will be taking a deep dive into the Food and Drink sector.