Formation flying

Going it alone is not an attractive option for today’s aerospace companies – even the biggest. Murdo Morrison reports.

IT is hard to understate Airbus boss Tom Enders’ feelings about Brexit – particularly the no-deal version. The UK has been part of the company he runs since forming a consortium with France, Germany and Spain exactly 50 years ago to build the ‘Airbus’ widebody jet as Europe’s challenger to the USA’s airliner market dominance. In 2018, Airbus delivered a record 800 single- and twin-aisle aircraft, and, as they have for half a century, its plants in Bristol, Broughton, and now Belfast, designed and manufactured the wings for each one.

Enders – who departs as chief executive in April – has never made a secret of his displeasure over the UK’s planned departure from the EU. However, in January, the German industrialist issued his strongest warning yet about what might happen after 31 March. Airbus, he said, was “not dependent on the UK” for its future, and while it could not relocate wing production lines to other parts of the world immediately, “aerospace is a long-term business and we could be forced to redirect future investments in the event of a no-deal Brexit.”

With 14,000 employees in the country, Airbus is, along with BAE Systems and Rolls-Royce, one of the UK’s biggest aerospace, defence and security employers, and an industrial asset the country could ill-afford to lose. Governments in Germany and Spain – not to mention China – have long harboured ambitions to usurp the UK’s privileged role. As Enders noted: “Make no mistake – there are plenty of countries out there who would love to build the wings for Airbus aircraft.”

How seriously to take Enders’ threat? While some Brexiteer MPs dismissed it as ‘project fear’, UK ministers enjoy little leverage when it comes to future Airbus investment decisions. Neither the state nor any British company is a shareholder in the group, with the majority of its shares now floating freely on various European stock exchanges. On the other hand, wing production is about more than simply bolting and shipping large sheets of metal – it involves design expertise and intellectual property that has evolved in the country over decades.

The UK’s – and now Airbus’s – wing production capabilities include Bombardier’s factory in Belfast after the European group finalised a deal to acquire the Canadian company’s ailing CSeries programme in mid-2018. The 110- to 130-seat airliner, now renamed the A220 as part of the A-prefixed Airbus range, will continue to be assembled in Mirabel, near Montreal, and now also in Airbus’s new factory in Mobile, Alabama. The Belfast plant, still owned by Bombardier, will go on supplying the composite wings.

Bombardier – which also makes aerostructures for business and regional jets in Northern Ireland – sees the Airbus takeover of the A220 as an opportunity to win a role on the European manufacturer’s successor to the fast selling A320neo narrowbody, likely to launch next decade. Airbus has begun a ‘Wing of tomorrow’ research and development project, and, Brexit outcomes permitting, Bombardier believes its expertise designing and building the A220’s innovative carbonfibre wing could give it an edge over Airbus’s in-house facilities.

Across Europe – and throughout the global supply chain – the success of Airbus and Boeing in the commercial aircraft market has been good news, as well as challenging, for the industry. During 2018, the big two broke output records, delivering just over 1600 airliners between them. However, as both manufacturers continue to ramp-up to monthly production rates of over 60 units to fulfil a combined order backlog of over 10,000 just for their A320neo and 737 Max narrowbody families, suppliers are under pressure to keep up the pace.

One worrying sign, however, is a 20 per cent drop in net orders over the previous year. While demand for airliners remains strong in

historic terms – particularly in Asia – there is anecdotal evidence that some of the recent breakneck expansion in the airline world may be slowing, with wobbles in the Chinese economy, and some of the big buyers of recent years, such as European low-cost airline Norwegian, reporting financial strains. How far this erodes these giant backlogs over the next two or three years remains to be seen.

m&A activity continues

Last year saw the usual whirl of mergers and acquisitions in the aerospace industry. While 2018’s biggest industrial marriage – that of US corporates United Technologies and Rockwell Collins – affects subsidiaries in the UK and France, M&A activity among European-owned companies included the finally completed absorption by France’s biggest aerospace company Safran of airliner interiors specialist Zodiac, and Melrose Industries’ hostile takeover of UK engineering group GKN.

Zodiac, one of the world’s largest manufacturers of airliner seats, had been a prime example of how supply chain problems can quickly impact the ability of aircraft manufacturers to hit demanding output schedules. Between 2015 and 2017, quality hitches at the French company led to delays in airliner deliveries and stinging criticism from the then-chief executive of Airbus’s commercial division. Safran, which also makes engine systems and landing gear, believes it has brought these problems under control.

Turnaround specialist Melrose’s swoop for GKN came as a surprise to many who had been impressed by the UK firm’s transition from a diversified engineering concern to a key Airbus partner with major investments in the aircraft manufacturer’s wing facilities. One concern is whether Melrose – known for extracting maximum value from its subsidiaries – will be prepared to take the long-term gambles necessary to secure risk-sharing positions on future Airbus and Boeing programmes.

In March of last year, Tom Williams, chief operating officer at Airbus, GKN’s largest customer, said that “a commitment to longterm investment and strategic vision” was necessary within the top tier of the aerospace supply chain, something he saw as incompatible with typical venture capital or restructuring ownership. “It would be practically impossible for us to give any new work to GKN under such an ownership model, when we don’t know who will be the longterm investor,” he said.

With Airbus building helicopters and now airliners in the USA, its arch-rival established its first proper industrial footprint in Europe last year by opening a production facility in Sheffield – albeit, with around 50 employees, a modest one. Although the American company touts the size of its supplier base on this side of the Atlantic, it is often criticised for its limited direct investment relative to the contracts it secures for its defence products, particularly in the UK.

China on the move

China – for more than a decade one of the most dynamic airliner markets for Airbus and Boeing – has slowly been making its presence felt on the aerospace side of the equation. Initially focusing on lower labour cost production of components for European and North American manufacturers, the country now harbours ambitions to take on its West at its own game, with Comac’s recently-flown C919, a narrowbody competitor to the A320neo and 737 Max, as well as a long-haul airliner being developed with Russia.

Chinese companies have also been investing in European aerospace companies. Early in 2018, Wangfeng Aviation bought Diamond Aircraft of Austria, a family firm that made its name producing light aircraft flown by enthusiasts but also in demand in markets such as China to provide training for airline pilots. Interestingly, Diamond has also been moving increasingly into the higher-margin, ‘special mission’ market, designing, in partnership with defence companies, manned and unmanned versions of its aircraft for aerial surveillance.

Other businesses now with Chinese nameplates over the door include UK passenger seat manufacturers Thompson and Acro, as well as FACC and AIM Altitude, which specialise in cabin fittings. Once the in-house maintenance, repair and overhaul department of Swissair in Zurich, SR Technics is now owned by China’s HNA Group. Meanwhile, UK parts manufacturer Gardner Aerospace is expanding into China after being bought by mining concern SLMR. Defence questions

While a messy Brexit may have repercussions for the UK’s – and Europe’s – commercial aircraft sector, the UK’s departure may also affect cross-border relationships in the defence industry. BAE Systems is a partner in the European Eurofighter Typhoon military fighter, and a shareholder in missile house MBDA, but European defence activities have been much less integrated than in the airliner world, with nations such as France, the UK, and even Sweden keen to preserve their national capabilities.

At a time of falling budgets and mounting programme costs, however, this self-reliance has proved harder to sustain. France maintains Dassault Aviation – maker of the Rafale fighter as well as the Falcon range of corporate jets – as its industrial champion, while the UK has BAE, also a partner in the Lockheed Martin F-35 programme, for which London is a major customer. When it comes to developing a 2030s successor to the Eurofighter, the question is whether the UK and/or France will join forces with the likes of Germany, Italy, and Spain.

At July’s Farnborough air show, the UK government and BAE unveiled a full-scale mockup of what a next-generation UK fighter might look like. Dubbed the Tempest, the country’s defence secretary Gavin Williamson said it was part of a strategy “to keep control of the air, both at home and abroad [and] remain a global leader in the sector.” However, while the project is designed to show off UK capabilities, the country is inviting international participation in any future programme.

In defence, as in the commercial airliner sphere, going it alone in aerospace for any European nation is not a prospect that many view with enthusiasm. n