Quarterly Talent Snapshot - Aerospace and Defence Q2 2023

Foreword

300% YoY increase in orders

#1 Industry overview

Supply chain shortages

Skills gaps causing problems

#2 Labour market trends

Sharp upturn in candidate availability

Employers tending towards temporary hires

Fewer vacancies compared to this time last year

#3 Equity, diversity & inclusion

CEO diversity is lagging behind

Only half of LGBTQ+ workers are out at work

UK Engineering culture not inclusive enough

#4 Politics & economy

Monetary policy report findings

Monthly GDP down

UK denies report of deal to rejoin EU's Horizon science scheme.

Conclusion

Foreword

Dr Gareth Owen, Morson Market Analyst

There was optimism across most sectors in the first half of 2023, with big investment plans and strong revenue growth. But much uncertainty lies ahead, as the UK economy is experiencing a turbulent ride, with a recession still likely in 2023.

Skills shortages and supply chain issues still represent the biggest obstacles to growth that breaks through pre-pandemic levels

The big opportunities and challenges that are stacked ahead of us will require a relentless focus on talent attraction and retention, concentrating on widening the talent pool through attention to welcoming diversity

Aerospace & defence

38% year on year growth in aircraft deliveries highlights resilience and is a positive health check in the midst of increased supply chain challenges.

#1 Industry snapshot

Growth in spite of skills gaps

The UK Aerospace and defence sector continues to thrive, on its journey to reaching pre-pandemic performance in 2024.

The UK aerospace sector had a 300% YoY increase in orders and a 40% increase in deliveries in May 2023.

Labour and supply chain shortages have slightly spoilt the party, causing airlines to express frustration with delays to plane deliveries, a full supply chain recovery is not expected until 2026.

The skills gap is becoming increasingly tight as international demand for workers increases on back of the war in Ukraine and rapid growth in artificial intelligence and machine learning activity Cobham and Ultra boss, Shonnel Malani, has suggested that the rise in home working is an obstacle in the war for talent with more flexible foreign rivals

Contract wins

Tempest

The Ministry of Defence have awarded a contract extension worth £656 million to BAE Systems to progress the concepting and technology of the next generation combat aircraft known as Tempest in the UK

Airbus

A rbus secures biggest p ane order in the history of commercial aviation IndiGo has placed an order for 500 A320 Fam ly a rcraft in a big boost for Airbus Broughton

Moog

Open a £40 mill on aerospace factory in Gloucestershire American engineering giant Moog has opened its new aerospace div sion headquarters in Tewkesbury

Rolls Royce

1,170 jobs boost for East Midlands as Rolls-Royce announces plans to expand Raynesway site to provide all the nuclear reactor plants to power new attack submarines as part of the tri-lateral AUKUS agreement between Australia the UK and US

Safran

French aerospace engine maker Safran SA is nearing an approx mately $1.8 bil ion deal to acquire a Raytheon Technologies Corp unit that makes flight controls for aircraft, hel copters and missi es according to a person familiar with the matter

Industry headlines

Aerospace Sector Thrives with 300% YoY increase in orders alongside 40% increase in deliveries Orders placed in May 2023 are 306% higher than in May 2022 at 146 aircraft orders. A 38% increase in aircraft deliveries in May 2023 is encouraging for the sector amidst supply chain challenges and slightly muted start to the year.

BAE Systems trading Update Trading so far this year has been in line with expectations with continued good operationa performance The AUKUS announcement n March provides a significant boost as well as the continued increase in defence spending in NATO countries prompted by the war in Ukraine.

Construction begins on Roya Navy's fourth Type 26 frigate - HMS Birmingham BAE

Systems plans to recruit a further 400 trades people and 200 apprentices for the programme in 2023

Airbus reports strong first quarter demand but sales and earnings decline continue to face an adverse operating environment that includes, in particular, persistent tensions n the supp y chain.

At the 2023 Paris Air Show the UK Government announced £218 million funding to help develop cutting-edge green aviation technology and grow the UK’s share of the global aerospace market

Skills shortages

Much of the supp y chain cr sis boils down to skills shortages, the aerospace sector employed about 3 000 fewer direct employees in 2022 compared with 2021 On top of that the number of apprentices also dipped over th s period by 300, to 5,500

Qinetiq s looking to double its revenue to £3bn by the end of 2027, including acquis t ons Increased European and IndoPacific threats are driving rap d defence modern sat on with the addressable market increased from >£20bn to >£30bn per year due to recent commitments to higher defence spend ng in the US UK and Austral a

Ro ls-Royce turnaround mov ng at pace ' under new CEO Rolls Royce are on track to meet 2023 forecasts, buoyed by cost savings and the ongoing travel recovery A strategic review of the company was launched by the CEO, Erginbilgic, and is due to report in the second half of 2023

Safran posts strong sales but sees supply chain r sks unvei ed stronger than expected quarterly revenues on Wednesday, buoyed by a sw ft recovery in air travel but predicted problems with aviation s supply chain could drag into next year

Industry recruitment headlines

Across the 1,200 members represented by ADS, the trade association for aerospace, defense, security, and space sectors, there are more than 10,000 currently unfilled vacancies, three quarters of members see the workforce and skills shortages as having a big impact on business These companies collectively employ 417,000 people and have a combined turnover of £82bn

A rbus expects to recruit 13 000 staff by the end of 2023 Airbus CEO Guillaume Faury had said that supply chains had stabilised although the industry still faced pressing labour shortages.

Spirit AeroSystems h ring 100 new workers in Belfast expans on

Work to commence on Leonardo’s new Newcastle facility set to create more than 200 jobs at the base

Candidate availability expands at quickest rate for two-and-a-half years

The sharp upturn in candidate availability this month is a big concern for the economy reflecting the effects of a sustained slowdown in recruitment along with increasing redundancies across many sectors.

Employers are also tend ng towards temporary hires given lingering economic uncertainty And yet the labour market remains reasonably res lient, with notable demand for skilled workers, both permanent and temporary, across a multitude of sectors this month

The evident m smatch between open vacancies and the sk lls of available candidates needs to be addressed urgently and a concerted focus on upskil ing and reskill ng is long overdue

Staff recruitment held back by lingering uncertainty over the outlook

Recruitment consu tancies indicated that compan es cont nued to hesitate to take on add tional staff in June as uncertainty over the economic outlook weighed on hiring decisions across the UK

The latest survey data pointed to a solid fall n permanent staff appointments n June, albeit w th the pace of contraction easing from May's near two-and-ahalf-year record At the same time temp billings growth p cked up s ightly from May's recent ow but rema ned mild overall

There were 265,000

fewer vacancies in April to June 2023 compared to the same period last year

Candidate supply rises rapidly in June

The hiring slowdown and company ayoffs mpacted staff availability which rose for the fourth straight month in June Moreover, the atest upturn in overall candidate numbers was the sharpest recorded since December 2020, w th both permanent and temporary staff supply expanding at accelerated rates

Starting pay increases at softest rate since April 2021

Latest data revealed further marked ncreases in both starting sa aries and temp pay at the end of the second quarter Panel members frequently mentioned that the rising cost of living and compet tion for skilled staff had pushed up starting salaries and temp wages That said remuneration for both permanent and temporary staff rose at the slowest rates for over two years in June.

Vacancy growth eases to 28month low

Overall vacancies continued to rise in June but the pace of expansion softened for the fourth month in a row Furthermore the rate of growth was the softest recorded since the current sequence of rising staff demand began in March 2021

Underlying data ind cated that a slower uptick in permanent vacancies offset a quicker rise in demand for short-term staff

CEO diversity: why isn’t the face of leadership changing?

CEOs in the FTSE 100 are still overwhelmingly male and white, despite widespread corporate diversity efforts. A lack of adequate succession planning and risk aversion mean many companies are opting for what has worked in the past.

The sort of person who gets to lead a FTSE 100 company has been under the microscope for more than a decade Over this period several government reviews have examined the shortfall in female or nonwhite d rectors n blue-ch p C-suites Although progress has been made there’s stil a long way to go with on y 20% of FTSE 100 CEO's identifying as fema e or person of colour

According to Raconteur's CEO Index: Out of 97 FTSE 100 CEO's:

9 are women compared with 51% of UK popu ation

11 have come from a non-white European background (18% of the UK population are from an ethnic minor ty)

not one has publ cly come out as LGBTQ+ (3.5% of the UK popu ation are LGB and 0 5% say their gender identity is d fferent from their sex reg stered at birth)

not one has declared a disabil ty (people with disabilit es make up 21% of the popu ation)

Black and ethnic minority workers twice as likely to be unemployed

Black and other ethnic minority workers are more than tw ce as likely to be unemployed than white staff according to ana ysis from the TUC Women from ethnic minorities are hit even harder, facing an unemployment rate of nearly three times that of white men

The union body looked at the most recent labour f gures from the Office for National Statistics and found that the unemployment rate for Black and ethnic m nority workers was 6 9%, compared to 3 2% for white workers

Only half of LGBTQ+ workers feel comfortable being out at work

Only ha f of LGBTQ+ workers in the UK are comfortable being out about their sexual orientation with colleagues at work according to new research from Deloitte

Delo tte’s 2023 LGBT+ Inclusion @ Work report looks at the experiences of 5,474 LGBTQ+ people in the workp ace in multiple sectors across 13 countr es through the lens of sexual orientation and gender identity.

More than half of respondents (59%) think that allyship plays an important role in helping people be open about their LGBTQ+ identity at work

New review to boost employment prospects of autistic people

A new review designed to boost the employment prospects of autistic people has been launched by the Government to spread opportunity, close the employment gap and grow the economy

The Secretary of State for Work and Pensions, Mel Stride MP has appointed S r Robert Buckland KC MP to lead the review, wh ch w ll cons der how the Government can work with employers to help more autist c people realise their potential and get into work

Of FTSE 100 CEO's identifying as female or person of colour.

#3 Equity, diversity & inclusion in focus

Engineering culture in the UK is not inclusive enough according to the Royal Academy of Engineering

Engineering culture in the UK needs to accelerate its drive to become more inclusive, according to a new report from the Royal Academy of Engineering

The research commissioned by the Academy aimed to improve understanding of how engineers perceive the current culture of the engineering profession and whether it is attracting, developing and retaining the number and diversity of engineers needed in the UK.

From café worker to nuclear asset care, Freyja Ingham, Morson Projects

Freyja Ingham is Asset Care Team Manager at Morson Projects

Without much encouragement from her teachers to consider pursuing a career n STEM Freyja spent much of her early teenage l fe working in a local café, unsure of what to do. PathF nders speaks to her about her journey into engineering

I did STEM at GCSE kind of age and, you know, we went to the Big Bang Fair in Manchester and it was really good fun. But I guess I never considered it as a career path because my teachers never really pushed that.

Monetary Policy ReportMay 2023

The Bank of England's quarterly Monetary Policy Report sets out the economic analysis and inflation projections that the Monetary Policy Committee uses to make its interest rate decisions.

Inflation is too high. It has been around 10% since last summer.

In March prices were 10 1% higher than a year ago Inf ation has been around 10% since last summer well above the 2% target

Higher energy prices are one of the main reasons for this.

Russia’s nvasion of Ukraine led to large increases in the price of gas Households’ energy costs have almost doub ed s nce the start of ast year

Economic headlines

Businesses are charging more for their products because of the higher costs they face. There are ots of job vacancies as fewer people are seeking work fol owing the pandemic. That means that employers are hav ng to offer higher wages to attract job applicants Prices for services have risen marked y

The Bank of England have raised interest rates higher to make sure inflation falls

In total, they have ra sed our interest rate to 4 5% from 0 1% s nce December 2021 Higher interest rates make it more expensive for peop e to borrow money and encourage them to save That means that, overall, they w ll tend to spend less If peop e on the whole spend less on goods and services, prices will tend to rise more slowly That lowers the rate of inflation

Inflation is expected to fall quickly

To around 5% by the end of this year That doesn’t mean that pr ces will fall but they wil stop increasing so quickly.

Monthly GDP is estimated to have fallen by 0.1% in May following growth of 0.2% in April 2023.

Looking at the broader picture GDP has shown no growth in the three months to May 2023.

Production output fell by 0 6% in May 2023 after a fa l of 0 2% in April 2023, this sector was the main contributor to the fall in monthly GDP in May.

The construction sector fell by 0.2% in May 2023 fol owing a fall of 0 9% in April 2023, revised down from a fall of 0 6% in the prev ous publication

UK denies report of ready deal to rejoin EU's Horizon science scheme.

UK Prime Minister Rish Sunak's office den ed a BBC report that a deal for Britain to rejoin the European Union's Horizon scientific research scheme had been negotiated and was awa ting approva

No deal has been agreed upon and ta ks are ongoing Brita n ' s government said. The UK has been negotiat ng with the EU over rejoining Horizon after London and Brussels sett ed their d spute over post-Brex t trade rules governing Northern Ireland in February

Concluding thoughts

Dr Gareth Owen, Morson Market Analyst

Though the UK has much to be positive about in the first half of 2023, storm clouds are still on the horizon.

The UK continues to experience high inflation, but the medicine of higher interest rates could easily stall the economy and act as a drag on the journey out of the pandemic era.

Government appears to have lost focus on the key challenges the UK faces in growing the economy, as it is more concerned about short term measures to make quick impacts, before the next general election

The labour market remains very tight, with broad skills shortages, despite the supply of candidates across the job market having risen for four consecutive months. The continued inflationary pressures mean that more people will redouble their job search efforts and companies look to adapt their operations to battle against the challenges ahead.