This report will explore the following key issues regarding the aerospace industry in the UK:

• What are the key determinants driving the aerospace industry?

• Was the market affected by the financial crisis and how has it recovered since? Has there been any structural changes as a consequence?

• How has the government influenced and shaped the development of the sector?

• What are the key issues the UK industry needs to address to maintain its global position in an ever-competitive market?

• How have companies adapted to cost and environmental pressures?

• What does the future hold for the UK aerospace industry?

For the purposes of this report, the aerospace equipment industry includes both civil and military equipment.

The market is segmented into the following sectors:

• Complete aircraft

• Helicopters

• Aircraft parts, including undercarriages, propellers, fuselages, hulls, wings, control levers and fuel tanks

• Aircraft engines

• Aircraft engine parts

• Spacecraft, including satellites and launch vehicles

• Other aerospace equipment, including ground flying trainers, aircraft launching gear, gliders, hang gliders, balloons and other non-powered aircraft

• Repair and reconditioning of aircraft

All values quoted in this report are at current prices unless otherwise specified.

Some numbers in tables do not add exactly due to rounding.

Reports are researched and written by MBD’s in-house, specialist business-to-business consultants. Research is based on both an analysis of official information and on original, trade research, providing both a quantitative and qualitative view of the market. MBD’s unique range of frequently updated reports provide an integrated body of ongoing research, enabling deep understanding of the prevailing trends and of the drivers of these trends based on trade opinion.

The following abbreviations appear in this report:

The UK aerospace industry comprises firms involved in the design, development, manufacture and support of aircraft, helicopters, missiles and space systems (satellites). It includes aircraft and systems, engines, equipment and maintenance, repair and overhaul companies supplying military and civil markets in both the UK and overseas.

The UK’s aerospace industry is unusual in the manufacturing sector as it was not particularly affected by the recession. Instead, it benefited from the launch of a number of new aircraft and engine programmes simultaneously under development. This includes the Airbus A380 and Boeing 787 over the past five years, while development work on the new Airbus A350 aircraft and the associated Rolls-Royce XWB engine has begun over the past two years.

The importance of the aerospace industry to the economy has changed noticeably since 1997. While output within manufacturing fell by 4.5% between 1997 and 2013, output in the aerospace industry increased. Aerospace repair and maintenance increased by 8.6% while output for aerospace manufacturing increased by 79.6%.

The industry’s importance to the economy is highlighted in a report published by Oxford Economics in July 2015, which reported that BAE Systems, alone, contributes £7.9 billion to the UK economy - comprising direct, supply chain and workforce consumer spending contributions, equivalent to 0.46% of the UK's total GDP.

The UK’s aerospace sector has grown by 35% in the past five years and has seen productivity increase by 50% since 2009, vastly outpacing the UK economy, which grew by just 4% over the same period.

Much of this growth has been attributed to the success of the Aerospace Growth Partnership, a joint government and industry initiative that has made significant progress in boosting innovation, skills and enhancing technology development in the supply chain.

The UK government recognises that SMEs have a significant role within this, with funding of £25 million dedicated to supporting them in developing collaborative research and technology projects. Continued innovation in new structures, engines and composites will differentiate manufacturers that can best utilise technology to improve efficiency.

UK airlines form a privately-owned oligopsony, dominated by British Airways. In the global market, there are large numbers of state and privately-owned airlines demanding large and regional jet airliners. There are also many buyers of business jets and light aircraft for pleasure use. On the supply side globally, there are duopolies in large jet airliners (Airbus, Europe; Boeing, US) and regional jet airliners (Bombardier, Canada; Embraer, Brazil).

Demand for new commercial craft is expected to reach 40,000 units, or £107 billion, every year. The UK also has a significant maintenance, repair and overhaul (MRO) sector, across both civilian and military aircraft. UK Trade & Investment (UKTI) states that Britain accounts for roughly 17% of the £29 billion global MRO industry.

The global supply industry has traditionally been dominated by US manufacturers, partly reflecting the size of their domestic market, which allows the production economies of scale required to offset the high research and development costs inherent in the sector.

However, since the turn of the Millennium, the European production base has strengthened and become more competitive due to a number of strategic alliances across national European borders, such as the Airbus Industrie and the consolidation of GKN Westland of the UK and Augusta of Italy to form AgustaWestland in 2001, the world’s second largest helicopter company. Component parts are now produced throughout Europe and assembled to provide greater competition to US suppliers.

The EU aerospace industry is highly concentrated in a few countries, including the UK, France, Germany, and Italy. Other significant aerospace production capacity in Europe is located in Belgium, Greece, the Netherlands, Spain and Sweden.

RollsRoyce’s engines now provide the thrust for half of the world’s new widebodied jets. Around a quarter of Boeing’s 787 Dreamliner is made in Britain, including the landing gear, fuel pumps and some seats. Airbus completes construction of its wings in Wales before transporting them to southern France for attaching to fuselages. Bombardier, a Canadian firm, builds the wings for its new CSeries regional jets in Belfast.

Particular strengths of the UK industry include the design and manufacture of large aircraft wings, the production of engines, and the building of landing gear systems. The UK has developed a strong comparative advantage in four key, high-value, complex areas of modern aircraft; wings, engines, aero structures and advanced systems. The adoption of new technologies, such as composites and additive manufacturing, are starting to extend through the aerospace supply chain. The UK is also one of a handful of countries able to design and build advanced helicopters.

Although the UK no longer builds complete passenger aircraft, it retains the skills and capabilities to design and manufacture almost all key components - from fuel systems to jet engines. While the lack of an entirely domesticated civil airliner is viewed by some as a sign of an industry in decline, the UK’s aerospace industry is the second largest in the world and commands a market share of approximately 17% - second only to the US. The export share of UK-produced aerospace equipment is also a substantial 75%, representing a key export industry for the UK.

The ADS believes that the sector employs around 230,000 people; of which 100,000 are directly employed by the industry and 130,000 work in supporting roles. Research and development makes up 21,100 of those positions, and around 3,000 apprentices are in the industry. A characteristic of the industry is its multifaceted workforce and the associated skill-sets that cut across a broad swathe of disciplines, including engineering, science, production, service, project management, training and finance.

UK firms are industry leaders in the quest to make aircraft more fuel efficient and have had significant involvement in the most prominent new civil aircraft of recent times. The design and manufacture of the wings for the Airbus A380 and the A350 XWB took place at Airbus UK’s world-leading Broughton facility, while over a quarter of the value of Boeing’s 787 Dreamliner came from UK manufacturers, including Eaton, Messier-Bugatti-Dowty and Rolls-Royce.

The UK’s aerospace sector is supported by a widespread research base, with many universities contributing towards the study of flight fundamentals and the development of new technologies. Notable sites include the National Composites Centre at Bristol University, which has been heavily involved in developing composite wings for aircraft such as the Airbus A350.

The high degree of internationalisation of the sector means that its performance is highly reliant on international market conditions rather than just domestic market factors.