LONDON – Airbus has published a risk assessment today regarding the current political climate in the United Kingdom with BREXIT.
The risk assessment states that the UK exiting the EU next year, without a deal, would lead to severe disruption and interruption of the production of wings in the Airbus UK facilities.
Airbus said that they might have to reconsider their investments in the UK, as well as its long-term footprint in the country.
The manufacturer said that BREXIT is severely undermining all of UK’s efforts to keep a competitive and innovative aerospace industry, developing high-value jobs and competencies.
Future is “No Deal”
Airbus stated that the future trade relations between the UK and EU are inadequate as the memorandum of the withdrawal agreement is preferable to a “no-deal” scenario.
According to the manufacturer, the current transition period being too short—which is between March 2019 and December 2020.
Another Brexit triumph? @thetimes reports Airbus preparing to pull investment in UK & move production of aircraft wings elsewhere. It generates £1.7bn in annual tax revenues for our country pic.twitter.com/ejulAazXsn
— Ian Birrell (@ianbirrell) June 21, 2018
The transition period is “too short to agree on outstanding issues and too short for Airbus to implement such changes to their supply chain.”
These statements mean that if Airbus does indeed pull its investment out of the UK, they are putting at risk 14,000 jobs across 25 different production sites.
Popular factories of interest are the Broughton factories, which develops the wings for the Airbus A320, A350, A330 and A380.
Brexit Equals Negative Consequences
“In any scenario, Brexit has severe negative consequences for the UK aerospace industry and Airbus in particular,” declared Tom Williams, Chief Operating Officer of Airbus Commercial Aircraft.
Therefore, immediate mitigation measures would need to be accelerated.
“While Airbus understands that the political process must go on, as a responsible business we require immediate details on the pragmatic steps that should be taken to operate competitively,” explained Williams.
“Without these, Airbus believes that the impacts on our UK operations could be significant,” he revealed.
According to Williams, Airbus has sought to highlight its concerns over the past year, “without success.”
“Put simply, a No Deal scenario directly threatens Airbus’ future in the UK,” he stressed.
14,000 Jobs At Risk
On top of the 14,000, direct jobs at risk, are the 110,000 jobs that Airbus supports through the supply chain as well as the 1,900 expatriates and other employees that make 80,000 business trips between the UK and EU each year.
Airbus has more than 4,000 suppliers in the UK and an integrated supply chain with parts crossing the channel on a daily basis.
BREXIT raises significant operational challenge to the manufacturer as UK employees and suppliers are “today key and efficient contributors to Airbus’ success.”
Such supply chains have relied on just-in-time basis relying on frictionless trading due to the EU Customs Union and Single Market Rules.
Airbus believes that any changes to the customs procedures, logistics, and environmental standards would have a significant increase in costs on the industrial side.
More than 10,000 original aircraft parts come from the UK, which is even more of an issue to Airbus if they have to find additional parts from elsewhere.
What if there is No Deal?
Airbus added that should there be no agreement on BREXIT, then UK aerospace companies will not be covered under EASA approvals, meaning that UK companies will have to transfer licenses such as DOAs, POAs and MOAs into the EU.
Such situation would force any single supplier not to be certified, making its parts not legally fittable to any aircraft, ultimately delaying the aircraft’s delivery timeline and cost.
Furthermore, WTO rules would be implemented if the UK were placed in a “no-deal” scenario in March 2019, as the UK would immediately leave the Single Market, Customs Union and the European Court of Justice jurisdiction.
Airbus is expected to experience a disruption in production if this does happen. The manufacturer claims that buffer stocks would be needed.
Every week of unrecoverable delay would bring turnover losses of up to one billion Euros every week, which would translate into a multi-billion impact on the manufacturer.
Delays would also continue even further as Airbus is already at full capacity, meaning that it would not be able to provide any additional capacity and would not be able to build the alternative factories in time for the withdrawal of the UK’s membership from the EU.
This, according to some analysts, would become an “unrecoverable” situation for Airbus.
What if there was a Deal?
Airbus said that although a deal would “be better than no deal at all,” there would still be risks to the manufacturer due to the short transition period.
It doesn’t appear to be a long-term weakness, but rather a short-term weakness.
The necessary changes from an old to a new framework contains inherent risks for elements such as data, systems and supplier readiness.
All of these areas could produce a disruption period of up to 1-2 weeks due to the supply ecosystem not being fully ready.
In a post-transition phase, Airbus expects new procedures, regulatory regimes, duplication of tasks, as well as a divergence of standards across the different parties.
Currently, Airbus has a deeply integrated supply chain of £10 billion in the UK and £5 billion in the EU operating on a just-in-time basis.
Airbus wrapped up the risk assessment by saying that they should carefully monitor “any new investments in the UK and should refrain from extending its UK suppliers/partners base.”
This means that a Customs Union and a regulatory framework with the EU on aviation are the issues with the withdrawal of membership from the EU with the UK.
“Thus, even with an orderly exit and transition, the active engagement of all stakeholders, including Airbus and the UK government, will be necessary to build an environment in which UK aerospace companies can continue to be world leaders in our ever-growing industry.”
What does this all mean?
Overall, this is not a favorable situation for Airbus.
With hardly any arrangements negotiated on the aviation sector, it is very unclear what is going to happen and whether Airbus will even remain in the UK if there is a deal put on the table by the EU.
Over time, regardless of the circumstances, Airbus might begin to transfer most of its UK production to other countries in the EU, the US, or maybe even China, as they are all established areas of success for the manufacturer.
The next stage is to see how Prime Minister Theresa May will respond to this assessment and what promises and guarantees she will make to help keep the £17 billion worth of tax revenue, the 14,000 direct, and the 114,000 indirect jobs.
If Airbus were to entirely move its operations out of the UK, it would be a big hit not just for the country’s aerospace sector, but more for their internal economy as well.