Uk Aerospace Sector

Summary

The UK aerospace industry is currently the second largest in the world, with a turnover in 2004 of $31.8 billion. This represents approximately 13% of the worldwide aerospace market. The sector is forecast to grow by 8% per year from 2003 to 2008 largely due to the growth in the Maintenance, Repair and Overhaul (MRO) market. Increasing demand for air travel underpins this growth, despite high global oil prices. For example, air transport movements at UK airports increased by 5% from January 2005 to January 2006.

The UK is home to several leading British and European companies in the sector, including BAE Systems, Rolls-Royce and Airbus. Defense aerospace represents much of this sector's activity, driven by projects such as Eurofighter Typhoon and F35. Global defense sales of $16.2 billion account for just over half of the industry's output. However, civil aerospace turnover rose to $15.6 billion in 2004 and is expected to continue to grow in the coming years.

U.S. manufacturers are well represented in the UK, including Honeywell, Raytheon, Rockwell Collins, Lockheed Martin and Goodrich. Transatlantic relations are critically important to the UK aerospace sector. According to the Society of British Aerospace Companies (SBAC), UK aerospace companies employ over 30,000 people in the U.S. and are responsible for creating over $6.6 billion in revenue annually. Similarly, around one-fifth of SBAC's members are U.S.-owned. In 2005, U.S. companies exported $5.2 billion in aerospace products and parts to the UK, the highest level since 2001. Aircraft, propulsion, and aircraft parts comprise the great majority of these exports.

Market Demand

Aerospace is an important contributor to the UK economy, directly employing some 114,000 people nationwide. Much of this activity is concentrated in the South West, South East and North West of England. Over 2,500 small and medium-sized enterprises (SMEs) are said to be involved in the UK aerospace industry, emphasizing the importance of the sector and its contribution to the national skills base. As one government report noted in 2003, aerospace is "second only to pharmaceuticals in terms of value added per head in the manufacturing area". The worldwide success of UK companies such as BAE Systems and Rolls-Royce further underlines the strategic significance of aerospace to the national economy.

Among recent forecasts for the sector, Oxford Economic Forecasting has suggested that the UK aerospace industry will grow by just over 8% per annum over the period from 2003 to 2008. A large part of the momentum behind this growth comes from the Maintenance, Repair and Overhaul (MRO) sector. This is a consequence of the emergence of a large number of low-cost carriers throughout Europe, as well as consolidation and increased outsourcing among the larger carriers. Increasing demand for air travel underpins this growth, despite high global oil prices. Air transport movements at UK airports increased by 5% from January 2005 to January 2006.

Rising passenger numbers have prompted growing concerns about the environmental impact of aviation. The UK's Sustainable Aviation strategy, based on partnership between government and industry, is considered a pioneering approach in this area. Government-backed research into Environmentally Friendly Engine designs demonstrate an emerging demand for low-emission technologies.

Market Data

The UK's aerospace industry is currently the second largest in the world with a turnover in 2004 of $31.8 billion, equivalent to around 13% of the worldwide aerospace market. The global defense market continues to be an important driver of the UK aerospace sector. Defense-related sales to customers in the UK and overseas accounted for $16.2 billion or 50.9% of total aerospace revenues. In addition to major UK defense aerospace projects coming on stream, defense exports fuelled demand, increasing by 8.9% between 2003 and 2004. In the same period, civil aerospace sales increased very slightly (0.2%), the first such growth since 2001.

The industry is, to an increasing extent, export-oriented. No less than 65% of aerospace sales in 2004 were export-related, generating export revenues of $20.6 billion. One-third of these exports were destined for markets in North America, the industry's second-largest export customer after the European Union.

The U.S. is by far the single largest source of aerospace imports into the UK. In 2005, U.S. companies exported $5.2 billion in aerospace products and parts to the UK, the highest level since 2001. Aircraft, propulsion, and aircraft parts comprise the great majority of these exports.

U.S. Exports to the UK 2005 ($ Million)

Aircraft Parts 1,734

Aircraft Engine Parts 1,273

Aircraft 1,087

Engines 595

Other Aerospace 521

Source: U.S. Department of Commerce

Best Prospects

Broadly speaking, the UK aerospace industry can be divided into five sectors: aircraft systems and frames (46% of turnover in 2003); aircraft equipment (25%); aircraft engines (22%); missiles (5%); and space (2%). Within these sectors, the UK is home to some of the world's leading manufacturers of aircraft engines, avionics, in-flight refueling systems, and ejector seats.

The development of new aircraft, not least the Airbus A380 and A350, additionally create certain opportunities for aircraft equipment suppliers. UK firms have significant involvement in both programs, as well as the Boeing 787. The Bombardier CSeries also potentially includes substantial UK content, though the future of this design is currently under review by the company. Some of the work on these projects reflects growing UK expertise in composites and specialist materials, an area highlighted by the government as key to the future competitiveness of the industry.

The Aerospace Innovation and Growth Team (AeIGT), a joint government and industry initiative, has identified engine technology as a key prospect for the UK. The importance of propulsion also has been underlined by the launch of a Sustainable Aviation strategy for the UK, which again was endorsed both by the government and private industry. This sets specific targets for the reduction of engine emissions over the