Dominic Jermey, UK Trade and Investment
Release Date: 2009-01-30
For all the negative publicity surrounding the supposed gradual but continual decline of UK manufacturing, Ian Godden of the Society of British Aerospace Companies (SBAC) has referred to the aerospace as the “unsung hero” of UK manufacturing and engineering. To what extent do you believe this is true?First of all, the decline in UK manufacturing is not what many claim. Manufacturing put £150 billion into the UK economy in 2007. It's a significant part of the economy. We’ve restructured during the last twenty or thirty years to move up the value chain. Where we compete tends to be in the high value, high research and development intensive parts of the supply chain. For example, Cranfield University has become the first international school to join the Boeing Education Alliance through a new course on Crashworthiness of Composites. Cranfield was identified as the best partner in the world to train Boeing employees in this area. Boeing is a US corporation, but it chooses to do that in the UK, not because it has to, but because that's where it's going to get the right supply chain, the right skills base, and the right research and development environment. That's a nice example of how we compete.
I think Ian Godden is right to an extent, because aerospace is an unsung part of the UK economy. When we look at the UK economy, yes, the service industry is tremendously important, but actually there is a very significant engineering industry, to which aerospace contributes some twenty billion pounds. The SBAC has the major aerospace businesses as its members, including, with its regional partners, some 2,600 supply chain companies of which the vast majority are SMEs. Four hundred UK SMEs participate in the supply chain of what Airbus delivers into China. There's a direct Chinese link there, and that gives you an idea of the vibrancy and the diversity of the UK engineering supply chain.
Speaking of SMEs, the latest SBAC survey shows that sales of UK-based SMEs were down 37% in the last decade, and within that, civil aviation sales were down 55%. What exactly is happening here? Are there just a few rising stars while the rest are falling, or is there some sort of consolidation that is not as publicized as it could be?
Part of the challenge is the public focus is not on the engineering and aerospace strengths that the UK economy possesses. It's that’s something not as publicized as it should be. One of the efforts that the SBAC does within the UK and something that it collaborates with us on internationally is getting the word out about the vibrancy of the UK aerospace industry. To give you an example, at Farnborough in 2008, the SBAC and the Department for Children, Schools and Families (DCSF), ran a day for students. The idea was to get sixth form students (aged 16 to 19 who are studying for advanced school-level qualifications, such as A-levels) of any discipline and engineering students in particular in to see the vibrancy of the UK aerospace industry, to put it back on the map. This is part of a campaign to get out that message about the UK sector. I think there is an issue around marketing, both domestically and internationally.
When you look at the Airbus A350, 40% of it (by value) originates from the UK. When there is an Airbus sale, it is not perceived as a victory for UK business in spite of the Rolls Royce engine and development as well as production and assembly of composite material undercarriage and wings right here at home. It's all the high end stuff, and that's a real contribution to the UK economy. We’re very focused on getting the message out internationally as well.
Where exactly is the UK industry contributing to ‘hot topic’ R & D programs in areas like open rotor engines, blended wings, and next generation aircraft fuels? Where is the UK going to shine and make a name for itself on a global level in such high-profile areas?
I think there are a couple of areas, and one is the engine development, primarily being driven by Rolls Royce. That's an exciting new area, and I think that the fact that Rolls Royce is looking to develop that here in the UK reflects the governmental environments being created here, and also the richness of the supply chain and the research and development capabilities in the UK. I think that commercialization of the next generation of composites (to make lighter, more fuel efficient aircraft) will be led by the UK.
But Spain has traditionally been Europe’s leader in carbon fibre composites (CFCs). Are you implying that the UK is now seriously challenging this longstanding assertion?
I think this is something that we contest with the Spanish. When I was responsible for trade and investment for the UKTI network in Spain, I had the opportunity to talk and collaborate with my Spanish colleagues, so I have to be loyal in what I say. I've been around the Airbus facilities in Spain, primarily because a number of UK businesses are collaborating directly with the Spanish, developing what goes on there. As an area of development, the UK has expertise in CFCs which is going to make our Spanish colleagues reassess their claim to leadership in this area.
Speaking of leadership, wouldn’t the UK’s 40% contribution to the next generation A350 XWB program make your country the #1overall contributor to the aircraft?
Yes; but if you take out the Rolls Royce engine, the percentage of course goes down. Actually, Rolls Royce has been the engine of preference in many of these air frames, and it is also the engine of preference for many that have not originated in the UK, like the Boeing 787 Dreamliner. Again, it's a tremendous example of British aerospace engineering that won't be perceived as British, though it's a significant proportion of the Dreamliner's value.
Spirit Europe, the Prestwick, Scotland-based European headquarters of Spirit AeroSystems, a Boeing spin-off, won a contract to design and produce a major composite wing structure on the A350XWB and a $1.7 billion deal with Airbus to extend existing contracts to supply leading and trailing edges and other wing structures on the A319, A320 and A321 range assembled in the UK from 2011 until 2015. Additionally, funding of £103 million has been announced by the UK Government and industrial and regional partners to launch a major collaborative aviation research programme, led by Airbus, known as the Next Generation Composite Wing (NGCW). The NGCW programme will revolutionise technologies that will improve future wing design processes and help to maximise the eco-efficiency of future aircraft designs. All of this clearly demonstrates that within the Airbus family, the UK is leading the way.
Over the last fifteen years, UK companies have been on an outward federal direct investment (FDI) tear, taking over a massive piece of the US aerospace and defence industry. Following the recent marked depreciation of the British Pound Sterling versus the US Dollar (by about 25%), global purchasing power has clearly changed. Right now, should the UK industry be more focused on attracting inbound foreign direct investments?
I can answer this really good question in several ways. For the last six years, the UK has been the largest destination for FDI in Europe. Even with the pound sterling at rates that now, in retrospect, have been incredibly strong against both the Euro and the US Dollar, UK business has competed impressively well. In 2007, the UK was actually ahead of the US in terms of global defence exports, in particular with contracts in the Middle East, but nonetheless, for the first time, we are ahead of the US. And many defence technologies crossover into civil aviation. I think what we will see with the pound sterling readjusted is an increased competitiveness of UK exports and (in the Chinese context) the opportunity for joint ventures and collaborations with UK business, which will become more economic now. In general, in response to the recent direct fiscal stimulus, I think that exchange rates are making us even more competitive than we would have been in the first place. We will continue to compete and assert leadership not in mass production or commodities but rather in key high value-added areas like engines and composites. These activities are not niche; they are high value.
We've already been delighted to host Shanghai Automotive Industry Corporation (SAIC) whose major investment in the UK has been quite satisfying. However, all indications are that the Chinese are not interested in using their sovereign wealth funds to buy assets around the world at this moment. They've got to pump money into the Chinese economy, so it is unclear if we will attract Chinese investment into the UK aerospace industry. Nonetheless, we would certainly be happy with their presence. But it's very clear that UK businesses going into China are offering the solutions that the Commercial Aircraft Corporation of China (COMAC) and the China Aviation Industry Corporation (AVIC) want in the aviation sectors.
At the last China-UK Joint Economic and Trade Commission (JETC), in November, we identified a range of areas under the Aviation Working Group, where we wanted to stimulate collaboration between UK and Chinese companies. One of them in particular was a supply chain initiative to make it more comprehensible for UK business to supply directly into China through the Chinese primes. Airbus UK is at the heart of Airbus’ joint venture with Tianjin Free Trade Zone (TJFTZ) and the China Aviation Industry Corporation (AVIC) for final assembly of the A320. We see an incredible opportunity has opened up in the last 10 months or so for the rest of the UK supply chain to be more active. We are spreading the word about UK capabilities on the Chinese end while supporting UK businesses that haven't operated in China before on this end.
But there seems to be a psychological barrier to greater ties both in China and the UK. From the UK side, the typical “global” footprint has particular strength in North America to the west and maybe India, which is often perceived as the end of the world, to the East. Do you feel that this is a real challenge, and if so, what can be done to break out of this comfort zone?
I think a ‘comfort zone’ is a good way to describe this perception. One of the things we have to deal with is that for historical reasons many UK companies are more familiar with working in India than in China. There is a longer history of direct sales by UK businesses into India. We as government are in strong support of Airbus sales into China. There are many UK businesses in that supply chain but they are not supplying directly into the Chinese market. UKTI can play an active role in educating and encouraging UK businesses to look beyond domestic supply chain opportunities. They need to be more aware of the opportunities available in China. That's exactly where the Ministry of Commerce of the People’s Republic of China (MOFCOM) is coming from as well with its clear push to diversify the Chinese aerospace supply chain. The UK is ready to be part of direct collaborations that promote MOFCOM’s agenda of technology transfer, subcontracting, supply chain diversity, and training for its people.
For us, the challenge is getting the message out. A fundamental ‘mind shift’ must take place. People can make money in China. They're already doing it through Airbus and Rolls Royce, but we must move beyond such traditional relationships and seek out direct contracts with the likes of AVIC, COMAC, or their successor organization. I'd like to see UK companies working towards direct UK-China collaborations that may be similar to what Airbus is now developing with its Chinese partners in Tianjin.
Direct joint ventures are exactly where we're coming from under the JETC process, and that's something we found MOFCOM strongly supported. With the SBAC and other partners in the UK, we're trying to work directly to get the message out to SMEs and other operators here in the UK. It's a challenging export environment, and China is a very legitimate area of growth. I think that companies are increasingly going to see that opportunity as being notable. The Chinese economy is one that is looking for an 8% growth against 0% some of the Western European and North American economies in the next year or two.
Where any major outcomes reached at the recent Zhuhai Air Show?
We hosted AVIC at Farnborough in 2008 and we continue to work directly with them on two projects.
MOFCOM and AVIC hosted a UK business delegation at Zhuhai that included the likes of Airbus, GKN, Bombardier, GE Aviation and Rolls-Royce. Additionally, following the conclusion of the formal Aviation Working Group meeting, UK and Chinese companies held a series of individual business to business meetings that will be of mutual benefit and will have further strengthened the growing relationships between our two countries.
The next meeting of the AWG is expected to take place towards the end of 2009 in the UK. Plans are at an early stage but we would certainly be looking to build on and expand the business to business element of the Working Group, including hosting a Chinese business delegation on a tour around the UK to see the huge breadth of expertise and capability that the UK aerospace sector has to offer. Additionally, UKTI, as part of the UK’s recently published Manufacturing Strategy, will be employing a sector specialist to look at global value chain opportunities in China and we hope that our continued focus on China will lead to many more fruitful collaborations between our businesses.
Will UKTI be present and promoting direct UK-China deals at Zhuhai next year?
Note - The next Zhuhai Airshow is in November 2010
That would be good. We're working directly with the SBAC to have a kind of market strategy for China on the advanced engineering and aerospace side. The intention is to have a business-driven strategy that carries the support of government. We as UKTI would like that to mean pulling in the Department of Business, Enterprise and Regulatory Reform (DBERR), and potentially the Department for Innovation, Universities and Skills (DIUS), which includes our IP operation. The goal will be for industry and government to have a united UK offer for the Chinese in response to invitations from MOFCOM and the Premier. I think we are particularly fortunate in having Peter Mandelson as the new Secretary of State for BERR. Peter is my Ministerial opposite member in the JETC conversation, so I'm the senior official and he's the Secretary of State who deals directly with China. It is sensational working with someone who has done as much as he has on at the European level. He's done the Airbus story as a pan-European thing. Having him represent the UK in China in early 2009 is going to be extremely powerful.
Do you expect possibly that there will be a united offer made in 2009?
This is the strategy we are working out with Ian Godden and the civil aerospace industry as a whole. An awful lot of the technologies that are developed on the military side for other customers have direct translation to what is available to China on the civil side. It's something that is very much at the core of this government's strategy in China.
What would be your final message to the leaders of the Chinese aviation industry?
In 2007, there were 1 billion GBP worth of UK components sold to China through Airbus. Our challenge now and our wish, as the British government and the UK aerospace industry, is to double that. This will be our role to play in helping the UK government reach its stated aim of reaching 30 billion GBP in UK-China bi-lateral trade by 2010. It is our intention to make sure that the aerospace industry is a core contributor to this expansion of relations. This is a partnership between the UK aerospace industry and the UK government to create the right environment for UK businesses, not just through Airbus or Rolls Royce, to be directly engaged with in partnerships with Chinese business. Everything MOFCOM has said to us indicates there is strong willingness to do that. We want to push it and we want to see it happen now. We want to change perceptions of the UK aviation industry.
| Company: | UK Trade and Investment |
| Position: | Managing Director Sectors Group |
| Country: | United Kingdom |