Full recovery for aerospace manufacturers may take up to five years

7 min read

Aerospace

This is the latest weekly update from Santander’s aerospace, advanced manufacturing & rail team on how the coronavirus pandemic is affecting our clients and the sector as a whole.

Areospace

While flight numbers are increasing as lockdowns are eased and the summer holiday season begins, major manufacturers such as Airbus and Boeing still estimate it will take as long as four or five years for the industry to recover to pre-coronavirus levels.

Rolls-Royce says it’s likely to make significantly lower income from its wide-body engine business over the next seven years, and has been put at a disadvantage by its focus on engines for larger long-haul aircraft as opposed to the smaller models now being favoured by airlines. Meanwhile, Boeing has started the long process of test flights in order to have its 737 MAX recertified.

 

Aerospace

Following the UK Government’s acquisition of a 45% stake in satellite company OneWeb, the company is expected to shift some production from the US to Britain. The deal is seen as one way for the UK to manufacture its own satellite navigation system following its exit from the pan-European Galileo project.

New UKspace chair, Nick Shave, has outlined his vision for the organisation, saying: ‘The terms of reference and membership of the National Space Council has been published by government in an updated list of cabinet committees – a very welcome development, signalling the intention to coordinate issues relating to space across all of government from the three perspectives of prosperity, diplomacy and national security.’

The development of a new National Space Strategy, the Integrated Review and the Comprehensive Spending Review (CSR) over the next few months presents a great opportunity for the UK space sector. Investment in skills, efficiency, infrastructure, and the development of space clusters such as those at Harwell, Leicester and Glasgow are some of the prerequisites for success.

 

Advanced manufacturing

With advanced manufacturers planning to diversify in response to the pandemic, the British Automation and Robot Association (BARA) hosted a virtual roundtable on 23 July promoting the use of robots and increased automation in the food and drink industry.

KUKA robotics are starting to offer robots and entire solutions, such as an entire robotic cell, on a lease basis, helping manufacturers to overcome capital expenditure issues. In addition, possible opportunities also exist for advanced manufacturing companies in sectors such as space and rail, UAVs (unmanned aerial vehicles i.e. drones) as well as future urban air mobility. Our sector and international specialists are working with the relevant trade organisations and companies to assist with options.

 

Rail sector

The UK Government has announced its intention to bring forward work on £8.8bn of new infrastructure, decarbonisation and maintenance projects, some of which will include rail. In order to meet decarbonisation targets, the industry will need to look at reducing the weight of trains, electrification and alternative fuels such as hydrogen. It may benefit from collaboration with advanced manufacturing, aerospace and automotive supply chain companies which are looking to diversify or expand their businesses.

The construction of Siemens’ new £200m manufacturing plant in Goole is now underway. It’s expected to create 700 direct jobs plus 250 during construction and a further 1,700 across the supply chain in the UK.

The Indian Government has decided to open its rail network to the private sector. This is a project worth $4bn, with opportunities to run 151 trains in addition to infrastructure renewal work.

Given the scale of projects and heavy government involvement, companies who can commit to local manufacturing in India are likely to have an advantage. There should also be opportunities for smaller firms with attractive products or technologies to partner with local companies or to become direct suppliers to original equipment manufacturers (OEMs).

We organised a rail webinar, in association with Rail Forum Midlands (RFM), about the opportunities in Central and Eastern Europe. Listen to the webinar.

The Department for International Trade (DIT) and the Railway Industry Association (RIA) have organised a rail webinar for UK suppliers covering opportunities in India, to take place on 18 August. Register here.

An SME challenge is being launched as part of RFM’s SME Growth Through Collaboration programme. Supported by Bombardier, Hitachi, Porterbrook and Siemens, this challenge will ask small businesses to bring forward ideas for light- weighting of both new and existing rolling stock.

 

Manufacturing sector news

The Chancellor’s summer statement on 8 July was billed as an attempt to protect UK jobs from the impact of the coronavirus pandemic. The following measures were announced.

  • A Job Retention Bonus worth £1,000 per employee for businesses bringing back staff from furlough and continuously employing them until January 2021.
  • A Kickstart Scheme to support young people in finding a job, with the Government paying the wages and overheads for any employer hiring 16 to 24-year-olds who are at risk of long-term unemployment or on Universal Credit.
  • Expanding traineeships to get young people into work with the Government paying employers £1,000 to take on trainees.
  • A new apprenticeship bonus worth £2,000 for any employer in England taking on an apprentice under the age of 25, and £1,500 for apprentices aged 25 or over. This applies from 1 August 2020 to 31 January 2021.
  • A temporary VAT cut on food and non-alcoholic drinks from 15 July to 12 January 2021 to support businesses and jobs in the hospitality sector.
  • An Automotive Transformation Fund providing an additional £10m funding for innovative research and development projects to scale up manufacturing of the latest technology in batteries, motors, electronics, and fuel cells.

Read analysis of the proposals from MakeUK.

MakeUK has recently published its latest Manufacturing Monitor, which provides insight into how businesses in the manufacturing sector are coping with coronavirus and its effect on economic activity. The organisation says 98% of manufacturers are openly trading, with 44% planning to continue apprenticeship training.

The latest IHS Markit/CIPS PMI data shows a stabilisation, with a June figure of 50.1 against 40.7 in May. Manufacturing production rose slightly last month, while new order intakes and employment levels fell more slowly.

Earlier this month, MakeUK and BDO published their Regional Manufacturing Outlook for 2020. Read the full report, which highlights manufacturers’ contributions to regional economies in terms of output, jobs, investments, and exports.

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