The long road to recovery

8 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

New figures from the International Air Transport Association (IATA) suggest airlines are expected to make a loss of $84.3 billion in 2020, with passenger numbers down 50% on last year. With fewer passengers to be carried, and at lower prices, profitability will be seriously affected, especially given higher operating costs.

A return to profitability is not expected until 2022, and even by this point, the industry will most likely still be paying off debts, strengthening its finances and building up reserves as well as investing.

The industry’s recovery to pre-2019 levels is expected to be long and challenging, although cargo is likely to be an exception, with a lack of capacity pushing rates up. Competition among airlines will no doubt be even more intense, driving efficiency and increasing demand for newer, smaller and more fuel-efficient aircraft. This is a trend which will directly impact aerospace original equipment manufacturers (OEMs). More details are outlined in this report.

 

Aerospace

The UK Government’s announcement of intended investment in the space industry has been welcomed. The UK and United States Governments have signed the US-UK Technology Safeguards Agreement, which will enable US companies to participate in space launches from the UK. Read more for further details.

Britain is one of the world leaders in the design and manufacturing of satellites and the launch programme will be a catalyst for growth in the wider space industry.

  • In Scotland, local authorities have approved a £17.3m vertical launch spaceport in Sutherland. This will help put the UK on the map as Europe’s leading small satellite launch destination. A second launch site in Cornwall is also planned.
  • The UK Government has plans to bid for a 20% stake (worth around £500m) in the troubled satellite operating company OneWeb. This is intended to mitigate against the UK losing access to the EU’s Galileo satellite navigation system after Brexit and allow the UK to build its own global satellite navigation system.

Meanwhile, ADS (the trade organisation representing the aerospace, defence, security and space industries in the UK) recently hosted a webinar in collaboration with UK-India Business Council and the Indian High Commission in London. It looked at aerospace and defence opportunities for businesses in India through the Access India Programme. India, which is a huge and growing market for aerospace and defence, is heavily promoting manufacturing in India, as opposed to importing in. It’s seeking foreign direct investment through the ‘Access India Programme’ (AIP), providing end-to-end market entry support. The key focus is on aerospace and defence as well as security. It’s about providing the assistance needed, especially for UK SMEs to enter into the Indian market with greater assurance and confidence that they can succeed. Some of the companies who currently export to India may see a reduction in demand unless they have local presence in India to be able to access the local market. ‘Red carpet, not red tape’ aims to make doing business with and in India much easier to encourage companies to act.

 

Advanced manufacturing

The Government has also unveiled a £200m Sustainable Innovation Fund package aimed at supporting the recovery of innovative businesses from the effects of the pandemic. Funding is focused on sustainability projects and businesses. Apply for support and more information through the Innovate UK website.

Huawei has won planning consent for the first phase of a new research, development and manufacturing centre in Cambridge. It will become the international headquarters of the firm’s optoelectronics business. Moog is to build a new £40m design and production facility in Gloucestershire.

Liberty Steel plans to double production at its Rotherham site to 1m tonnes per year and displace imports to the UK: this will support jobs and infrastructure projects such as HS2.

 

Rail sector

A survey carried out by rail industry trade body, Rail Forum Midlands, has found that 81% of members expect it will take between six and 12 months to return to pre- coronavirus turnover/profit levels. Read a summary of the results.

The survey concluded that there are opportunities through the increased use of digital services.

HS2 has begun the process of appointing the operational telecommunication and security systems contractor for phases 1 and 2a of the high-speed line between London and Crewe. Invitations to tender are expected to be issued in April 2021, and the contract is worth an estimated £305m.

The Government has renewed its promise of digitalising signalling across the UK, investing in rail transport to improve reliability and safety and reduce journey times. The East Coast Main Line will become Britain’s first mainline digital rail link, with £350m of investment to install state-of-the art signalling.

A one-day virtual event, Winning and Delivering Business Overseas – COVID-19 SME Support, will be held by the Department for International Trade on 15 July. It will focus on export opportunities and challenges. Find our more and register.

 

Manufacturing sector news

With concern growing around the world about possible second waves of coronavirus infections, it’s timely that we published a major new report in collaboration with MakeUK this week.

The report, Responding, Resetting, Reinventing UK Manufacturing Post Covid-19, sets out a new industrial vision for the UK, with manufacturing at the centre of a new digital and sustainable economy. A copy can be found here as well as through the Santander Corporate and Commercial LinkedIn page.

The report suggests it will take British manufacturers until 2022 to recover to pre-coronavirus levels, at a cost of £35.7bn in gross value added this year alone.

Our study also highlights how quickly manufacturing businesses were able to respond to the crisis. For example, by shifting production to personal protection equipment (PPE), as well as the importance of diversifying customer bases.

We make four recommendations to the UK Government.

  • It should recognise UK manufacturing as a critical sector.
  • It should power a digital future through date.
  • It should encourage and reward investment in the green economy.
  • It should develop a National Skills Taskforce.

The report finds that so far during the pandemic the sub-sectors that have performed best have been food and drink, pharmaceuticals and chemicals. While motor vehicles, mechanical equipment and other transport, including aerospace, have fared worst.

The report reveals that 85% of manufacturers are taking steps to enhance supply chain resilience to limit the impact of future crises. It also examines the steps that fellow manufacturers in the likes of Germany, China, USA and the Association of Southeast Asian Nations (ASEAN) are taking and looks at what UK businesses can learn from their experiences.

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