The COVID-19 pandemic has taken its toll across sectors, with the aerospace industry feeling the impact especially hard. The worldwide grounding of jetliners has brought most of the global airlines to their knees, gasping for government bailouts. The ripples of anxiety created across the industry instantly reached the commanding forces in aerospace manufacturing, triggering an instantaneous and considerable dip in production rates. That initiated a chain reaction of job losses across assemblers and component suppliers. The U.K., which has been the seismic hotspot of aerospace innovations in Europe and is home to major component suppliers like Rolls-Royce and GKN Aerospace, has been brought into the line of fire for company decisions to slash the workforce.
ISG believes the following factors may prevent the U.K. aerospace industry from fully recovering:
- Diluting aftershocks of workforce policy from mainland Europe: France and Germany took a more insulative policy of skills retention, which assured workers of almost a full wage for part-time work. This avoided the scale of job losses seen in other parts of the industry and included planned subsidy schemes for up to two years. The U.K., however, is yet to stand up a short-to-midterm stabilizing measure for its domestic aerospace industry. The British aerospace industry, which supports 114,000 employees and generates annual export revenues of £31.8 billion, contributes significantly to the U.K.’s GDP, was expected to drive its economic bull run after BREXIT. A once-strong industry scarred with deep domestic furloughs can have a long-term impact on the economy.
- Discommoding stakeholder actions from competitor economies: France-based aerospace mammoth Airbus has been vocal about permanent and higher degrees of job losses in the U.K. as compared to France and Germany. Collins Aerospace, a subsidiary of U.S.-based Raytheon Technologies, announced more than 250 redundancies across its actuation systems and power and control systems facilities in the U.K. Furthermore, Magellan Aerospace, a supplier for Airbus, declared a 240-person reduction in its U.K. workforce. The announcements have shaken the British authorities and union bodies, leading them to work towards restructuring furlough measures, with the U.K. Government's current furlough program continuing through October 2020.
- Impact on U.K. suppliers of slow market and segment recovery: As one of the world’s largest aircraft engine manufacturers, Rolls-Royce engages a local supply chain in the U.K. The company has been reportedly reducing its workforce by a fifth. Rolls-Royce’s capabilities in engines that power wide-body jets are paramount. However, the company does not manufacture smaller engines for single-aisle jets, which now constitute 75 percent of the global passenger aircraft market, further worsening the hit. The single-aisle segment is expected to revive faster and Airbus, the leader in this segment, is prepared to ramp up production of its workhorse jetliner, the A320, to more than 60 a month from the present reduced rate of 40. Wide-body jets, on the other hand, are typically used in transcontinental flights and represent a segment that is poised for a very slow recovery. Boeing, the wide-body segment leader, has already reduced the production of its flagship 787 Dreamliner, 777 and 777X twin-aisle jets.
- Skewed investment for environmental sustainability: The U.K. has been one of the biggest investors for a new wing technology designated for a more carbon-neutral Airbus jet. UK Aerospace Technology Institute, the £3.9 billion joint government-industry authority to invest in civil aerospace research and technology projects, has been one of the major stakeholders and driving forces of Airbus’ Wing of Tomorrow Programme. However, the region’s investments in propulsion are not as supportive. Rolls-Royce envisages going zero-carbon in its operations by the end of 2030, but at the organizational level, not for its products. Meanwhile, France has set aside a significant €1.5 billion to support development of a next generation carbon-free jet by 2035, and Germany has declared a €7 billion national hydrogen strategy to develop alternative fuels.
The Ray of Hope
While there has been no funding commitment from U.K. authorities to retain its aerospace engineering leadership position in Europe and progress an agenda towards a next-generation carbon-free aircraft, it is supporting other development work. U.S.-based ZeroAvia successfully completed the world’s first electric-powered flight of a commercial aircraft in the U.K. recently. The initiative was a part of the U.K. government-funded HyFlyer project, in collaboration with Cranfield University and Cranfield Aerospace. The project has been directed towards developing hydrogen-electric powertrains for regional aircraft. ZeroAvia’s 10-20 seat, 500-mile range prototype awaits certification (which is expected within three years) and the company has plans for a scaled-up version with 50-100 seat configuration by the end of the decade. The initiative not only provides a much-required silver lining in these dire times, it also highlights the necessity of close partnership between academia and the commercial manufacturing verticals to explore opportunities with these innovative, carbon-neutral technologies. However, with R&D budgets being siphoned to manufacturing and operations sustenance, an aggressive research-driven strategy would not be feasible for most OEMs. This will, in turn, push the commercial viability of all-electric aircraft further into the future. Nonetheless, the OEMs can look into outsourcing R&D functions with direct cost connotation to expedite towing the bleeding aerospace industry out of the recessive quicksand of depletion.
So What?
The bloodbath resulting from the uncertainties of an extended pandemic – in the form of a major slowdown in air travel and doubts about a swift recovery for aircraft manufacturing – has impacted all global economies, the U.K. being no exception. Furthermore, the U.K. has been steadily losing share of the global aerospace market for some years. It has fallen from second place to third, behind France and almost equivalent to Germany, a shift that began in the pre-pandemic times. Repatriating actions from the EU during these unprecedented times could invite retaliatory actions from the U.K., further worsening the existing tensions between the U.K. and the EU. The European aerospace industry is dominated by Airbus, which has its operations spread almost uniformly across France, Germany, U.K., Spain and other regions in Europe. Disturbing the delicate, cross-border value chain may lead to significant disruptions in the already reeling aviation industry and could fuel undesirable economic isolation for the U.K.
Outsourcing can provide some breathing space in this convoluted socio-political and industrial scenario. U.K. organizations have been quite open to outsourcing across sectors. OEMs such as Rolls-Royce have been the marquee clients for outsourcing and offshoring specialists such as QuEST Global and TCS, which have stable and long-standing associations with the manufacturer. However, most of the functions outsourced so far have been in mechanical and electrical engineering for design, development, support and technical documentation. Furthermore, the Rolls-Royce’s India captive units mostly focus on mechanical engineering work. The OEMs should thus explore possibilities for making research and development activities more heterogeneous across their R&D centers and global in-house centers (GICs), outsourcing embedded and software engineering work as well. Accordingly, the outsourcing service providers could consider extending support through presence in nearshore locations, shuffling headcount from high-cost to low-cost locations in emerging economies in eastern Europe and Southeast Asia.
Lastly, U.K. aerospace stakeholders should ramp up their initiatives to tap the lucrative aircraft refurbishment market. While the market participants were already earning most of their revenues from the aftermarket, the refurbishment segment has been growing due to the huge backlog in aircraft production. The cargo segment is expected to recover faster than the passenger segment, which will drive refurbishment business for retrofitting commercial jets for freight. The refurbishment market is expected to skyrocket in the post-COVID era due to the financial viability of refurbishing compared to purchasing new aircraft. A directed strategy can aid the OEMs in this paradigm shift, which can be further sharpened by closer engagements with outsourcing partners. Several of the outsourcing partners have been involved in engineering activities across most aircraft components, from avionics, aircraft interiors to parts of the airframe, and in supporting MRO functions. These services have been mostly for new aircraft manufacturing and assembly. The capabilities and offerings can, however, be well aligned with the refurbishment business.
Conclusion
The U.K. presents a unique mix of players across the component and services ecosystem. The region has been at the forefront of technology innovations for decades. Convergence of technologies from different industries and close collaboration among the players from various layers of the industrial ecosystem could help the British aerospace industry endure the pandemic aftershocks and revive at a faster rate.
ISG Provider Lens™ explores these changing industry nuances pertaining to the manufacturing horizontals in its upcoming Manufacturing Industry Services study. The study offers an in-depth view of various dimensions of modern manufacturing technologies and the outsourcing imperatives.
Associated Insights
- ISG Provider Lens™ Engineering - Service Partners - Global 2019-20 - Aerospace Manufacturing Engineering
- ISG Provider Lens™ Engineering - Service Partners - Global 2019-20 - Aerospace Product Engineering
- ISG Provider Lens™ Engineering - Service Partners - U.S. 2019-20 - Aerospace Manufacturing Engineering
- ISG Provider Lens™ Engineering - Service Partners - U.S. 2019-20 - Aerospace Product Engineering
- ISG Provider Lens™ Engineering - Service Partners - Germany 2019-20 - Aerospace – Manufacturing Engineering
- ISG Provider Lens™ Engineering - Service Partners - Germany 2019-20 - Aerospace – Product Engineering
About the author
Avimanyu is a Team Lead (Research) in ISG India operations, bringing over 9 years of experience in market research and consulting. At ISG, Avi’s focus is on the disruptive technologies and innovations pertaining to enterprise networks and engineering and R&D practices.
About the author
Avimanyu Basu
Avimanyu is a Lead Analyst (Research) in ISG India operations, bringing over 10 years of experience in market research and consulting. At ISG, Avi’s focus is on the disruptive technologies and innovations pertaining to enterprise networks and engineering and R&D practices.
