Four years on, has the Aerospace Growth Partnership given the aviation industry an uplift? Colin Marrs investigates
In 1944, a committee chaired by the first Baron Brabazon of Tara – an aviation enthusiast and Conservative politician – considered the British Empire’s future civilian airline needs. It identified four types of aircraft it deemed were required, and almost immediately the Ministry of Aircraft Production began work with the UK’s two state-owned airlines to get the production lines rolling. Such centrally-planned approaches had fallen out of fashion by the 1980s, partly due to the perceived failure of the “picking winners” approach that characterised 1970s industrial strategy – support for firms and projects such as British Leyland and Concorde had left a big hole in the taxpayer’s pocket, with mixed results. Ideologically, the Thatcher government preferred a more laissez faire approach. Although in practice it consistently provided large amounts of cash to the aerospace industry, it relinquished government ownership of firms including British Aerospce, British Airways and Rolls Royce.
But overt industrial strategy is back – albeit in less dirigiste clothing than during the post-war era. In 2011, the government announced the formation of the Aerospace Growth Partnership (AGP), an industry forum chaired by the minister for business and enterprise. The new approach was to be collaborative, focusing on the common needs of the industry, and tackling barriers to growth. Four years on, how is the new approach working?
The importance of the aerospace industry to the UK economy cannot be overstated. In 2012 it added £7.1bn of gross value added, with around £24bn of revenue split evenly between defence and civil sectors. The country has the largest aerospace industry in Europe and is second only to the US worldwide; it has a 17% global market share of industry revenues.
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The creation of the AGP was an attempt to fend off increased challenges to this position from other world economies entering the market. “The UK is in a very strong position on the current version of aircraft, which typically came in in the 1980s,” according to Huw Walters, director of aerospace, marine and defence at the Department for Business, Innovation and Skills (BIS). “But that is no guarantee of success in the future, and we need to prepare.”
In July 2012, the AGP unveiled its strategy, Reach for the Skies, which, in an echo of Brabazon’s report, assessed the future potential of the sector and how the government would work with industry to realise it. It identified key product categories in which the UK already holds a lead – including engines, wings, undercarriages and avionics – as areas for focus.
As part of implementing Reach for the Skies, the government announced plans for a new UK Aerospace Technology Institute (ATI), backed by £1bn of funds each from industry and government up to 2020. Its aim is to provide better alignment between early research and development work. “The ATI is being successful in coordinating research so you don’t get duplication,” says Paul Everitt, chief executive of aerospace trade association ADS.
Encouraging collaboration between competitor companies has been one of the main challenges for the initiative to overcome, admits Everitt. “There is always a trust and confidence issue – it has taken time for that to build and for people to recognise and believe there is a common view of the challenges and appropriate areas where companies and government can cooperate,” he says. “You need a series of discussions and activities in which people can participate.”
BIS’s Walters says the government has been crucial to promoting the collaboration. “We recognised at the start that there would be some things companies would be reluctant to talk about with their competitors,” he says. But Sir Brian Burridge, vice president of strategic marketing at defence firm Finmeccanica, says that commercial realities have actually worked in favour of working together. “Most of the time, your business brain says 50% of something is better than 100% of nothing,” he explains.
A number of alliances comprising private companies have already been formed to take forward research and development programmes. Among the biggest, Rolls-Royce has received £17m to work with suppliers to develop new concepts for environmentally-friendly engine architectures, while £16m went to Airbus and Marshalls ADG along with Bristol, Loughborough and Cranfield Universities to research innovations in wing design. Sir Brian says that the government or universities generally retain the intellectual property on the resulting technologies, which are then licensed back to industry.
In a market dominated by multinational companies, another challenge for government has been to ensure that its investment genuinely benefits the UK, and doesn’t leak out to benefit other countries’ economies. “We have given this a lot of thought. The strategy doesn’t just look at the immediate benefit of developing technology in the UK – but how that links through to manufacturing in the UK,” Walters says.
To this end, other funding streams have been made available to help smaller companies in the supply chain. The programmes encourage collaboration with larger companies, and include mentoring and business assessment. “It can be a painful process – firms are given feedback on everything from their structures to how they do innovation – but we have had very positive feedback about how it is transforming the way they do strategy,” Walters says.
A separate strand has seen the UK aerospace industry and government committing £3m each over three years to provide bursaries for 500 aerospace students. “One of the encouraging things is that about 12% of the awards have gone to women – which might not seem a lot, but the overall proportion of women in the industry currently is 6%,” Walters says.
The BIS strategy is also aimed at stymieing emerging competitor economies which benefit from lower labour costs. “We are partly focusing on high value processes which are difficult to replicate without paying huge amounts for knowhow,” says Walters. “In addition, we are looking at new ways of manufacturing to take costs out of the manufacturing process at the lower levels of the supply chain, such as parts.”
Measuring the success of the strategy is almost impossible at such an early stage of a long-term investment. However, Everitt says the strategy’s mere existence is already having an effect. He says: “What we can say certainly is that the industrial strategy has significantly shifted international perceptions of the UK.” Companies such as Airbus and Rolls Royce, he says, have shifted investment decisions in response, and the former uses the UK as a benchmark for its internal rating of government relationships.
The approach is certainly gaining traction in Whitehall. Similar strategies for construction and the automotive industry have now been unveiled, building on the collaborative approach piloted by the aerospace industry. “There are some common issues across all sectors in terms of skills and challenges around supply development,” Walters says. But David Bailey, professor of industry at Aston University, warns that the technique might not be suitable for industries with more diverse supply chains. “They may need to find different ways of doing it,” he says.
However, the military supplies industry has followed the AGP’s lead by creating its own partnership with government – the Defence Growth Partnership. Among a number of investments, he DGP has established a UK Defence Solutions Centre in Farnborough to identify and exploit future market opportunities. “The DGP differs from the AGP in that it is based more on looking how existing resources can be used more cleverly – by aligning companies’ internal research,” Walters says.
And, in addition to BIS, the DGP has another government partner on board – the Ministry of Defence. “This puts the MoD in an unusual position,” according to Sir Brian. “They are our partner, regulator and on occasion our advocate.” Unlike BIS, however, the MoD has no interest in using its domestic industry as a tool to boost the UK economy. In its 2012 strategy on technology, equipment and support, the department states: “The MoD does not consider wider employment, industrial, or economic factors in its value-for-money-assessments.”
In defence, much rests on the outcome of the 2015 Strategic Defence and Security Review, not due until after the general election. Amid worries from some quarters – including the US Army chief of staff Raymond Odierno – about the possibility that UK defence spending may fall below the NATO target of 2% of GDP, Iain McNicoll, Chairman of the Air Power Group at the Royal Aeronautical Society, also expresses doubts. “It is difficult to say if that [target] will stand after the election, particularly if some of the smaller parties, which have demands to reduce defence spending, are involved in a coalition,” he says.
Nor is everyone convinced by the government’s rebooted approach to industrial strategy. A paper written for think tank Civitas says that, although the AGP has led to a useful range of measures, “the problem is that the scope of these interventions is rather limited, focused on resolving narrowly defined ‘market failures’.” It says that a more ambitious approach, taking its inspiration from the Brabazon Committee, is needed.
However, it is hard to find anyone working in the aerospace industry – which has admittedly benefitted financially – with a bad word to say about the new, collaborative approach. “Government’s involvement has helped industry coordinate better within itself,” Everitt concludes. “Without this help, in pursuing their own agendas, the net impact of companies’ efforts could have been negative. We have all invested in this relationship and great things are being delivered as a result.”