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Our views on how changing market dynamics may lead to demand for capital in niche sectors of the economy.

UK Aerospace is ready for take off – Fuelling the engines for the journey ahead

turbine_210x190In the earliest days of the aerospace industry, Britain led the skies with innovation and excellence. Aircraft like Concorde and the Vulcan demonstrated our superior design and manufacturing capabilities, while their fearless pilots were revered as rockstars. Despite the rise   of globalisation, that prestigious history has given Britain a powerful   advantage in today’s aerospace community.

There is no doubt that Britain is punching well above its weight, as we have maintained a comparative advantage over low cost economies, which should only improve in the face of rising labour costs in places like China and Brazil.

While it is tempting to believe that all manufacturing is cheaper in the BRIC economies, we are seeing first-hand experience that high quality manufacturing can often be cheaper in the UK. This is counterintuitive, but in reality wage inflation in emerging economies for the top professional bands, such as highly qualified engineers, is escalating much faster than the minimum wage or published labour rates. High-IP products can often be cost-effectively manufactured in Britain, with reduced lead times and less drain on the management team’s resources.

The aerospace sector is hugely important for the UK, contributing £11.4 billion to GDP, with the government highlighting the “strong foundations” for the UK aerospace sector to grow. Indeed Britain is the second largest aerospace exporter, after the US.

Our global reputation today is based on our leadership in areas such as wing design, engine manufacture and advanced electronic systems. If we are going to stabilise the economy from its current turbulence, we need to spread our wings and regain some of the confidence from our past, by focusing back on the engineering skills which drove our original economic prosperity.

The necessary investment into production capacity, technology and training to service demand, as well as R&D spend, to continue to develop product portfolios and remain competitive, results in the need for capital. Since bank lending continues to be suppressed, alternative funding solutions must be sought by mid-tier companies looking to capitalise on international growth opportunities.

Britain has the potential to rule the skies once again, but not without the leaders of tomorrow stepping into the pilot’s seat.

Charles Thompson, Inflexion