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France’s finance minister had sharp words for the country’s aerospace sector last week. The industry was heading for a painful reckoning, Bruno Le Maire warned, despite having just been “rescued” from the worst of the Covid-19 downturn with one of Europe’s biggest dedicated state aid packages.
Le Maire was referring to the refusal of France’s highly fragmented aerospace supply chain to take advantage of another state-backed initiative: a €1bn public-private investment fund designed to accelerate consolidation. Building scale was crucial to “the competitiveness and solidity of the French aerospace industry”, he said.
Launched a year ago, the Ace Aéro Partenaires fund aims to bring together small companies in key segments to create suppliers with the scale and investment capability required to win work on the next commercial aircraft programme. In the machining sector alone, France had 80 companies with combined turnover of just €1.5bn, said Marwan Lahoud, Ace Capital’s chair.
But finding entrepreneurs willing to sell has proved difficult. As of last week, only seven deals had been announced.
Le Maire’s frustration raises the question of whether France was right to take such an activist approach to supporting its aerospace industry. In fact, its generous €15bn support package — which included €7bn in loans for Air France and €1.5bn over three years to fund development of a hydrogen-powered passenger jet — may have been partly to blame. It alleviated the pressure on suppliers and fewer went bust than expected.
Now with recovery on the horizon, entrepreneurs are not keen to sell out at crisis valuations. That leaves the risk that many will be vulnerable to the cash and investment pressures of the upturn, or unable to invest in the innovation required for a next-generation jet.
Neither Germany nor the UK targeted their aerospace manufacturing sectors with Covid-19 packages on a French scale.
Yet Germany’s support was closer in spirit to France, with a €7bn national hydrogen strategy that highlighted aircraft propulsion and hybrid electric flight as government priorities.
The UK said it provided £8.5bn to the sector through its general loan scheme and export finance. But there was no obvious industrial plan guiding how the money was allocated.
So what has been the impact? Initial indications suggest the UK may want to rethink its agnostic approach — especially as the industry begins the pivot towards new technologies such as sustainable aviation fuels, and electric and hydrogen-powered aviation.
Figures posted by national trade bodies show that in 2020 Germany just about pipped the UK in terms of civil and military aerospace revenues. Its sector suffered a 25 per cent revenue decline against the 27 per cent fall recorded by the UK aerospace sector. Senior executives admit that Germany has for some years been gaining on the UK and it was only a matter of time before it took more market share.
In France, the percentage decline was greater than the UK, but its total revenues are still substantially higher.
It is true that the UK is penalised by Rolls-Royce’s focus on the severely depressed large engine market.
But the UK also invests less than its French and German counterparts in the future. The UK’s pre-Covid R&D funding in 2019 amounted to 5 per cent of annual revenues, according to trade body ADS, vs 11 per cent in France and 8 per cent in Germany.
Even worse, the British government has suspended funding for new projects at the Aerospace Technology Institute, set up in 2014 to future proof UK aerospace.
The UK has made bold claims about its ambitions to be a leader in zero-emissions aviation. But while it has committed less than £100m, according to ADS, both France and Germany have put up billions.
Meanwhile, as France provides long-term capital to build a stronger supply chain, leading UK supply chain companies such as Meggitt, Senior and Ultra have all faced foreign bids.
The aerospace industry may be largely indifferent to ownership if suppliers are competitive. But when the next crisis hits, these deals could have implications for where research is carried out and new technology developed.
After 18 months, the pandemic has done more than reveal the eroding market share of the UK aerospace sector. It has exposed the absence of a clear and consistent strategy to guide the nation’s aerospace ambitions in a post-coronavirus world. Without consistency, foreign buyers of British aerospace suppliers are unlikely to remain committed to the UK. And without a long-term strategy, there is a very real risk that Britain falls even further behind.