RPT-AIRSHOW-UK aerospace puts brave face on Brexit

(Repeats JULY 15 story. No change to text.)

* UK aerospace industry is No.2 in world behind U.S.

* Brexit poses risks to investment, access to skills

* But long production cycles, weaker pound help

By Sarah Young

FARNBOROUGH, England, July 15 With UK factories
working at full tilt to meet bumper demand for aeroplanes,
aerospace executives have been quick to brush aside fears of any
imminent threat from Britain’s exit from the European Union.

The industry is locked into production cycles that can take
up to three decades to play out, big customers like Boeing
have rallied to support local suppliers and more work is
coming Britain’s way as the U.S. aerospace giant and its
European rival Airbus ramp up output.

That means it could be years before any real impact of the
UK’s divorce from the European Union becomes clear. For now,
many of those attending the Farnborough Airshow this week said
they were drawing up lists of what was needed as Britain
rethinks its trading relationships.

“We will simply get on with it,” Warren East, the chief
executive of Britain’s biggest aerospace company Rolls-Royce
, told reporters.

The UK’s pre-eminence in aerospace, as the biggest player in
the world after the United States, is driven by know-how and a
record of industrial efficiency built up over decades.

Currently, British suppliers are trying to deal with a surge
in business, with output up 39 percent in the last five years,
much of it driven by exports.

And since the vote to leave the EU on June 23, two big
aerospace investors, Boeing and Italy’s Leonardo Finmeccanica
, which makes helicopters in the UK, have both said
they planned to increase their British presence.

The concern is that the UK’s standing could weaken over
time.

Although it is the heart of design and production for Airbus
passenger jet wings, and its Broughton plant in Wales is one of
the group’s most efficient facilities, some wings are now
equipped in Airbus’s Bremen factory in Germany.

Industry executives conceded that Brexit will force them to
work harder to win new business, including those crucial new
programmes at Airbus which might otherwise be awarded to the
aerospace giant’s industrial bases in France and Germany.

“Nothing comes to us naturally, so if the UK is going to
succeed in the future, it’s got to have the best economics and
the best technology,” said Marcus Bryson, a former executive at
FTSE 100 parts supplier GKN, who was last year named as
a lead UK government adviser for aerospace.

Other areas of concern include whether Britain could risk
losing its place at the top table on big aerospace projects if
it is locked out of vital research funding and that throwing up
new borders will add costs and complexity for companies trying
to move goods and people around a global business, making them
think twice about new investments in the UK.

“We had probably 60 people from the industry at our
breakfast event at Farnborough and I think everyone viewed
Brexit as pretty disastrous,” said Robert Thomson, an aerospace
specialist at management consultancy Roland Berger.

ACCESS TO SKILLS

Almost a quarter of a million people work in UK aerospace,
in around 3,000 companies. France and Germany often get to host
final assembly of new aircraft, but a big chunk of the profits
come to the UK where many of the complex parts are produced,
from fuselages and engines to nacelles and landing gear.

Executives say they are talking to government about what
will be most important to help secure the industry’s future.

Bristol-based Boxarr, a supplier of software to Boeing and
Airbus, employs 20 people including a Spaniard and has just
hired a French engineer.

“The government need to reassure us about access to skills
in the EU because we can’t get the skills in this country of the
type that we need, particularly engineering and mathematics,”
said Boxarr CEO Alasdair Pettigrew.

Airbus, GKN and Rolls-Royce also said any change to EU
freedom of movement rules would be damaging as being able to
move teams of engineers easily and quickly around their
facilities in different European countries was helpful to
efficiency.

Britain’s aerospace industry could also get cut out of
research and development funding, like the EU’s 1.6 billion euro
Clean Sky initiative to develop new aviation technologies.

For British aerospace trade body ADS, the key issue is one
of certification, with the industry needing continued access to
the European Aviation Safety Agency (EASA), the bloc’s body for
certifying new parts and components.

“Delays in certification would be catastrophic for UK
industry,” said ADS’s Chief Economist and Director of Policy
Jeegar Kakkad.

Bryson said the government should make capital grants
readily accessible to small and medium-sized companies to help
them cope with the uncertainty caused by Brexit.

“The natural inclination at the moment is to defer
(investment), whereas what you want to do is to incentivise a
board to say actually the government has created such a positive
environment, we’d be nuts not to,” Bryson said.

After Britain leaves the EU, it could strike a new trade
deal, or alternatively, World Trade Organisation (WTO) rules
could come into force. WTO rules enforce zero tariffs on
aerospace component makers in contrast to finished cars, which
are subject to a duty of nearly 10 percent.

The British industry already trades substantially beyond the
EU, with non-EU exports accounting for around 69 percent of
Britain’s total aerospace exports last year, according to
official data.

Since Britain’s vote to leave the EU on June 23, the pound
has fallen 14 percent to a 31-year low against the dollar,
helping to lift the shares of companies like Rolls-Royce and
Meggitt, a Dorset-based FTSE 250 supplier of wheels and
brakes for planes which has operations in both Europe and the
U.S.

“Brexit is neutral in all regards, expect for currency,
which is favourable,” Meggitt CEO Stephen Young told Reuters.

(Additional reporting by Conor Humphries; Editing by Tom
Pfeiffer)

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