With commercial aerospace buoyed by enormous backlogs of orders and emerging growth from defense requirements, the UK’s aerospace and defense sector looks set for continued growth, the country's aerospace and defense trade body ADS has revealed.
ADS, which represents and lobbies on behalf of hundreds of aerospace and defense companies across the UK, states that the sector added some £42 billion ($57 billion) to the UK economy in 2024, representative of a 64% increase over the last decade. But that growth is being challenged by frictions at home and abroad as industry struggles to add headcount, grow its supply chain in the face of dramatic ramp-ups in production and the uncertainty generated by White House-imposed tariffs.
“We'd like to go faster in terms of growth, and while obviously defense is expanding strongly, there's a knock-on effect in terms of challenges,” ADS’ CEO Kevin Craven tells Aviation Week.
Tariffs are already having knock-on effects, parts are now stuck in customs and there is a subsequent increase in paperwork that smaller companies struggle to absorb, he says.
A UK-U.S. trade deal, announced in May, smoothed supplies of raw materials such as aluminum and steel, and although industry has had assurances that aerospace parts may be exempt, Craven says that has not yet been confirmed in writing. A Section 232 investigation instigated by U.S. Commerce Department's Bureau of Industry and Security into the effect of tariffs on the aerospace sector completed earlier this month and is expected to report in the coming weeks.
But even if flows between the U.S. and UK improve, the complications created by tariffs impact the rest of the supply chain.
“We will not be consequence-free,” Craven says.
While productivity in the UK aerospace sector has improved significantly and stands today at an average of £136,000 of output per worker, having risen by 71% over the last decade, industry is struggling to secure the people it needs on the production line.
Even though pay is consistently higher in the aerospace sector than most others, the industry faces competition from others to attract workers.
“While people are excited by the cutting-edge nature of aerospace,” Craven says, “defense will always have some challenges, so we've got to work really hard to attract our share of the workforce.”
Concerns about defense companies in particular struggling to secure finance from banks because of their unease around environmental sustainability and governance requirements are also beginning to fade, Craven notes, with financial institutions showing “much more positivity around the need to invest in defense.”
Part of this is being driven by the new Labour administration’s approach to making defense an “engine for growth” in the UK as defense spending is steadily increased. Following the UK government’s spending review on June 11, ADS welcomed the Treasury’s decision to make more money available for both the British Business Bank and expanding the National Security Strategic Investment Fund, which invests in companies addressing the UK’s national security and defense capability requirements.
Another pinch point for the UK sector is the cost of doing business, particularly around energy prices, as well as the government's hiking of employers’ national insurance contributions. Energy costs in the UK can be up to two to three times higher than in other parts of Europe. This has an impact when trying to encourage new investors, says ADS’ chief economist Aimie Stone.
“These factors are an important consideration when they consider their return on investment,” Stone says. Another concern is an apparent attempt to lure innovative startups from the UK to the U.S., with some even being courted at a state level and offered special incentives such as lower tax rates and grants if they move.
Despite these issues, Craven says the industry is “finding ways to cope with some of the competitive shortcomings.”
“Does that mean that there's an opportunity cost in that we could be doing more? ... I think that is absolutely right.”
“The message I would take to Number 11 Downing Street [the office of the UK Chancellor of the Exchequer], is 'if you want growth, this is a sector which is growing and could grow faster.'”
Related Content
