After Brexit: Direction Clear, But Destination Unknown for UK Industry

If there is an atmosphere of relief around the British pavilion at the Singapore Airshow this week, this will likely be in part because December’s UK general election has helped end some of the uncertainty around the nation’s future direction. Yet although the UK has now formally left the European Union, the country is in a transitional period, where the relationship remains unchanged for all practical purposes; both sides have until December 31 to agree on a comprehensive deal covering all aspects of the future relationship. Moreover, with Boris Johnson’s government committed to a defense review, and talking about a shake-up of procurement practices, many uncertainties remain. Paul Everitt, CEO of the aerospace and defense trade group ADS, spoke with Aviation Week in late January.

Do you feel that there’s enough time in the current Brexit schedule to get everything that industry needs to get done by the end of this year?

That’s a difficult question. The real answer is, it depends.

 Where we currently sit is it’s difficult to imagine a fully-fledged, wide-ranging agreement done in all of the detail that we would expect to see being concluded within the next 11 months. Which doesn’t necessarily mean that there has to be a formal extension, but it does mean that in the coming months we’ll need to see how the EU and the UK are going to prioritize work to ensure that we do reach the end of the year with sufficient framework of agreement to ensure that we can move forward with a degree of certainty.

The big discussion is to do with alignment of regulations. In aerospace, we absolutely want to stay part of the European Aviation Safety Agency [EASA] regime, because that’s good for the UK and good for our individual businesses. It’s a safety regime, and an approach that has proved very successful, and it’s one that provides UK industry with access to an international and global marketplace.

Now, aviation safety and air-traffic services agreements are not the normal things that are wrapped into big free-trade agreements. Those are about tariffs, non-trade areas, what you get access to and what I get access to; whereas aviation safety and air-transport services is seen more as [about] governance, connectivity and opportunity. We would certainly hope that both the EU and the UK would prioritize the aviation segment to ensure that we can reach agreement on those, if not on much else.

Is there much you can do to ensure the industry’s views are taken into account?

Everitt: We don’t know at this point how the negotiations are going to be orchestrated, or our involvement in them. What we do know is that at the end of February, the EU will have secured and agreed its negotiating mandate with the various European institutions, and we’re anticipating that, similarly, the UK government will identify and agree what its negotiation mandate is going to be. The extent to which industry is involved – or indeed the wider, broader society is involved – in that has yet to be made clear to us. I guess where we are is trying to make sure that we do as much as we can to ensure that we’re well placed come the end of the year.

Is the current situation seen as being better and more helpful, in terms of the clarity given to industry? Or are businesses still in a holding pattern?

Everitt: I think there is certainty. I mean, we all know we’re leaving the EU – we now need to forge that new relationship. My sense is that coherence within government isn’t yet quite in place. We had the statement from the chancellor [Britain’s Treasury minister, Sajid Javid] a few weeks ago that said, “No, we’re not going to do alignment.” He somewhat nuanced that [during the World Economic Forum] at Davos, essentially going back to the pre-election line that the UK wants the ability to determine its own future, but where it was in the UK’s interest, they would look to align with the European Union. Our challenge – my challenge – is to persuade government that continuing to be part of the EASA regime is not only in industry’s best interest, but also [in] the country’s best interest.

How would you characterize the mood and mind-set of your members?

There’s lots of positives going on around both the civil and defense side of our business. The election has provided certainty, in direction at least. I think people do recognize that we are going to have greater friction at the borders than we would ideally like. Our goal is, what can we do ourselves in working with government to minimize those and to ensure that our international competitiveness is not undermined?

So, businesses know where they’re headed, even if they’re not absolutely certain of the final landing point. We would certainly expect to see, albeit not perhaps immediately, people being able to make sensible investment decisions on the back of where they think they’re going to end up. While it may not be the perfect outcome, in terms of we are leaving the EU, I think it does provide enough certainty that people will be able to run their businesses in a sensible fashion. And I guess, in the end, that’s all we’re looking for.

The new government has promised a defense review, and to look again at overhauling procurement. What are the areas you think they could most profitably and usefully focus on?

I think we should first recognize that the UK government has significantly shifted its view about defense procurement. If we go back to 2010, 2012, understandably the focus was very much on reducing cost. “We need capability, but we need it at the lowest cost, and we’re not worried about where we get it from.” In the 2015 Strategic Defense and Security Review, the concepts of prosperity and international-by-design were introduced as national-security objectives.

So the focus going forward is going to be much more about, yes, we want to secure the best capability for the UK and the UK Armed Forces, but alongside that capability, we’re interested in how that will support UK industrial and economic activity, particularly in those parts of the UK which perhaps have not done so well over the course of the last 20 or 30 years. The nature of defense makes it a particularly powerful mechanism for reaching parts of the country in a way that a lot of other government procurement activities struggle with.

Now, what that doesn’t mean is that there’ll be loads of money and no one will be worried about ensuring that everyone delivers. There’s a challenge for us all – within the MoD, within the frontline commands, and indeed within industry – to build trust and confidence with the Treasury in particular, because, sadly, I think there is a historical concern that however much money is made available to defense, they would always need a bit more.

We feel very strongly that we’ve created, and are creating, a long-term partnership with government around what are going to need to be our long-term and strategic capabilities to ensure that we can deliver national security. We will need to be able to demonstrate that we can deliver that in a cost-respective way – but I believe there is a more optimistic opportunity, because we’re seeing value for money in its broader sense, rather than just in terms of the lowest price.

All of which appears to make the Tempest future combat air program pivotally important for the UK as a whole.

It absolutely is. What’s interesting about Tempest is it’s demonstrated, in a very real and tangible way, how partnerships can work. There are industrial partners and the governmental partner; we now have international partners – Sweden and Italy. It is something that will create really significant opportunity, because not only will it deliver its intention of capability post-2040 for new combat air systems, it is already helping to lay the foundations to extend the life and expand the capability of Typhoon. Also, the way we’re working with some of those international partners will open up opportunities for what are not necessarily traditional defense exports – opportunities where we are exporting the expertise that we have developed as part of this project.

And so, then, to Singapore, and the air show. What are the key areas in the region where you believe British companies have compelling offers, and where do the opportunities lie for UK businesses?

We see the region as being a prime one. Clearly there’s a lot of interest in the civil area, particularly around some of the new projects on autonomy and urban air mobility, which I think are exciting and where the UK is looking to take a leading position. From a defense perspective we have an interesting and coherent offer that we will be making to a range of countries across Southeast Asia. We recognize our key competitors are in France and the U.S. They come to market with a particular type of proposition, which is predominantly, basically, “Buy it from us and you’re fine.” Whereas I think the UK is coming with a more open offer, which is around how we work together to secure both national-security interests but also how we can share the industrial and technological development of those national-security capabilities in what I think and would hope is a more coherent and open way.