Brexit and the implications for UK business: Aerospace inquiry

This Report is intended to inform public and parliamentary debate and to influence the Government’s objectives as it begins phase 2 of the negotiations on leaving the European Union.

The aerospace sector is one of the most productive and fastest-growing in the UK, accounts for some 7 per cent of manufacturing output and directly employs 114,000 people throughout the country. It is a highly trade-orientated and globalised industry, characterised by integrated cross-border supply chains, a high degree of concentration in large firms, and continent-spanning economies of scale. The success of UK aerospace is highly dependent on participation in European and global supply chains, which enable it to concentrate on key specialisms, including wings, fuselage and engines. UK aerospace is well-established and competitive, and it has continued to perform strongly since the vote to leave the EU. Nonetheless, it cannot afford to be complacent about global competition.

The sector benefits from the UK’s participation in the WTO Agreement on Trade in Civil Aircraft, as a result of which tariff barriers are not a significant concern after Brexit.

However, we find that the competitiveness of UK aerospace could be adversely affected by any additional delays and bureaucracy encountered at the UK-EU border, given the prevalence of cross-border just-in-time supply chains in the sector. The Government should seek to secure as near frictionless trade as possible between the UK and EU for the aerospace sector after Brexit, with the minimum amount of customs procedures.

The EU regulatory regime in aerospace is also highly integrated, and the UK is a full member of the European Aviation Safety Agency (EASA). Membership of EASA also gives UK aerospace access to other global markets, notably through the Bilateral Aviation Safety Agreements (BASAs) in place between EASA and its counterparts in the United States, Canada and Brazil. The globalised nature of aviation regulation means that there is little or nothing to be gained for the UK from regulatory divergence in the foreseeable future. The evidence we have received is unanimous in supporting the UK continuing its membership of EASA after Brexit. We therefore welcome the recent announcement by the Prime Minister that the Government will seek to do so.

At present, non-EU member states can be associate members of EASA, but they do not have voting rights on the management board and are subject to the indirect jurisdiction of the European Court of Justice (ECJ). While it would be desirable for the UK to maintain its voting rights, we find that even without them, the UK is likely to retain greater influence from within EASA than without. We also find that ECJ jurisdiction has not been an issue in practice for the aerospace sector, and welcome the Prime Minister’s recent statement that the UK will respect the remit of the ECJ in EU agencies it continues to participate in after Brexit.

A “no deal” exit from EASA would be highly costly and disruptive to aerospace and aviation in the UK, and have serious adverse impacts in the EU and globally. A managed transition from EASA could be protracted and costly, for no practical benefit in terms of regulatory sovereignty.