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Aviation History
1966
1966 - 0018.PDF
14 THE CASE FOR THE INDUSTRY ... civil aircraft, the Government will have to contribute a higher proportion than in the past towards the launching costs of new projects. The record of Government financing is shown in Appendix G. From the projects started between 1945 and 1959, under one third of the Government contribution of £88 million has been recovered, and not much more can be expected. On the projects started since 1960, excluding the Concord, £39 million has been spent. It is too early to know how much of this will be recovered in the end, but the Ministry of Aviation do not expect to recover all their investment. The effort to establish a self-supporting British civil aircraft industry has not yet succeeded. CHAPTER 9 Financial Record Between 1949 and 1956 the United Kingdom airframe and aero-engine companies expanded steadily, increasing both their capital employed (net assets) and profits. Profits were on average around 18 per cent on capital employed. In 1957, profitability started to decline but capital employed continued to increase. In 1957 output stopped ^growing and employment started to fall. Exports started to fall in 1958. The low point was reached in 1961 when average profits were only 5.9 per cent on capital. There was a rise in 1962 and 1963 but this was not maintained in 1964. Between 1960 and 1963 profit rates (expressed as a percentage of capital em- ployed) were well below the averages for the engineering and most other industries and for manufacturing industry gener- ally. Those of the aircraft industry ranged between 5.9 per cent and 9.4 per cent, compared with a range from 11.3 per cent to 13.5 per cent for all British industry. The United States aircraft industry has also had low profits. It has not been possible to obtain figures comparable with the published British figures but, expressed as a percentage of sales, profits in the American industry have been between one third and one half of those in manufacturing generally in the United States since 1959. Before the reorganisation of the British aircraft industry in 1959-60 the distinction between fixed-wing aircraft, heli- copter, and engine manufacturers was not clear enough to enable conclusions to be drawn on their relative profitability. But the records of some companies stand out from the general run. The Hawker Siddeley group of aircraft companies main- tained a profit rate well above average. They made virtually no civil aircraft during that period and their profit rates were two to three times as high as those of other big companies making civil as well as military aircraft. Rolls-Royce increased their capital employed by about twice the average. Their profits also increased more than the average, but the rate of profit on capital declined. Westlands increased profits twenty-four- fold and capital employed seven-fold. This was partly through acquiring other helicopter interests. Since 1960 the aero-engine companies have in general earned higher rates of profit than the fixed-wing airframe companies. Westlands have continued to earn profit rates much higher than average. Much of the industry's capital has been obtained by borrow- ing. In 1961, 47 per cent of the physical assets was financed in this way, compared with 4 per cent in industry generally. Even this comparison does not fully show how much the industry depends on borrowed money. Any work in progress which is financed by progress payments is not treated as part of physical assets, and much more work is financed in this way in the aircraft industry than in industry generally. CHAPTER 10 Some other Factors The record of the industry just described is disappointing We have already indicated how changes in technology and strategy have contributed to the industry's tribulations This is not the whole story. The evidence given to us has pointed to many shortcomings FLIGHT International, 6 January /?« in the way Britain has gone about the business of making aircraft. We have not tried to analyse every allegation of mis- takes made in selecting and carrying out aircraft projects and we do not propose to reproduce the evidence from witnesses Nor shall we try to apportion the blame between Government and industry for misjudgments with which both were associated. The present need is less for a detailed post-mortem than for constructive thinking about the future. Nevertheless we were impressed by how often some criti- cisms recurred. We think there is substance in several of these and that the shortcomings can to some extent be corrected. We shall be dealing in detail with the principal criticisms later in the report. We list them here, lest we give the impression that we believe environmental factors alone to have been responsible for all the industry's troubles: (a) Erratic Government policy in defence procurement dur- ing the last decade has denied industry the consistent objectives and stable programme needed for success. (b) Delays within the Government in deciding whether new military and civil projects should be started have handi- capped British manufacturers in competing with foreign rivals. (c) New weapon systems have often been too ambitious in technical scope and refinement. The full complexity, cost and time-scales have not been foreseen until the projects were well under way. As a result, requirements have sometimes been substantially changed or projects abruptly cancelled. (d) Specifications for past aircraft types, military and civil, have been too uncompromisingly linked to the special needs of home users, the Services or the airline corpora- tions as the case may be. This has made it harder to sell aircraft overseas. (e) In general, the market research carried out by industry before launching new projects has been inadequate. (/) Detailed financial and technical control by the Govern- ment of work done for it has hampered efficient man- agement in the industry. (g) The efforts of Government and industry to promote exports have not matched those of other countries, in particular the United States. (h) The manufacturers have often failed by substantial mar- gins to meet delivery promises, thereby disrupting the plans of the Services and civil operators. (0 Productivity in the British industry has compared un- favourably with that in the American industry. (/) The reorganisation of the industry following the mergers of 1960 was slow and is still incomplete. SECTION IV.—THE CASE FOR AN AIRCRAFT INDUSTRY ?.: CHAPTER 11 :•-• General Considerations In recent years there have been successes with a few isolated projects. The reputaf-jn of the aero-engine firms remains high, but over the industry as a whole the picture is depressing. Large amounts of public and private money have been absorbed without a satisfactory return. The military programme has been overshadowed by massive cancellations. The image of the industry has become tarnished, and the airframe manufacturers in particular have been criticised at home and abroad. It is therefore not surprising that some people should ask whether it is worthwhile having an aircraft industry at all. Not long ago such a suggestion would not have been seriously contemplated. In the circumstances of today, it is necessary to consider the industry's future in the most radical way. This we have tried to do. The aircraft industry differs from most other industries in tnat it depends on the Government for its very existence. An examination of the proper future role of, say, the motor-car or machine-tool or chemical industries might lead to suggestions or ways in which Government could help the industry to cftange its size or structure or efficiency But any Government action would be marginal. On the other hand, a decision to
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