The recent agreement between the UK and the EU to implement a 21-month post-Brexit transition period, lasting until the end of 2020, may have reduced any immediate pressure on the aerospace industry to put into action contingency plans for the country's scheduled withdrawal from the bloc in March 2019.
But the transition agreement has not provided any clarity about the UK's future relationship with the EU, giving aerospace companies a headache over what preparations to make for 2021 onwards.
The range of potential scenarios is so wide – from virtually no change to trade and aviation regulations, through to the UK's departure without a deal – that businesses are "very uncertain" as to how they should adapt for Brexit, says Paul Everitt, chief executive of UK aerospace trade association ADS.
"Companies are understandably planning and trying to develop contingency arrangements," he says.
Large manufacturers may have the resources to make preparations for multiple scenarios, but a lack of clarity from London and Brussels means that small and medium-sized suppliers especially are left with a great deal of uncertainty. "Most people are struggling to pitch their planning to a sensible degree," says Everitt.
The opacity around the final Brexit deal, added to considerable political sensitivity, is clearly one of the main reasons nearly all the aerospace businesses contacted by FlightGlobal declined to provide insight into their plans for the UK's departure from the EU.
As a result of the uncertainty, Everitt thinks there is a risk that suppliers may default to making preparations for the "worst possible" outcome of a no-deal exit. He says such planning could have a negative impact on the UK, even if the country eventually reaches an arrangement with the EU that is more closely aligned with the current regulations.
The subject where, in Everitt's view, least progress has been made, is around the UK's future border and customs arrangements. "Clearly that's the area where there is a lot of debate and discussion, but not a great deal of clarity," he says. "That's the area where we feel there is most to do."
As aircraft and most of their constituent components are exempt from tariffs under World Trade Organization rules relating to civil aircraft, the potential imposition of tariff barriers between the UK and the EU post-Brexit would have limited direct effect on the aerospace industry. But the sector is concerned about introduction of non-tariff barriers – such as customs procedures and additional bureaucracy – which could slow logistics and add costs.
The UK aerospace sector is part of a global industry that is "characterised by integrated cross-border just-in-time supply chains, a high degree of concentration, and continent-spanning economies of scale," says the UK parliament's Business, Energy and Industrial Strategy select committee, in its report looking at the effects of Brexit on the country's aerospace sector.
Parts and materials routinely cross borders on multiple occasions during the production process, it notes. "Around half" of the UK's aerospace exports are shipped to the EU, says the report.
ADS estimates that increased border checks could add up to £1.5 billion ($2.1 billion) a year to the UK aerospace industry's costs. Everitt – who presented the group's view to the select committee in November 2017 – asserts that the reintroduction of customs border controls will result in "clearly a significant cost burden… that will have a longer-term impact on the competitiveness of the UK industry and short-term challenges in terms of managing production and output".
Particularly relevant in this regard is that manufacturers, including Airbus and Rolls-Royce, are in the process of "ramping up production quite significantly", he adds.
ADS does not in the short term foresee production shifting away from the UK, as certification requirements for manufacturing sites demand certain lead times for supplier or facility changes. But Everitt warns it may "become more difficult for the UK to win incremental new investment and that, over a period of time – five [or] 10 years – the loss of those incremental investments will mean that, when major investment [decisions] come along, we will be poorly placed".
Airbus UK senior vice-president Katherine Bennett, in her evidence to the select committee, said that the airframer is "extremely committed" to its UK facilities and that "it is not terribly easy to move a huge manufacturing site". But she says it is "most important" that the facilities stay "productive and competitive" as all of Airbus's sites vie for investment to receive industrial packages on future programmes.
The European airframer produces the wings for its entire civil aircraft range in Broughton, North Wales, and has a site for design and manufacturing at Filton, near Bristol.
Bennett says it is "fortunate" that no large investment decisions regarding potential new aircraft developments are on the "near-term" agenda. But she warns that "other countries would dearly love to design and manufacture wings". Noting that Airbus already produces wings in China today, she says: "They are knocking on the door as a result of the situation that we are in."
Rolls-Royce says it is "fully engaged" with the UK government on "specific" aerospace issues. "Our preference is for an outcome as close to the status quo as possible," it says. But the engine maker notes: "As a global company, with a global supply chain, we are used to working with governments and regulations of all types."
The select committee's report concludes: "It is in the UK's national interest for its aerospace sector to remain deeply integrated in European supply chains after Brexit, and there is little to be gained for this sector by not having closely aligned customs. Any additional customs procedures resulting even in relatively short delays could detract from the UK industry's ability to compete for work and investment in those supply chains."
The MPs recommend that the UK government should "seek to secure as near frictionless trade as possible" between the country and the EU "for the aerospace sector after Brexit, with the minimum amount of customs procedures".
For its part, the European Council says in its negotiation guidelines that the EU intends to have "as close as possible a partnership" with the UK in future. But it notes that "repeatedly stated positions of the UK" – namely moving outside the EU Single Market and Customs Union after Brexit – will "limit the depth of such a future partnership".
The council says it will be "seeking to maintain zero tariffs and no quantitative restrictions" for goods trade and to establish an "appropriate customs co-operation".
Maintenance companies are "particularly vulnerable" to any customs-related delays, as spare parts may need delivery, in aircraft-on-ground situations, on an ad hoc basis to international locations within hours, the UK select committee report says. If airlines do not receive the support they require, they can relatively easily switch to maintenance specialists elsewhere – or service providers can move facilities and personnel outside the UK.
Before the 2016 Brexit referendum, Irish MRO specialist Dublin Aerospace had planned to establish a second base maintenance facility in the UK. The company had selected a site and was in discussions with local colleges about technical training programmes. But the project was abandoned as a result of the vote to leave the EU, with the company instead evaluating sites in Europe and elsewhere.
UK line maintenance company Storm Aviation – a wholly owned subsidiary of Lithuanian MRO provider FL Technics – has set a deadline of August 2018 to decide whether to proceed with its Brexit contingency plan. Chief executive Thomas Buckley tells FlightGlobal that if no clarity on the UK's future relationship exists by August, Storm will gain a European Aviation Safety Agency Part 145 maintenance organisation approval for an existing German subsidiary in order to ensure that the company can continue servicing aircraft that are registered outside the UK after March 2019.
Buckley says that two-thirds of Storm's business is based in the UK, with the remainder covering line stations in Europe and elsewhere. He does not see that situation changing, but he notes that the customer split is "significantly different", with UK-registered aircraft representing around half of the fleet under service.
Continued access to European collaborative research and development programmes – such as Clean Sky, Horizon 2020 and the Single European Sky air traffic management modernisation effort – is a further key objective for the UK aerospace industry. The select committee report says that aerospace represented 12% of the entire UK manufacturing industry's R&D expenditure in 2016, and that the country is a "net beneficiary" from EU research and innovation funding.
But "more valuable" to UK aerospace companies than the funding are the "opportunities participation in EU R&D programmes provides for collaboration and specialisation between industry and academia across countries", the report says. It notes that the EU programmes give "the UK influence over European demonstrator programmes that lay the foundations for technology choices on the next wave of commercial aircraft designs".
Everitt believes the UK government is in "a mood for continued engagement… in those European programmes". However, whether the UK government will directly contribute funding to programmes at European level, or provide direct financial support to UK entities, is the subject of negotiations with the EU. Noting that non-member states participate in the EU innovation efforts today, he says excluding the UK would create a "big funding gap".
He thinks the UK government agrees that "continuing its involvement and… funding for European research projects is in our best long-term interest". This would be in line with the select committee's advice that "the government should seek to maintain the UK's membership" of existing R&D initiatives and "secure UK participation of future programmes".
Despite his cautious confidence regarding future R&D collaboration, Everitt shows no optimism about Brexit. ADS campaigned hard to remain in the EU during the referendum and he thinks there is a "long way to go" before any positive future trade deal can be reached.
He thinks the two sides need to be "more pragmatic or make some rather bigger compromises in some areas in order to ensure that the wellbeing of both the UK and European economies are protected".
"What we are engaged in here is minimising the negative impact on the UK economy," he says.