Ill-prepared suppliers threaten aerospace giants in case of hard Brexit
By Sarah Young FARNBOROUGH, England (Reuters) - Airbus is stockpiling parts in case of a hard Brexit and Rolls-Royce is months away from doing so.
By Sarah Young
FARNBOROUGH, England (Reuters) - Airbus is stockpiling parts in case of a hard Brexit and Rolls-Royce is months away from doing so. But for smaller aerospace companies that supply them, Britain's departure from the EU could be much more challenging.
The largest aerospace sector in Europe and second in the world behind the United States, the British industry generates exports worth 30 billion pounds ($39 billion) a year and sustains 123,000 direct jobs, plus as many again indirectly.
Manufacturing planes and engines requires components to be at factories on a just-in-time basis. A disorderly or no-deal Brexit would threaten the smooth flow of parts across borders and prevent European regulatory approval for aerospace products.
However much planning the industry giants do, they could still be damaged via their supply chains if component suppliers are not ready.
John Rainey, chairman of Denroy, a maker of injected moulded components used on Airbus planes, has contingency plans in place, but won't sign off on any changes for the company of 165 employees until he knows what Brexit means.
"Everybody says you need a plan but we don't know what to plan for or against. We're going to conferences now and we're told to be very afraid but we don't know what we have to be afraid of," he said at the Farnborough airshow, the annual showcase for the British aerospace industry.
Britain is due to leave the European Union on March 29, 2019, but there is little clarity over its future relationship with the world's biggest trading bloc.
Alert to the potential problem, Rolls-Royce, which makes engines for aircraft and ships, has started to talk to smaller suppliers to look at "where some of the hotspots might be", the company's president of civil aerospace, Chris Cholerton, said.
"We've got a bit of a heatmap of levels of risk," he said.
Slow progress in the Brexit talks has convinced Europe's Airbus, which makes the wings for its commercial aircraft in Wales, to activate plans to prepare for a worst-case, no-deal scenario.
But few of the 4,000 companies in Airbus's UK supply chain, many of which are small and medium-sized companies, have dedicated teams and sophisticated plans in place, a chink in the armour of big companies.
"There's a limit to how much they (big companies) can do in terms of digging down," said David Stewart, aerospace partner at consultancy firm Oliver Wyman.
"There's a small company that does this piece of bearing, clip, pump. You can't go and check every one of those single companies to see how well prepared they are."
Big companies hope that building up stocks of parts will allow factories to continue producing even if goods are held up at the border between Britain and the EU.
Depending on the future relationship, goods could require customs declarations and checks at borders, a major risk for Airbus whose components can cross borders two or three times before products are finished.
Tony Wood, CEO of Meggitt, which makes wheels and brakes for planemakers and has 11,000 employees globally, says he has examined how the company would fare under all the different outcomes. "We've done so many scenarios around Brexit planning," he said.
Meggitt, which said only 5 percent of its business is trading directly between the UK and Europe, says it can cope with the extra administration.
"On day one, if there is a requirement for extra processing and paperwork to clear customs and such like, then yes, we have a solution to put people in place to do that," Wood said.
But for Northern Ireland-based Denroy, it's another story. Rainey, who owns the firm, said more paperwork could mean extra staff and extra cost for a small business to absorb.
"I'm worried about ... all the additional documentation requirements. The implications for two more employees is 60,000 quid (pounds) you know," he said.
The head of France's Dassault Aviation, Eric Trappier, urged Britain and the EU on Thursday to settle differences over Brexit and define a new partnership as quickly as possible to avoid hurting hundreds of suppliers.
British Prime Minister Theresa May published a plan for the UK's future relationship with the EU in July which was generally well-received by industry, but even if she can secure enough support for it at home, she still needs to win agreement from the EU.
Under her plan, Britain would share a common rule book on goods with the EU and continue to participate in the European Aviation Safety Agency (EASA), addressing a key worry for the industry which needs its parts to be EASA-approved to continue flying.
If that fails, companies with existing facilities in mainland Europe can use those for approving parts.
With six factories in Europe, Meggitt has options.
"There are a number of alternatives as to how you ultimately will clear those parts. We have operations in France and Switzerland," Wood said, adding that shipping parts there for EASA approval would be "a very extreme scenario".
Rolls is one step ahead, putting in place plans to move the design approval process for its large jet engines from Britain to Germany.
But setting up shop in Europe isn't an option for many of the thousands of small and medium-sized companies, and the aerospace and defence industry body ADS said it isn't advising them to move, or seeing evidence that they're doing so.
"At this point we're saying you do need to be aware, you need to have understood where the vulnerabilities lie," ADS Chief Executive Paul Everitt said.
While the costs of Brexit are worrying for some, some smaller companies see an opportunity in the regulatory and customs difficulties that could lie ahead.
The boss of Moyola Precision Engineering, a supplier of titanium and aluminium components to Airbus and Boeing, said it could win new business if it adapts quickly enough.
It employs 120 people at its base in Northern Ireland.
"Over the years we have been working to reduce our cost and to put ourselves in a situation where we can still be cost competitive," said Managing Director Mark Semple, who owns the 18 million pound turnover business with his father.
"You have to keep doing these things, Brexit's just another thing that encourages you to look to continue to take out cost."
($1 = 0.7696 pounds)
(Reporting by Sarah Young; Editing by Adrian Croft)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.