Paris 2011: UK defense hit bottom line

 - June 21, 2011, 9:30 PM

ADS, the trade organization for the UK aerospace, defense and security industries, has reported that new defense orders slumped by 29 percent in 2010 due to the stringent defense cuts by Britain’s new coalition government. Despite this, 2010 proved to be a fairly good year for aerospace sales, which were up by 2.1 percent to £23.1 billion ($37.8 billion).

The net result was that the total value of civil and military orders was down to £29.1 billion ($47.7 billion), an 11-percent drop overall, as civil orders were up by 3 percent on the previous year to £19 billion ($31.1 billion).

UK employment in the sector fell by 4 percent to just over 96,000, an increase in productivity per employee of 6 percent, said ADS. The data is recorded in the latest ADS annual Aerospace Industry Survey, published on June 9. The organization said the survey showed that the UK’s aerospace industry remains the largest of any European country and is “second only to the U.S. worldwide,” which has a 17-percent market share.

Overall spending in the UK on aerospace research and technology development remained unchanged on what are already “historically low figures,” reported ADS. Research and technology spending, however, was up by 7 percent in the civil sector, while it was down 5 percent for defense. The U.S. remains the UK’s largest aerospace trading partner, according to the report. Exports to the U.S. stood at £6.4 billion ($10.4 billion) in 2009, but the balance of trade decreased further to a £3.5 billion ($5.7 billion) deficit. The UK, meanwhile, had a trading surplus with the rest of the European Union of £1.8 billion ($2.9 billion) in 2009.

“The good news is that the sector as a whole has come out of a difficult year in good shape,” commented Graham Chisnall, ADS managing director of aerospace and operations. “We are now seeing substantial growth expectations on the civil side, where the industry is set for huge ramp-ups in production on programs like the A320. Plus we’re seeing new programs kicking in like the [Boeing] 787, the CSeries and the A350.”

One factor troubling small and medium-sized members of ADS is the struggle to raise the capital they need to invest in boosting production capacity for the ramp-up. “Perversely, they are most at risk during the climb out from the recession because lenders have pulled up the drawbridge and won’t make funds available,” claimed Chisnall.

Nonetheless, ADS believes its members deserve great credit for improving their annual productivity by 6 percent in response to the recent downturn. “They’ve introduced better working methods, improved processes and [at least in the case of larger companies like Rolls-Royce] have made big investments in technology,” Chisnall concluded.