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UK AEROSPACE OUTLOOK

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FOREWORD

The UK’s Aerospace sector remains an economic cornerstone; year-on-year we are seeing an increase in productivity, exports and growth across the country.

In the last 12 months alone, the commercial aircraft backlog has jumped by almost 20% to just under 13,000 aircraft representing nine years of work-in-hand for UK industry.

Set against this positive backdrop, this report examines the shape, size and prospects for the UK Aerospace industry.

At a time when the UK economy has seen an overall rise in productivity of just four per cent, Aerospace productivity has grown by 50%. This growth is due in large part to the Government’s investment in modern Industrial Strategies, including the Aerospace Growth Partnership (AGP), which have changed global perceptions about the UK as a place to invest.

Encouraged by global opportunities, almost two-thirds of companies are planning to increase investment in the next year. Yet these opportunities are not without their challenges, including an increasingly uncertain global outlook.

The ADS Group’s Annual Aerospace Outlook 2015 demonstrates the UK sector’s ability to drive productivity growth across the UK. The Government’s commitment to building on this success is critical to ensuring the UK Aerospace industry can continue to deliver exports, innovation and high value, long term jobs across the country.

PAUL EVERITT Chief Executive, ADS Group

CONTENTS

Foreword 3

Summary 4

Achieving Growth 6

Investing in Productivity 10

Supporting High-Wage Jobs 14

About the Data 18

About ADS 19

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4 5

UK AEROSPACE INDUSTRY

£29.2bn 44%

110,600 3,300

35%

£26.3bn 50%

TurnoverExpect >10%

growth

Growth in last 5 years

91% of final demand in Aerospace comes from exports

of UK Aerospace Companies employ Apprentices and Trainees

Productivity growth, 2009 – 2014

UK Aerospace UK Economy

Employees Apprentices110,600

Direct UK Aerospace Sector jobs

125,600Indirect UK Aerospace

Sector jobs

Exports Productivity growth

£26.3bn

62%

54% 28% 9% 7%

50% 4%

<10% 10-24% 25-49% <50%

76

UK AEROSPACE INDUSTRY

44% OF FIRMS EXPECT >10% GROWTH

01

£29.2bn

£26.3bn

5%

Turnover

Exports

Annual Growth

UK Aerospace output has grown 35% since 2009

Aerospace company growth expectations

<10% 10-24% 25-49% >50%

• UKAerospacesectorgrewby5%in2014.

• Aerospaceexportsgrewby£1.6bnto£26.3bn.

• 20%ofturnoverinNorthernPowerhouse

• AroundhalfofUKAerospacecompaniesexpectingto growth greater than 10%.

• GrowthdrivenbyexportopportunitiesinNorthAmerica, Asia-Pacific and Latin America.

10

12

14

16

18

20

22

24

26

28

30

2006 2007 2008 2009 2010 2011 2012 2013 2014

£21.0

£22.1£21.4 £21.7

£23.0

£24.1£25.2

£27.8

£29.2

Source: CEBR, ADS and ONS

Source:ADS/GfK NOP Industry Intelligence Survey 2015

54% 28% 9% 7%

• NearlyhalfofAerospacecompaniesareexpectingtogrowby10%ormoreinthe next 12 months.

• UKAerospacesectorgrewby5%in2014,andby6%onaverageeachyear(compound annual growth rate) over the last 5 years.

• Keydriversofgrowthinthenext12monthsinclude:

– Growth of existing business (79%)

– Newexportopportunities(64%)

– Growth of UK opportunities (50%)

£b

n

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

39%

30%

22%

19%

19% Lack of sufficient internal finance

Lack of skilled workers

Lack of new opportunities in the UK

Uncertain global economic environment

Decline in spend by existing customers

98

64% SAY GROWTH IS DRIVEN BY NEW EXPORTS UNCERTAIN GLOBAL OUTLOOK GROWING CONCERN

% exporting to location / % entering new market Top 5 barriers to growth, % of companies citing each barrier

78/8

N America

L America

Europe

ChinaAfrica

Middle EastAsia (excl China)

91/8

47/824/11

59/13

24/8

28/13

Source:ADS/GfK NOP Industry Intelligence Survey 2015 Source:ADS/GfK NOP Industry Intelligence Survey 2015

• 91%ofAerospaceturnoverisgeneratedbyexports.

• LocationswherecompanieshavecitedgrowingexportlevelsincludeNorthAmerica, Middle East and Asia (excl China).

• PriorityMaintenance,RepairandOverhaul(MRO)countriesforfutureUKbusiness, identified in the ADS/ UKTI Global Aerospace Outlook 2015, include - the USA, United Arab Emirates, India and China.

• Businessconcernoverglobaleconomicenvironmentasabarriertogrowth,hasincreasedbyover10%sincelastyear’ssurvey(19%in2014).

• Declineinspendfromexistingcustomersremainsanissueforfirms.

• Accesstohighlyskilledworkersremainsasignificantconcernforthesector.

1110

INVESTING IN PRODUCTIVITY02

£9.4bn

64

50

%

%

Gross Value Added

Increasing investment

Productivity growth since 2009

UK Aerospace GVA is contributing to UK growth, £bn

• UKAerospacesectorgrewby5%in2014.

• Companiesfocusedoninvestinginbusinessdevelopment, capacity and innovation.

• Overseasinvestmentbyfirmstorespondtoincreasing demand.

• Aerospaceproductivityhasgrownby50%since2009,versusjust4%intherestoftheeconomy.

Source: CEBR, ADS

5

6

7

8

9

10

2009 2010 2011 2012 2013 2014

6.3

7.4

7.8

8.1

9.0

9.4

INVESTMENT IN SALES & PRODUCTION CAPACITY

% of companies with plans for investment, overall & by function

Source: ADS, CEBR & ADS/GfK NOP Industry Intelligence Survey 2015

• Majorityofcompaniesfocusedoninvestmentindevelopingnewbusinessopportunities, and production capacity to meet increasing demand.

• Investmentinapprenticeshasgrownbyover10%sincelastyear’sADSsurvey.

10% 26% 64%

65%Sales/business development

Production and assembly

Design and engineering

Apprentices and trainees

Research and Development

Company support staff e.g.

Consultancy

Maintenance

Manpower services

55%

54%

51%

51%

26%

22%

13%

9%

£b

n

1312

UK CENTRAL TO SUPPLY CHAIN & INVESTMENT DRIVING PRODUCTIVITY GROWTH

% of supply chain in location / % investing in location Aerospace GVA per employee & UK output per worker

16/26N America

UK

L America

Europe

ChinaAfrica

Middle EastAsia (excl China)

67/91

15/28

1/161/10

2/14

1/4

1/9

Source:ADS/GfK NOP Industry Intelligence Survey 2015 Source: CEBR, ADS and ONS

• UK,EuropeandNorthAmericaremainthefocalpointforglobalaerospacesupplychain investment.

• MinimalsupplychainpresenceinLatinAmerica,MiddleEastandChinaoffersopportunities for growth from new export opportunities.

• Overthepastfiveyears,productivityinUKAerospacegrewbyaround50%.

• Productivitygrowthacrosstheeconomywasuponly4%.

• TheUKneedstorebalancetheeconomyandmakeitmoreproductivebyinvesting in high-productivity sectors, including aerospace, and in stimulating productivityenhancinginvestmentsinR&Dandskills.

90 2009 2010 2011 2012 2013 2014

100

110

120

130

140

150

160

Aerospace UK Economy

Gro

ss V

alue

Add

ed %

1514

SUPPORTING HIGH-SKILLED JOBS03

110,600

3,300

21,900

Employees

Apprentices & Trainees

British R&D jobs depend on the UK Aerospace Sector

Company Support Staff

Sales/Business Development

Research, Design & Engineering

Production & Assembly

Consultancy

Other

UK direct Aerospace employment, (000s)

• 110,600directlyemployedbyUKAerospaceindustry.

• 22,100jobsintheNorthernPowerhouse

• 62%ofcompaniesemployapprenticesortrainees

• £40,500averagesalaryinUKAerospaceindustry.

• 1in4firmsconcernedoveraccesstorequiredR&Dand engineering skills.

Source: CEBR, ADS

90

95

100

105

110

115

2009 2010 2011 2012 2013 2014

111

104

106107

109

111

INCREASE IN HIGH SKILLED WORKFORCE

% of employees in UK Aerospace companies, by job function

Source:ADS/GfK NOP Industry Intelligence Survey 2015

• Over21,000R&D,Design&EngineeringjobsdirectlyintheUKAerospacesector.

• £40,500averagesalaryintheUKAerospaceindustry,50%morethantheUKAverage(approx.£27,000).

9.8%

9.8%

17.5%

19.6%

9.0%

34.2%

,000

s

1716

ACCESS TO INNOVATIVE SKILLS IS A CONCERN INVESTMENT IN R&D KEY TO FUTURE GROWTH

% of companies not confident of accessing specific skills UK companies responding to concern over R&D capabilities

Source:ADS/GfK NOP Industry Intelligence Survey 2015

Source:ADS/GfK NOP Industry Intelligence Survey 2015

• 1in4companiesarenotconfidenttheywillbeabletoaccessthenecessaryR&Dand design and engineering skills to drive innovation.

• Increaseofnearly10%frompreviousADSsurvey,incompaniescitingconcernsover access to maintenance skills.

• 87%ofcompaniesareconfidentinaccessingsales&businessdevelopmentskills to grow business opportunities.

• Fewerthan10%ofUKcompaniesemployapprenticesinR&Dfunctions,andfewerthan10%ofjobsintheUKAerospaceindustryareR&Djobs.

• With1in4companiesalsoconcernedaboutaccessingfutureR&Dskills,overhalf of UK Aerospace businesses are responding - and investing in innovation.

• Investmentininnovationandhigh-skilledjobsiskeytomaintainingandgrowingthe UK’s global Aerospace market share.

25%R&D

Design and engineering

Apprentices and trainees

Maintenance

Production/assembly

Sales/business development

Consultancy

Manpower services

Company support

25%

14%

14%

12%

7%

7%

3%

3%

% of Apprentices in R&D functions

% companies not confident in accessing R&D skills

% UK Aerospace companies investing in R&D

% R&D Jobs in UK Aerospace Industry

51%25%7%

7%

1918

www.adsgroup.org.uk 0845 872 3231

ADS Group is the UK trade organisation representing the Aerospace, Defence, Security and Space sectors. ADS is focused on representing the interests of these valuable wealth producing industries in the UK and overseas to key stakeholders, government, and the media

ADS plays an instrumental role in bringing industry and government together, working closely and collaboratively to maintain and grow the UK’s world leading position in these industries. In doing so, these sectors will support and facilitate a sustainable UK economic recovery, securing future sector prosperity through a strong strategy and united approach.

Farnborough International Limited is a wholly owned subsidiary of ADS Group. The Farnborough International Airshow 2016 will run from 11-17 July 2016. In 2014, the Farnborough International Airshow saw over $200bn worth of confirmed orders.

In 2015, ADS Group commissioned two different research strands to assess the size, shape and priorities for the UK’s Aerospace, Defence, Security and Space sectors.

• ADS/GfKNOPSurvey. Between 06 March – 27 March 2015, GfK NOP conducted a web-based survey of 900 ADS Members, asking 30 questions about employment, investment, export and growth trends. The Survey was web-based, with a 14% response rate.

• CentreforEconomics&BusinessResearch(CEBR). ADS commissioned CEBR to assess the turnover, employment and gross value added levels for each of ADS’s four sectors. Their research draws on data from Office National Statistics, Ministry of Defence, ADS Group and the ADS/GfK NOP Survey data.

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