Britain decides – aerospace & aviation and the 2015 UK General Election

So what do we do now?” were the last words in a great film about US elections. Robert Redford, the eponymous Candidate had just won election to the Senate based on pure political chicanery; but what exactly was he to do now in office? On the eve of a British General Election, the same question might be asked of a raft of incoming ministers with aerospace or aviation-related responsibilities.

This may involve a new team entirely and on the evidence of current polling data, probably another Coalition Government. There is also a secondary uncertainty affecting Britain’s relationship with the European Union (EU). So, from airports to defence policy, what will be the main aerospace and aviation issues facing the next administration?

Airports and a new London runway

First up must be a decision on the interminable future of London’s airports. There can be no excuse for ducking a speedy resolution this time. The Davies Commission has squeezed every possible bit of data and opinion out of the conundrum; and the newspapers have made a penny or two out of Heathrow (two versions) and Gatwick promoting their cases. The cynic in me suggests that a lot will depend on the political shape of a few London constituencies and the composition of the new Government. If the latter depends on the former, Gatwick is a shoe-in.

However, in all seriousness, the UK needs a positive decision and quickly. Business will be lost if London airports fail to cope with demand. This is more than just lost revenue on the part of airport operators; all of the individual cases have cited the challenge posed by neighbouring airports offering a wider range of destinations — especially in the emerging markets such as China and Latin America. The issue here is providing connectivity for a modern, globalised economy. There is clearly some scope for regional airport expansion which could be improved through regulatory action allowing non-EU airlines onward traffic rights. This, too, might be something for the next Secretary of State for Transport to consider with some urgency. (He might also seek to head off any moves to protect less-efficient European carriers). But further procrastination on future airport development will simply not be justified — the inestimable Sir Howard Davies and his team have removed any excuse against prompt action. Evidence-based policy-making should rule on this issue.

Thinking strategically about defence

Next up: the Strategic Defence Review (SDR) and the future of the nuclear deterrent. Although in principle this should be a long-term outlook, it is almost certainly to be influenced by shorter-term economic pressures. No one has so far demurred from the NATO commitment of 2% of GDP devoted to defence but for the foreseeable future there will not be much spare cash to pay for equipment and forces beyond those already contracted for — an expeditionary navy in the main. Yet, as minds begin to focus on the more immediate threat emanating from a resurgent Russia, gaps and needs in other areas will become more evident.

The most urgent is likely to be a Nimrod replacement to cover the UK’s littoral and to guard the nuclear force which evidently has been tailed by Russian attack submarines. ISTAR in general, including space-based assets, may need upgrading. This may entail working with European neighbours (but see below) if reliance on the US for some crucial strategic intelligence gathering becomes more unreliable. Similarly, if the Russian threat becomes more entrenched, an examination of the mix of F-35 might be in order, if conventional bases for the more capable F-35A are to be retained. Commitments to next-generation RPAS should also be on the Secretary of State’s agenda – for strategic as well as for industrial reasons.

Paradoxically, Russian challenges to the European status quo might make it easier to justify the billions for upgrading the Trident missile force. Where the UK’s independent deterrent is concerned, it has always been easier to go with a 70-year flow of political justification than to publish a well thought-through strategic case for continued nuclear possession. Up to now, while modest but significant sums have already been committed to nuclear modernisation, the next five years will demand much larger sums to build and to buy the hardware; and beyond that expensive life-cycle costs. This would have been explained in vaguely defined terms as an insurance policy in a generally insecure and uncertain future world. But with an electorate persuaded that terrorism, cyber war and real conflicts against the likes of ISIS are the most dangerous threats to Britons at home or abroad, a nuclear weapon force — with or without a Union Jack on top — without some better justification would look like a very expensive luxury.

But with Russia rampant, we might have to dust off the old Cold War arguments about ‘second centres of decision-making’ or preventing a ‘decoupling’ of the greater American nuclear threat to deter Moscow (these concepts posited the need to increase uncertainty in Russian minds that any military action against UK-Europe would NOT lead to a massive nuclear exchange).

Only the Scottish Nationalists and the Greens are set against any form of nuclear modernisation. The Liberal Democrats (with some dissenters) would accept a cheaper option. The Conservatives and Labour are unequivocally in favour of a major nuclear commitment but would examine cheaper aircraft/missile combinations. In any event, the incoming government owes the electorate some elaboration of exactly why a very large amount of money should be spent on a Trident force renewal.

Investment in aerospace technology

So, that’s the first couple of years accounted for. Civil aerospace and the space sector have done well under the out-going government — for good economic reasons. Aerospace has a key role in the continuing struggle to ‘rebalance’ the economy, and this objective at least has multi-party support. Depending on the SDSR, we might also hope for some useful aerospace-relevant technology acquisition programmes from the Defence Industrial Partnership. But again austerity politics might just undermine all of these aspirations. However, the future of RPAS development in the UK has more salience as the Eurofighter Typhoon — more export sales notwithstanding — enters its final phase of development and commercial exploitation. This may be the only viable means of keeping alive the UK’s competence as a military aerospace systems integrator and a route to market for several key OEMs

It is also just possible that over the lifetime of the next Government, Airbus will want to launch an all-new airliner. In some form or another (WTO permitting), the request will go out for public investment in the new programme. By this time, the UK might have recovered from the worst of austerity economics and the government should be willing and able to support another generation of UK Airbus investment, helping to maintain Europe’s most successful collaborative exercise. Newspaper reports that the UK government has reduced its royalty demands on its A320 investment (circa late 1980s) imply that another lever to retain core wing competences in the UK may also be available. However, with the A380 selling slowly, the Treasury will want some solid assurances that further investment in Airbus, or other forms of public support for R&D, will be justified. Equally, the UK will be under pressure to maintain commitments to space, either independently or within a European context.

The space sector did especially well out of the outgoing government (although in all fairness, this was a bi-partisan effort, following a report instigated by Labour). The Coalition put more money behind existing strengths such as communications and scientific satellites. But it also introduced an impressive range of low-cost initiatives designed to build a broader space industrial base. More dramatically, it took the UK back into, or close to re-entering, manned space. The next government will have to confirm or otherwise back-off commitments to a ‘space port’. It might also have to think about re-joining a future launcher programme based on more innovative technology than a simple rocket. Finally, the Government might want carefully to review its approach to spectrum regulation, perhaps more mindful of the satellite operators who do business out of London.

And Europe?

Which of course brings us to the elephant in the room — Europe: by the end of next month, there might be a date set for a referendum on a British exit from the EU. A Conservative Government, especially if dependent on support from the UK Independence Party, would be committed to holding a referendum by 2017, if not earlier. Even the Liberal Democrats — the most solid supporters of British EU membership, may want a referendum to settle the issue once and for all. Labour might concede one for the same reason but for the moment are set against a referendum. In the event, much will depend on the terms the Government might have negotiated from Brussels and the degree to which it might favour a ‘yes’ or ‘no’.

The exact affects of a ‘yes’ to exit on British aviation and aerospace are hard, if not at this stage, impossible fully to evaluate. Much would depend on the terms negotiated with Brussels and our former colleague states. And these may in turn depend upon the mood and sense of good or ill will generated by our departure. Membership of the European Economic Area (EEA), joining Norway and Iceland, would give the UK access to the European market but with little power to shape future EU policy and legislation. The best one can say at this stage is that the period prior to the decision would be fraught with considerable uncertainty; what is possible to describe some of the areas of potential impact.

Aerospace manufacturing

Of course, for many years in the 1960s, aerospace was Britain’s major substantive presence within the old EEC, acting as a promissory note on membership. And while life for a transnational company is easier within a larger, more integrated Europe, investment decisions by the likes of Airbus are now more influenced by levels of domestic spending on the product and its technology — not necessarily on a location within the EU.

However, maintaining Britain’s existing advantages in collaborative ventures, or within firms such as Airbus or MBDA, would be more problematic if there were more obstacles to trading and working with European partners. The UK would be excluded from EU R&D funding; the emerging single European defence market might evolve in ways inimitable to British interests if the UK government loses direct influence over events. Generally, the UK might find it harder to enter collaborative ventures with Europeans, although again the size of the domestic defence market and the quality of its technology could still be welcome to a European venture. On the other hand, re-enforcing Britain’s defence industrial links with the US might provide an alternative, although this might further increase long-term technological dependence and erode core competences.

The same would apply to the space sector: although there are non-EU members of ESA, increasingly ESA and European space policy will be decided by the EU Space Council. The UK would still be able to participate in ESA programmes on an á la carte basis and benefit from the industrial and technological returns that flow from collaboration. However, the UK would at best be an observer to events that again it would have little ability to shape in its favour.

The airline sector

The creation of the single European air transport market has been one of the most unequivocal benefits that the EU has delivered to the aviation sector. Shaped by European legislation, promoted by the European Commission and policed by the European Court, the EU single market has helped to bring cheap flights and greater convenience to British passengers. In principle, leaving the EU should not make much difference in the short term. Membership of the EEA should preserve British access to the single European air transport market. But again, the British government would lose its ability to ensure that the market remains designed to deliver the best outcomes for the UK.

A trickier and more complex issue may emerge in relation to air traffic rights with non-EU states. The UK has been party to the general Open Skies agreements with the US; there is the possibility of a formal linkage with the ASEAN East Asian air transport market; and there are emerging questions of relations with the Gulf States and their airlines. The UK might be able directly to inherit existing rights and obligations vis-à-vis the US. But it might also have to re-negotiate separate agreements, along the lines of the old Bermuda treaties.

Air traffic control

Membership or otherwise of the EU does not affect geography: UK airspace is a vital element in European air traffic management, and a more effective and efficient system benefits all Europeans. There should be little change in this area. Accessing European money and hardware programmes to up date the technology might prove to be more difficult. But again, there is a mutual interest here to support the status quo.

After 7 May

As we go to press, the outcome still looks too hard to call. But the aerospace and aviation agenda for any incoming minister is a tough set of questions, with some issues dependent very much on how the UK economy evolves over the next five years and the degree to which fiscal austerity still reigns. There are many other policy questions that will touch on UK aerospace over this period: managing and solving a growing skills shortage for one, as even more of the ‘Baby Boom’ engineers and technicians retire. With no political bias intended, the UK’s aviation and aerospace sectors should be areas of importance to policy-makers over the next half decade and their health have some priority as wealth creators.