Annual Industry Survey 2006

8/4/2019 Annual Industry Survey 2006

1/24

www.sbac.co.uk

SBAC

salamanca square

9 albert embankment

london

se1 7sp

tel: +44 (0)20 7091 4500

fax: +44 (0)20 7091 4545

e-mail: [email protected]

uk aerospaceindustry survey

2006

representing companies supplyingcivil air transport, aerospace

defence & space

sponsored by


2/24

.01

contents

about SBAC 2

data and information 2

UK aerospace in 2005 -

a message from the

SBAC President 3

sustainable aviation 5

revenue 6

orders 16

financial 18

research and development 20

employment 26

SMEs 32

international trade 38

global trends 40

Photographs reproduced with the kind permission of:

Airbus SAS

AgustaWestland

BAE Systems

EADS

Eurofighter GmbH

Gardner Aerospace

Rolls-Royce plc


3/24

SBACs UK aerospace industry survey is the

most comprehensive analysis of companies

supplying the civil air transport, aerospace

defence and space sectors. This years results

show that the aerospace industry is enjoying a

sustained period of growth and UK based

companies are successfully winning business in

an increasingly competitive global marketplace.

The survey shows that 2005 was a phenomenal

year for the UK aerospace industry with

substantial increases in turnover, employment,

R&D investment and new orders. The sector

has demonstrated a remarkable resilience and

determination to remain the largest aerospace

industry outside the USA and has world leading

companies across a range of products and

technologies.

In 2005 turnover increased by 25 per cent to

22.67 billion, taking sector sales back to pre

9/11 levels. Civil aerospace revenue increased

for the second year in a row, rising by 18.3 per

cent to 10.5 billion and defence sales

increased to 12.2 billion, up more than 30 per

cent on 2004.

New orders increased by 33 per cent to a

record high of 30.8 billion, 135 per cent of

2005 turnover, with orders evenly balanced

between civil and defence programmes. The

strong order book reflects increasing demand

in emerging economies like China and India and

continued investment in defence capability.

The SBAC survey shows UK aerospace directly

employs 124,237, an increase of nearly 10,000

on the previous year, supporting a total of

276,000 jobs across the UK economy. The

aerospace industry provides high value

.03.02

SBAC is the national trade associationrepresenting suppliers to the civil air

transport, aerospace defence and space

markets operating in the UK economy.

Together with its regional partners, it

represents over 2,600 companies, assisting

them to develop new business globally,

facilitates innovation and competitiveness

and provides regulatory services i n technical

standards and accreditation.

SBAC members interests encompass

aerospace manufacturing, maintenance and

through life service, professional advice,

academic research, training and education,

the British Airports Group and UK Industrial

Space Committee.

data and informationThe information provided in this booklet is

primarily the result of the UK aerospace

industry (UKAI) survey of 2005 undertaken by

SBAC in 2006. In 2006 SBAC simpli fied the

survey significantly following consultations with

respondents. However SBAC does not believe

that this has changed the overall patterns

significantly.

Data has been collected not only from SBAC

member companies but also other aerospace

companies (eg consortia, joint ventures, non-

members and airline maintenance companies)

both in the UK and the rest of the world.

The results of the survey are used by a wide

variety of stakeholders in the aerospace

industry, including government ministers and

departments (including Department of Trade

and Industry, Ministry of Defence, Department

of Transport, Defence Export Services

Organisation and UK Trade and Investment),

SBAC member companies and respondents

to the survey.

Additional analyses and background reports

on the UK aerospace industry are available

separately from the SBAC website

www.sbac.co.uk

about SBAC UK aerospace in 2005

employment with average salaries of 33,000,

some 8,000 more than manufacturing as a

whole. The industry also has a strong

commitment to developing young people with

the survey showing the sector employing

2,700 apprentices.

The increase in employment reflects a

significant rise in output and has been

accompanied by an even greater increase in

productivity. Productivity per employee

increased by 15 per cent, significantly exceeding

the industrys long term trend, and demonstrating

the significant investment that is being made

by companies in process improvement.

There was a welcome 31 per cent increase in

R&D spending in 2005, up to 2.7 billion.

Investment in the development of new technology

is essential for long-term competitiveness and

the progress of the National Aerospace

Technology Strategy has the highest priority

across the sector.

The increasing globalisation of the aerospace

industry is demonstrated by the continued

growth in employment and turnover of UK

a message from the SBAC President


4/24


5/24

.07.06

revenue

figure 1 UK aerospace industry sales and employment 1980 - 2005

sales(2005bn)

employment(000s)

year

sales (lhs) 22.67

employment (rhs) 124,237

Since 1980, the civil sector has been the engine of growth and this

year it continued the trend with an 18.3 per cent increase, well

above the long term trend rates of 4.7 per cent per annum.

Defence increased by 31.8 per cent, well above trend which has

been static in real terms.

figure 2 UK aerospace industry real growth of sales civil anddefence 1980 - 2005

1980=1

00

year

civil defence baseline

Sales increased by 25 per cent real terms in 2005 to 22.67bn,

driven by increases in the civil and defence sectors.

Employment increased 9 per cent to 124,237.

source: SBAC source: SBAC


6/24

.09.08

figure 3 UK aerospace industry sales by activity 1980 - 2004

%o

fturnover

year

civil defence

defence - 54%

civil - 46%

Sales to the UK government increased by 21 per cent to 4.1bn.

However, the UK aerospace industry (UKAI) remains less dependent

on sales to its national government at 17.8 per cent compared

to USA at 54.3 per cent and the EU average of 27.2 per cent

(2004 figure).

figure 4 UK, EU and USA aerospace industries sales to their owngovernments 1980 2005

%o

fturnover

year

sales to Government - EU average

sales to US Government

sales to the UK Government

Defence sales of 12.2bn exceeded civil sales by 1.6bn.

For the second consecutive year defence sales exceeded civil sales

increasing to 54 per cent.

source: SBAC source: ASD, AIA, SBAC


7/24

.11.10

figure 5 UK aerospace industry growth from 2004 to 2005

turnover(2005

bn)

2004

2005

growth per item

contribution to total growth

0

t ot al ci vi l domes ti c ci vi l exp ort s defencedomestic

defenceexports

10

15

20

25

30

total 2004: 18.10total 2005: 22.67(in real terms)

The figure below shows the relative contribution of the civil and

military markets to the UKAI. 67 per cent of sales were exported,

continuing the long term trend of dependence on exports.

figure 6 UK aerospace industry sales by type and region

civil exports

37%

defence domestic

24%

defence exports

30%

civil

domestic

9%

total turnover 2005:

22.67 bn

exports: 67%civil: 46%

Sales increased by 25 per cent real terms in 2005 to 22.67bn,

however different areas had different patterns:

- Civil domestic market remained relatively static with only 2.3 per

cent growth. Exports fared better by increasing 26.9 per cent.

- Defence domestic sales increased by 30.3 per cent from last year

driven by growth in demand from both the UK government and

other aerospace companies.



8/24

.13.12

figure 7 UK aerospace industry sales by product group

The global aerospace industry is relatively unusual in having only a

few possible end users of whom almost all are either airlines or

governments.

Sales to all destinations showed significant growth, in particular

USA and rest of the world showed significant increases of 44 per

cent and 33 per cent respectively.

figure 8 UK aerospace industry sales by customer (1)

sales to the rest

of the world

sales to

the USA

sales to

the EU

other sales

in the UK

sales to the

UK Government

4.08bn4.83bn

+ 33%

4.68bn

+ 44%3.42bn+ 15%

5.66bn+ 13%

+ 21%UK aerospace

industry

Aircraft equipment rose by 60 per cent from 4.1bn to 6.56bn,

showing the biggest single sector increase.

Aircraft engines also enjoyed a successful year with a 39.8 per cent

increase in sales to 6.83bn.

Missiles sales increased by two thirds to 1.5bn.

Space had its second consecutive year of growth, increasing to

603m, up 38 per cent on last year.

Aircraft systems and frames decreased by 6.3 per cent to 7.19bn

from last year.


(1)Sales to UK Government: This includes national authorities like government, ministries, UK public research institutes,

national space agency.

aircraft equipment

30% aircraft systems& frames

24%

large civil aircraft

7.1%

regional jets

2.0%

other and

business jets

0.3%

aircraft maintenance

8%

aircraft engines

28%

missiles

7%

space

3%

defence aircraft

11.5%

helicopters

3.1%


9/24

.15.14

figure 9 UK aerospace industry maintenance turnover by company1996 - 2005

turnover(2005

bn)

year

service providers

maintenance companies

aerospace manufacturers

0

1

2

3

4

5

6

7

total maintenance turnover 2005: 6.07bn

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Maintenance, repair and overhaul (MRO) sales increased by 6.0 per

cent to 6.45bn. This year, for the first time, SBAC was able to

separate maintenance companies, service providers (such as

consultancies or facilities management) and aerospace

manufacturers.

Aerospace manufacturers MRO increased by 9.3 per cent in 2005

to 4.3bn.

Service providers and maintenance specialists decreased by -14.4

per cent to 1.74bn continuing the trend of aerospace maintenance

being undertaken by the original equipment manufacturer.

source: SBAC


10/24

.17.16

UK orders saw a 61 per cent increase, driven by significant new

orders for BAE Systems, Selex Communications, Rolls-Royce, Serco,

Thales Aerospace, Lockheed Martin and AgustaWestland.

European orders saw a -10 per cent fall to 6.61bn, but this was

from a high in 2004 and represents a 50 per cent growth from 2003.

This year it has been possible for SBAC to split orders by USA and

rest of the world (previously the category was outside European

Union), this saw a 49.6 per cent increase. Orders from the USA are

worth 8.1bn and orders from rest of the world 6.2bn.

figure 11 UK aerospace order intake by destination

source: SBAC

orderintake(

2005

bn)

year

from rest of world

from USA

from outside EU

from other EU

from UK

0

5

10

15

20

25

30

35

total order intake 2005: 30.79bn

1997 1998 1999 2000 2001 2002 2003 2004 2005

orders

Total orders increased by 33.5 per cent to a new record of 30.79bn.

All three sectors saw significant increases in their orders.

Orders were split evenly between civil and defence sectors with 49.7

per cent civil and 50.3 per cent defence.

New orders represented 135.8 per cent of sales in 2005.

figure 10 UK aerospace order intake by type and sector 1997 - 2005

source: SBAC

orderintake(

2005

bn)

year

engines

quipment

systems & frames

0

5

10

15

20

25

30 total order intake 2005: 30.79bn

1997 1998 1999 2000 2001 2002 2003 2004 2005


11/24

.19.18

Whilst there has been improvement in the level of profitability to 5.5

per cent this year, the UK industry as a whole still lags behind the EU

and US average profitability l evels.

figure 13 UK, EU and US aerospace industry operating margins1985 - 2005

source: SBAC ASD, AIA

The increases in sales are reflected in the improved performance of

selected UK companies with a 12.4 per cent real increase in sales

and operating profit at 10.0 per cent.

figure 12 selected financial UK aerospace financial results 2005

source: SBAC

company division

2005

m

2004

m

2003

m

2005

m

2004

m

2003

m

BAE SYSTEMS Plc group 15,411 13,222 12,572 1,182 1,016 980

Rolls-Royce Plc civil aerospace, defence 4,923 4,414 4,092 634 373 285

GKN Plc aerospace 627 569 1,549 54 38 130Smiths Group Plc group 3,017 2,678 2,629 420 350 349

Cobham Plc group 1,090 979 833 177 150 135

Meggitt Plc group 616 477 399 102 82 76

Ultra Electronics Plc group 342 311 284 51 40 34

sample total 26,026 22,649 22,358 2,620 2,049 1,989

turnover operating profit

financial

%o

peratingprofitmar

gin

year

-2

-1

0

1

2

3

4

5

6

7

8

1985 1990 1995 2000 2005

UK operating profit margin

EU operating profit margin

US operating profit margin


12/24

.21.20

figure 15 UK aerospace industry R&D expenditure source

source: SBAC

Research and development (R&D) intensity averaged 12 per cent of

total sales, 2.7bn up 31 per cent on 2004.

36.7 per cent or 0.99bn was spent on civil R&D and 63.3 per cent

was spent on defence related R&D.

For the purpose of this survey, R&D was defined to comprise:

- Development activities l eading to series production.

- Research and technology (R&T) activities which represent all those

R&D activities which are not directly attributable to products.

They can thus be regarded as generic technologies that are

designed to maintain or expand the technological basis.

figure 14 UK aerospace R&D expenditure by type 1996 - 2005

source: SBAC

research and development

R&Ds

pend

(2005

bn)

civil

defence

0

0.5

1.0

1.5

2.0

2.5

3.0

total R&D spend 2005: 2.49bn

total R&T spend 2005: 0.21bn

total self-financed by UK by other by others R&T

government alone

R&Ds

pend

(2005

bn)

year

civil

defence

0

0.5

1.0

1.5

2.0

2.5

3.0

total R&D spend 2005: 2.49bn

total R&T spend 2005: 0.21bn

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

R&T + R&D

Self financed R&D was worth 0.89bn, 74.6 per cent of which was for

the civil sector.

However, UK government funded R&D has the reverse pattern with

81.6 per cent being for the defence sector. Overall the trend was for

externally funded R&D to be heavily defence dependant with 87 per

cent (1.38bn) funded this way.

For the first time, this year SBAC asked about R&T activities, this

came to 211.1m split evenly between civil and defence.


13/24

.23.22

In the last few years there has been increasing interest in the levels

of R&D in aerospace being undertaken outside the UK, by UK

companies. SBAC data i ndicates there is a long term increase from

0.14bn in 1996 to 0.45bn in 2005. However, as the data below

shows, it does jump significantly from year to year.

figure 17 UK aerospace R&D undertaken in the UK and overseas

source: SBAC

46 per cent of the total UKAI R&D expenditure was undertaken by

the aircraft and systems sector. The equipment sector R&D

expenditure increased significantly by 21 per cent to 646m,

significantly above the four year average of 503m.

figure 16 UK aerospace industry R&D expenditure 2000 2005

source: SBAC

R&Ds

pend

(2005

bn)

year

overseas R&D

UK based R&D

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

R&Ds

pend

(2005

b

n)

year

0

0.5

1.0

1.5

2.0

2.5

3.0

2000 2001 2002 2003 2004 2005

aircraft engines equipment


14/24

2005million

year

actual figures

projected figures

0

5

10

15

20

25

30

35

40

1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

.25.24

The R&D process involves a number of public and private agencies,

companies, national research organisations and academia. It also

requires sophisticated, complex and expensive research

infrastructure such as wind tunnels and test facilities.

Government support for aerospace research from all sources,

including the regions, is brigaded through the DTI Technology

programme following implementation of the Innovation Review. This is

expected to result in an increasing trend of government support for

aerospace research in future years.

figure 19 aeronautic research programme funding

source: DTI, note CARAD payments have been included in these figures

R&D is a very long term investment. UK firms are still benefiting

directly from investment in generic technology made in the late

1950s and 1960s (eg wing aerodynamics and fundamental engine

technology which fed into the complete range of Airbus and

RB211/Trent engine families). The timescale between research and

implementation of new products can be as much as 20 years.

figure 18 Technology and first product application life cycle

source: AeIGT

science base: universities, industries & other research bodies

R&

T

R&D

selection

process

technology

demonstration

5+ years

technology taken up

by industry

technology

validated

product

launch3-10 years 2-6 years 25+ years

technology

acquisition

technology selected for

application by customer

contract

negotiation

Fundamental

research

design &

development

product & process

validation

pre-production

series production &

product support

product

certification

technologyreadiness


15/24

.27.26

Employment increased by 9 per cent in 2005. When compared to

the 25 per cent real terms increase in sales, this is a relatively

modest increase.

This created a second year of substantial growth in productivity per

employee, 15 per cent in real terms to 182,500 per employee, well

above the long term 5 per cent per annum growth.

figure 21 aerospace sales per employee 1980 - 2005 The majority of the European aerospace industry is located in the

UK which is highlighted by the fact that 26 per cent of all aerospace

jobs in the EU are within the UK.

Employment in the UK in 2005 increased by 9 per cent to 124,237

and is 4 per cent higher than in France and 38 per cent higher than

in Germany.

figure 20 European employment by country 2005

source: SBAC estimate

turnoverperemployee(2005'000

s)

0

20

40

60

80

100

120

140

160

180

200

year

1980 1985 1990 1995 2000 2005

employment000s

country

0

20

40

60

80

100

120

140

Unite

dKi

ngdo

m

Fran

ce

Germ

any

Italy

Spain

Swee

den

Neth

erlan

ds

Polan

d

Belg

uim

Czec

hRe

publi

c

Irelan

d

Finla

nd

Gree

ce

Portu

gal

Aust

ria

Denm

ark

Luxe

mbo

urg

total: 457,000 employees

employment

source: SBAC


16/24

.29.28

The UKAI has consistently maintained a range of long-term, highly

skilled jobs. In 2005, 34 per cent of all UKAI employees held a

university degree or equivalent.

33 per cent of employees (41,788 employees) were classified in the

new class of technicians.

2,719 employees, or 2 per cent of the workforce, were apprentices.

Production was the largest single group of employees (55 per cent

or 68,355 employees).

figure 23 UK aerospace industry employment by qualificationand activity

source: SBAC

It is estimated that a further 152,000 people are indirectly

supported by the aerospace industry. Total UK aerospace

employment was, therefore, in the region of 276,000 in 20051.

Aircraft and frames account for 42 per cent of the UKAIs activity,

in terms of employment. This is complemented by equipment at 31

per cent and engines at 27 per cent.

figure 22 UK aerospace employment by sector

source: SBAC

1Research by Oxford Economic Forecasting in The economic contribution of BAE Systems to the UK has suggested

an employment multiplier for the aerospace industry of 1.22.

employees(000's)

0

10

20

30

40

50

60

70

80


2%

32%

55%

13%

31%

33%

34%

by product segments

graduate

engineers

& managers technicians

apprentices

others

R&D

production

& maintenance

rest

by activity

aircraft & systems

42%

engines

27%

equipment

31%



17/24

.31.30

Average wages in the aerospace sector were 33,645 per annum in 2005, 43.7

per cent higher than the UK average wage and 31.6 per cent above the

manufacturing average wage.

Aerospace wages are relatively closely distributed (ie the majority earn

around the average wage) compared to the economy as a whole, and in

particular the financial services, where a few high earners skew the average

figure upwards.

figure 24 UK aerospace wages compared to selected industries 2005

source: ONS, ASHE 2006

annualearnings

average (mean)

median

0

10,000

20,000

30,000

40,000

50,000

whole economy manufacturing manufacture of a ircraft

and spacecraft

financial intermediation

23,400

25,566

33,645

43,003

18,961

22,027

29,013

25,266


18/24

(%)ofallcompanies

0

10

20

30

40

50

number of employees in company


19/24

.35.34

In 2005, the UK supply chain reversed the unusual trend, seen in 2004

of a 50:50 defence/civil split, and returned to the more usual 60:40

civil dominance.

Exports are still low, compared to the industry as a whole, with only

38 per cent, compared with 67 per cent UK aerospace average.

figure 28 UK aerospace industry SME turnover by type anddestination 2005

source: SBAC

This change in sales is reflected in the decrease in the number of

respondents: in 1999, 70 per cent of respondents where SMEs

whereas in 2005 this had fallen to 47 per cent.

figure 27 aerospace respondent company size 1999 & 2005

source: SBAC

civil domestic

36%

civil exports25%

defence domestic

26%

defence exports

13%

total turnover 332m

less than

250 employees

46%1,000 - 10,000employees

23%

250 - 1,000

employees

28%

10,000+

employees

3%

SME sales: 332m

2005

less than

250 employees

70%

1,000 - 10,000

employees

10%

250 - 1,000

employees

19%

10,000+

employees

1%SME sales: 652m

1999


20/24

.37.36

5 per cent of sales, or 17m, was sold directly to the UK government,

below the UKAI average of 18 per cent. This is in part reflecting the

nature of SMEs products as suppliers of components rather than

complete pieces of equipment.

67 per cent of sales were within the UK.

figure 29 UK aerospace SME sales by destination

source: SBAC

in the UK

57%

sales to EU

20%

sales to USA

12%

sales to

rest of world

6%

sales to

UK Government

5%

total turnover: 322m


21/24

trade(

2005

bn)

year

imports

exports

balance

0

2

4

6

8

10

12

14

16

18

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

.39.38

Employment increased by 9 per cent in 2005, when compared to

the 25 per cent real terms increase in sales, this is a relatively

modest increase.

This created a second year of substantial growth in productivity

per employee, 15 per cent in real terms to 182,500 per employee,

well above the long term 5 per cent per annum growth.

figure 31 UK trade balance of aerospace by destination 2005 In 2005, UKAI exported over 67 per cent of its total sales, worth

15.17bn. This was a 29.0 per cent increase.

It is important to note that the trade balance figures come from

government and therefore represent the trade in all aerospace goods

to and from the UK and not just the UKAI. They include the purchase of

aircraft by UK airlines and the sale of second-hand aircraft to the rest

of the world, and are therefore different to the SBAC survey figures.

UKAI this year contributed net 2.25bn to the trade balance,

representing a fall of 33.8 per cent on last year. However the long term

average remains at 2.8bn per annum positive balance.

figure 30 UK trade balance of aerospace 1996 - 2005

source: SBAC analysis of DTI data

international trade

source: SBAC analysis of DTI data

trade(

bn)

7

6

5

4

3

2

1

0

-1

Americas Asia

& Oceania

European

Union

Middle East

& Africa

-2

imports

exports

balance

Other

Europe


22/24

.41.40

The size of the UK aerospace industry presence overseas has

increased significantly over recent years. In broad terms, the size

of the overseas assets owned by the UK is now equivalent to the

worlds sixth largest aerospace producer.

figure 33 global location and sales in the UKAI 2005

UK based companies have substantial overseas presence, which

generated a further 6.47bn of sales and employed a further

42,919 people.

The majority of the overseas assets are in the USA which

accounted for 5.22bn of sales and 33,699 employees.

figure 32 global sales and employment of UKAI aerospace assets

source: SBAC

location

UK rest of the wor ld total

employment

employment

ownership

restof

theworld

UK

sales (bn)

employment

sales (bn)

total

sales (bn)

77,099

47,138

7.84

14.83

42,919

n/a

n/a

6.47

120,018

47,138

7.84

167,156

29.14

42,919

6.47

124,237

22.67

21.30

UKAI in USA

sales (bn): 5.22

employment: 33,699

UKAI in rest of world

sales (bn): 0.87

employment: 5,332

UKAI in rest of EU

sales (bn): 0.38

employment: 3,888

UKAI in UK

sales (bn): 22.67

employment: 124,237

global UKAI

sales (bn): 29.14

employment: 167,156

source: SBAC

global trends


23/24

.42

There are a number of overseas companies which have directly

invested or purchased and incorporated indigenous firms. In 2005,

foreign owned UK located companies generated total sales of

6.47bn and employed 42,919 people.

figure 34 UK aerospace ownership of UK located companies turnoverand employment

source: SBAC

turnover(2005bn)

employment(000s)

year

UK turnover (Ihs)

UK owned employment (rhs)

non UKAI turnover (Ihs)

0

4

8

12

16

20

24

28

0

20

40

60

80

100

120

140

160

180

total turnover: 22.67bn employment: 124.237

1998 1999 2000 2001 2002 2003 2004 2005

foreign UK employment (rhs)

notes


24/24

notes

Documents

Annual Industry Survey 2006