Britain’s aerospace supply chain is under pressure as Rolls-Royce and Airbus move to build up parts and materials before Brexit, a scramble that is hitting smaller suppliers hardest.
The concern is not only about customs delays. It is also about cash flow, warehouse space and the ability of smaller firms to absorb extra inventory while larger manufacturers prepare for a possible disorderly exit from the European Union.
Several suppliers told Reuters they have already started stockpiling, producing additional goods for customers to hold, or waiting to see whether a deal is reached. For some, the new demands are being driven directly by Brexit planning.
Bitrez, a speciality chemicals manufacturer in north west England, said customers are increasingly asking for consignment stock arrangements, where material is delivered to their premises and paid for only when used. Paul Jones, managing director of the company, said: “Most of our larger customers have imposed or pushed for consignment stock deals so this has allowed them to increase stocks and provide a buffer,” and added: “Brexit is the driver for it.”
Cash flow pressure ¶
Industry consultants say the biggest immediate risk for smaller aerospace firms is the strain on working capital. Paul Adams, head of aerospace at Vendigital, said adding time to the process means consuming cash, mainly through inventory and the resources needed to manage it.
That buffer has limits. Space is tight, storage is expensive and not every supplier can increase stock at all. Tony Worsley, managing director of Elder, a manufacturer of metal and polymer components, said the sector has started stockpiling, but his family-owned company cannot hold everything it would need if supplies were delayed at UK ports for days or weeks under a no-deal Brexit.
“I haven’t got the space, the resources,” he said.
Britain’s aerospace industry supports more than 120,000 jobs and depends on smooth cross-border trade. Smaller firms across the country make parts for Airbus A320 wings, Rolls-Royce engines used in passenger aircraft, and the F-35 fighter jet. The sector was already under strain from a production ramp-up as Airbus, Boeing, Rolls-Royce, Pratt and Witney and others worked to meet rising demand, especially from China.
Deloitte has said global commercial aircraft production is expected to reach 1,800 planes by 2022, more than 20 percent above 2017 levels. That growth has made it harder for some suppliers to add inventory on top of current output.
Andrew Mair, head of the Midlands Aerospace Alliance, said the recent increase in production means some small companies simply cannot keep up. “They can’t keep up with current volume requirements, they cannot stockpile,” he said.
The complexity of the industry means even small suppliers can disrupt larger programmes. The A380 contains 4 million components made by 1,500 companies in 30 countries, while Rolls-Royce engines use 18,000 components. Adams said some suppliers can push back because they occupy a unique position in the chain. “They can and will push back,” he said.
Big manufacturers build buffers ¶
Airbus, which has 4,000 companies in its UK supply chain, said in July it had activated Brexit contingency plans and was building buffers because it believed the British government’s strategy was unravelling.
“Our teams across Europe are in daily contact with suppliers about a range of subjects; we have both written to, and surveyed, our suppliers regarding Brexit and are working with those companies,” a spokesman said.
Rolls-Royce said it was working to make sure suppliers had the information needed to plan for Brexit and to maintain continuity of supply. A spokesman said: “We are working hard to ensure that our supply chain has all the relevant information they need to plan for Brexit and we believe our suppliers will be able to take the steps necessary to ensure continuity of supply of both goods and services.”
The company’s chief executive said last week that Rolls-Royce still intended to stockpile parts so it would have “the logistical capacity that we need to carry on running our business.”
Some suppliers are already responding. Mark Venables, managing director of Alloy Wire International, a central England-based specialist wire supplier, said customers were asking about its Brexit plans. The company has taken on extra warehousing and built up its own buffers.
“We have been preparing for the last few years because we have been in effect carrying extra stock,” he said. “We took another unit on in August last year and have invested more than $5 million in material over the past twelve months - the biggest investment we’ve ever made in stock.”
For some firms, the hope is that a deal will eventually unlock spending rather than freeze it. Philip Hammond has said corporate spending could rise if Britain secures a good divorce deal, after a period in which companies have been “sitting on their hands” while negotiations continue.
Mark Crouchen, of Rockwood Composites in south west England, said his company makes bespoke composite parts used in cabin doors and the decoy system in the Eurofighter. The 20-person business, with turnover of 1.5 million pounds, has seen delays over the last two years, though he said it was hard to blame Brexit directly.
“But we’ve certainly seen a big surge in work for next year and beyond. It’s very, very unusual.”
Reporting by Sarah Young and Kate Holton; editing by Guy Faulconbridge and Alexandra Hudson
