Airbus departure: How real are the Brexit threats?

Airbus has warned that a no-deal Brexit could force the aircraft manufacturer to close its UK operations, which, among other things, produce all-important wings. Here's why other countries are circling to pick up the slack from a UK departure from the single market and customs union – and why the Airbus story has always been shaped by national politics as well as international commerce.

1. Minority stake

This story harks back to the history of Airbus. In 1970, the British, French and German governments came together to create a consortium to challenge US dominance in the market. UK airline BOAC (now part of British Airways) did not support it, and the consortium largely developed around Franco-German leadership. But the British manufacturing group Hawker Siddeley still retained design and supply of the wings to Airbus.

Then, when the UK aerospace industry came together in the late 1970s under the umbrella of British Aerospace, it bought a 20% stake in Airbus. But this was sold in 2006 for about £2 billion when British Aerospace thought that Airbus was in turmoil. So the UK has always been – at best – a minority player in Airbus.

2. Wings are complex

An airline's wings are among the most complex part of the airframe. They comprise tens of thousands of parts that need to fit together with amazing precision. They are a blend of metals and composites that require deep expertise to both design and manufacture.

Wings therefore require high-tech, highly advanced factories and skilled people to make them. These skills do not come cheap – and such a factory requires major investment. They really are the jewel in the crown for any airframe company and the French and German parts of Airbus have been interested in creating this capability locally.

Not only this, but many of the parts in the state-of-the-art A350 wings are produced in Spain where labour is cheaper, but then assembled in the UK where the expertise is greater. So it's not just France and Germany who are interested in wing production.

3. Not just about tariffs

The recent announcement that tariffs were the reason for the potential movement of wings is not the whole story of why wing production could move. In fact the EU charges tariffs of 0% on aircraft parts from Brazil and China. If it was just a tariffs issue, the UK government could always create a special economic zone, such as the maquiladora system in Mexico.

Special maquiladora plants are used to assemble goods from other countries for export back to the country of origin while avoiding export and import tariffs. These are typically used in low-skilled industries such as clothing and are designed to take advantage of lower labour costs rather than advanced technology. Wings are strategic – and France and Germany would want them as the move would bring jobs in high-value manufacturing.

Airbus in Europe is often viewed as a "job factory" (as one former Airbus first-tier supplier CEO told me in an interview) – with the focus being on the creation of jobs. The long-running Boeing-Airbus lawsuit at the World Trade Organisation is focused on the alleged use of illegal EU state aid to support these well-paid jobs in the development of new airframes. With the UK out of the EU, there would be no such aid, leaving it worse off competitively.

4. Logistical sense

From an efficiency point of view, having wings made in a different country to the rest of the airframe is a poor choice. Wings need to be transported by boat to France from the UK. So potential delays in their transport – such as when the Ciudad de Cadiz (one of three ships used to transport wings) ran aground in 2013 – would be avoided.

It would make logistical sense for them to be made on-site, making the operation more efficient and able to run on a truly just-in-time basis. However, efficiency has never been at the centre of Airbus's decision-making, with components and major sections being made across Europe. The delay in the launch of the A380 "superjumbo" is one example of where the different location choices (in this case different computer design systems) was driven by political needs rather than operational expediency.

5. No guarantees

Despite the logic for Airbus moving operations, its departure from the UK is not a given. Due to the high cost of developing an aircraft, Airbus may be more interested in launch aid or tax breaks than efficiency. Plus, for the existing planes, it is very difficult to simply pack a factory up and move it somewhere else. Factories need labour and this will need to be recruited and trained.

Many companies that I have studied think that manufacturing capability can be developed in 18 months. From my experience this is highly optimistic and is more typically five to seven years. So there's likely to be a stay of execution for at least that amount of time, as manufacturing capability and the supply chains and skills that support them cannot be turned on and off like a tap.

Mark Johnson, Associate Professor of Operations Management, Warwick Business School, University of Warwick

This article was originally published on The Conversation. Read the original article.