Brexit and defence, aerospace and advanced engineering

ADS Group, the UK trade organisation representing the aerospace, defence, security and space sectors, has said that the UK's aerospace industry derives 90% of its turnover from exports. With £8bn of this relating to EU exports, new tariffs may have a significant impact on these exports, even if sterling values remain low.

Many businesses in the aerospace industry also rely on skilled workers from the EU. According to ADS, 7% of EU citizens in the UK – some 16,000 people – work in the aerospace industry. Therefore change to the freedom of movement of these workers may have a significant impact on the industry.

In the defence industry, sales to overseas governments and organisations may be affected but there is also a risk that domestic defence spend will reduce after Brexit due to the expected reduction in GDP.

Once the terms of the UK’s exit from the EU have been established, we will know more about the long-term implications. In our view, it is vital that businesses in the defence and aerospace supply chain have a robust Brexit strategy:

• consider the risks and opportunities created by Brexit. Use our ‘Brexit - 5 questions business leaders should ask at their next board meeting’ as a guide.
• identify any efficiencies you can make as a business to maximise your competitive edge (e.g. businesses not already working through the SC21 change programme would benefit from considering this commitment).
• reassure EU/EEA/Swiss workers that they are unlikely to be affected. The UK is likely to remain a member of the EU for at least another two years and will continue to apply rules on free movement. If such workers have any concerns, they can take steps to confirm their immigration status by applying for a permanent residence card or registration certificate (depending on their circumstances). This article by our Immigration team may be of further assistance.
• review existing long-term agreements that will be in existence post-Brexit. Are there any parts of the contract which you will no longer be able to perform or that will be subject to obtaining export/import licences? Might Brexit be covered by the definition of force majeure in these circumstances? Who is responsible for the payment of duty? How does Brexit affect your costs?
• consider the impact of Brexit on any proposed new contracts, particularly long-term agreements of over one-year duration and try to deal with these potential issues.  This article by our commercial team may be of further assistance.
• keep an eye on developments within the defence and aerospace sector, and continually review your Brexit strategy.

If you would like to discuss any aspect of this article, please get in touch with Kate Westbrook or your usual Thrings contact.