Uncertainty over Brexit impact evident at Farnborough Airshow

The 2016 Farnborough Airshow was, by most outward metrics, completely normal. Aircraft and supplier orders were announced, and new products were unveiled. The cloud that formed after the UK voted to leave the European Union was a secondary topic; vendors did not bring up Brexit unless prompted by journalists. But concerns remain very real across the industry, even as some observers suggested the panic felt immediately after the results were announced was excessive.

Commercial Aviation

On the commercial front, stakeholders were relatively upbeat. AirAsia announced an order for 100 A321neo aircraft from Airbus, and during a press conference to announce the deal, the CEOs of both firms expressed confidence in the ability of the UK manufacturing industry and the economy to survive through the transition.

Though “clearly disappointed with this Brexit decision”, Airbus’ Fabrice Brégier assured AirAsia’s Tony Fernandes that, “We expect to deliver these aircraft with fuel system, landing gear and wings and they will be all all made in England.” He added that as long as the UK remains “business-friendly” and supports the aerospace field “there is no reason to change our plans”.

Fernandes was blunt in calling the Brexit decision “an aberration, a mistake to be honest”, and joked to Brégier that he expected the A320neos to be delivered with their British-manufactured wings included. The AirAsia Group chief also offered up the observation that his company recently signed a major deal with a UK-based company – seating manufacturer Mirus, which will supply the seats on 300+ A320neo aircraft – and said he hopes the Brexit situation does not affect Mirus’ ability to hire qualified workers and deliver the seats as contracted. But he also suggested that common sense might prevail in maintaining an appropriate level of trade and air service rights.

kontron newestBoeing, too, is betting big that the UK will remain friendly in that context, committing to doubling its headcount there in conjunction with major defense orders announced during the show. Randy Tinseth, Boeing’s VP marketing for commercial aircraft, spun an optimistic view, even suggesting that Brexit “could have a stimulative effect if the UK goes out and creates open skies with more countries”. At the same time, however, he acknowledged that there is simply too much uncertainty today to take a strong position on future planning based on the impending move.

Virgin Atlantic also announced a significant deal at Farnborough, an order for 12 A350-1000 aircraft with deliveries towards the end of the decade. These aircraft will replace the company’s 10 Boeing 747-400s and bring a small amount of growth into the operation, in line with the newly predicted slower growth for the UK, but growth nonetheless. Brégier drew attention to this order as well, noting that even UK-based airlines are moving forward and suggesting that any Brexit impact would likely not entail anything more than “temporary minor consequences on some of our customers”. Even so, UK low-cost carriers have been sounding the alarm about facing potentially serious consequences as a result of Brexit.

Business Aviation

The impact of Brexit on the business aviation market is expected to be much more pronounced and perhaps not in a manner that is expected. Yes, the immediate economic impact is significant; the drop in value of the Pound and uncertainty about the future affected booking numbers for brokers, but that does not represent the largest risk according to Adam Twidell, CEO of PrivateFly, a global booking provider based in the UK. Two significant areas stand out in his view – operating authorities and staffing.

As a member of the European Common Aviation Agreement, UK-based operators are eligible to fly to most countries in Europe and drop off and pick up passengers and even fly internally within those countries. Renegotiation of that access is necessary and could be very difficult if the UK does not remain a member of the ECAA. As Twidell notes, Switzerland is a headache for UK aircraft operators today “but now we are going to have those headaches in multiple places all over Europe unless agreements are put into place”. In the interim, expect significant confusion in the market about which operators are permitted to fly where, something that will require “a very experienced broker or software to work out where these aircraft are and which aircraft is allowed to legally fly on a particular route”, he suggested.

Staffing is another challenge. Aviation and particularly private operators depend on highly skilled cabin crew with excellent customer service and language skills. Often that employee pool has come from abroad, especially because of the language issues. Twidell now is concerned that attracting the necessary multi-skill, multilingual staff is going to be difficult, especially if work visas are required.

Currency Challenges

Qatar Airways Global CEO Akbar Al Baker weighed in on the Brexit issue during the show, suggesting that the weaker Pound could be an attraction for inbound travelers. And that is highly likely, though there are many drawbacks as well. Britain currently has a nearly 2:1 ratio of outbound to inbound travelers according to IATA, meaning that the country would need to see a massive and immediate shift in inbound tourism to offset expected losses elsewhere. Also, many expect the imbalance to be useful for foreign travelers only over a limited timeframe. As Twidell notes, “That’s great until the sort of economics of operating in a very expensive country kick in and their prices are going to have to start increasing.”

Uncertainty remains the message right now around Brexit, even as it appears to be business as usual in Farnborough.

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