Thursday, 13 December 2018

No deal: a kiss of death for aerospace

The Rolls Royce story yesterday was instructive. They are moving their design approvals work to Germany. They say it won't involve that many job losses - but that's only really the tip of the iceberg for the sector.

Passenger aircraft go through a series of maintenance checks at depots in the UK. There are deep inspections and none of this can be done without authorisations and certifications. That's the sort of services trade in danger by leaving the EEA and especially so with no deal.

Then, if one of these inspections finds a patch of corrosion in the wing, that section of rib or stringer has to be cut out and replaced. A designer has to come up with a solution that not only fits, but also can withstand the stress. They also have to work out the fatigue life of the repair - ie how many flight cycles before it needs replacing. All of this work has to be carried out inside a certain framework of standards and authorisations. If that recognition vanishes, UK repairs are not insurable.

It also means that none of the engineers are certified to actually do the work. Airbus can choose to be regulated by EASA - and it will but you need a formal agreement to do it. Rolls Royce is just talking about new design work but repair design is a major sector. Similar systems exist in the nuclear sector - and maritime and anything that is safety critical. With the UK not being part of the EU regulatory ecosystem and with spares crossing borders incurring tariffs to complete the work, you are looking at major overheads.

Imagine, for instance, that an aero engine is removed from an aircraft at Dublin airport and then sent by road to Belfast for servicing. Barring any parts used, this would be a services transaction, with the return of the engine to the Republic entirely dependent on conformity with EU law.

At a more pedestrian level, we might see ordinary cars driven across the border for servicing, as well as tractors and other agricultural machinery, and even small marine craft, to say nothing of electrical appliances and the like. Without an agreement on the provision of services, customs officials might even find themselves examining the maintenance books of ordinary cars, turning back those where work has not been done in accordance with EU law.

So there is actually a good chance that in the aerospace sector a few thousand engineering jobs and the IT staff that support it would vanish overnight. EU won't be in a rush to help us fix that as Germany will be happy to cannibalise UK market share.

For all the baloney that Rees-Mogg and Redwood spout, even if they were right about the ports (which they ain't), trade is more than just logistics and it's services transactions like this that make up the the lucrative work for SMEs. Even mundane things like passenger lift repair and maintenance is worth more than the entire fishing industry and without an agreement on Mode 4 movement of workers, they can't send out qualified engineers.

It's not that big a deal for Rolls Royce because their design approvals are on new products and assemblies so they don't have that much work in that respect but for everyone else whose work depends on recognition within the EU regulatory ecosystem - they are screwed.

You can say that the predictions never came true when we voted to leave the EU, but on this stuff it is cause and effect. Removing licence to operate has real world effects. This is more physics than astrology. Adding it all up and I can very easily see it killing 1m jobs. And don't forget this is high skill work that pays decent wages in the regions which sustains the local economies of already clapped out places like Derby and Hull. It actually provokes many of the economic factors that led to the Brexit vote.

Britain as a services economy has depended on being part of the EU regulatory ecosystem and thirty years of our commerce has evolved inside of it. To date I have not seen any Brexiter plan saying what any of this trade pivots to as a substitution. And there's a good reason for that. These are morons who two years ago didn't even know what a non-tariff barrier was - and a completely ignorant of services trade. Talk about services and they assume you mean the City of London and banking services.

Typically Brexiter trade literature is the output of Toryboy think tanks with teenage interns for researchers and morons like Kate Andrews who think reading an Ayn Rand/Adam Smith book makes one qualified to speak on trade. This is much to do with the intellectual atrophy inside the UK political system, where narrative conformity is prized over knowledge - which is why they have idiots like Low Fact Chloe to spout vacuous nonsense. Brexit blob devotees lap it up.

You can blether about sovereignty til the cows come home but 100% sovereignty is pointless since the average punter doesn't give a monkeys where airline safety rules come from so long as they work. We can "take back control" of that stuff but it excludes us from markets. With this stuff the EU doesn't do equivalence or mutual recognition. You either do the work to their rules or it simply isn't valid. So unless we have a negotiated exit with formal arrnagements for the continuity of services trade, you can kiss goodbye to those jobs.

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