There is one complaint about Tom Enders’ latest warning about Brexit. The chief executive of Airbus would do himself a favour if he sounded vaguely grateful for the huge subsidies his company has received from the UK government, and thus British taxpayers, over the decades. The corporate sense of entitlement is one reason why we’re in the current mess.
But let’s save that one for another day. When Enders warns that a no-deal Brexit could force “potentially very harmful decisions” for Airbus’s operations in the UK, it’s time we listened to him and ignored what he called “the Brexiteers’ madness”. This is about the politics and economics of aircraft production and three points are important.
First, Enders – or, since he’s on his way out, his successor – is in a position to pull investment from the UK. If that happened the jolt to the entire UK aerospace industry could be enormous. As Airbus regularly points out, there are 110,000 jobs in its UK supply chain, on top of the 14,000 people it employs directly, and this is an industry that runs on multinational lines.
Second, it is naive to think Airbus is engaged in elaborate scaremongering in its analysis of Brexit. The company’s “risk impact assessment” last June was not, as some Brexiters tried to pretend, an argument about tariffs that would not apply. The worries were about the movement of employees between the UK and the EU, supply logjams and the harmonisation of aircraft regulations on parts and components. If those factors create costs and disruption they will inevitably enter calculations on where to invest.
Third – and perhaps most importantly – one can be very confident that other countries would try to exploit a no-deal outcome to bag more Airbus work for themselves. “Make no mistake there are plenty of countries out there who would love to build the wings for Airbus aircraft,” Enders said – a lofty statement but one that is also plainly true.
It’s an open secret that the German and Spanish governments, even before the 2016 referendum, were lobbying to get the wing-manufacturing work currently done at Broughton in north Wales. China might also want to pitch. That’s the aerospace industry – it is political.
So, when Enders says Airbus is not dependent on the UK for its future, take him seriously. It would be expensive and time-consuming for Airbus to dump its sole supplier of wings and establish another facility from scratch, as he acknowledged. And one suspects, even after a no-deal Brexit, Airbus would first want to see what extra incentives were on offer from the UK. But the threat to redirect investment – with strong encouragement from EU capitals – is credible. Gratitude, you can be sure, will not form part of the thinking in the Airbus boardroom.
Same old story with nuclear energy
For official purposes, Hitachi last week merely “suspended” work on the £16bn nuclear power station it had hoped to build at Wylfa on Anglesey. What would it take to restart the project? “Nationalisation is the only path,” says Hiroaki Nakanishi, the chairman of the Japanese firm, who presumably knows the idea is a non-starter.
Even simple majority control – a shade over 50% – would destroy the old boasts in Westminster that a resurgence in new nuclear could be funded with private capital. As it was, the government was pushing the limits of acceptability when it offered to take a one-third stake in Wylfa and arrange the debt financing. Under such a deal, an awful lot of construction risk would have been sitting with the state.
Hitachi’s problem was its inability to attract partners to take a slice of the equity. But that is a familiar story with nuclear energy. The technology is seen as too uncompetitive and too uncertain for equity investment. The business secretary, Greg Clark, instead of searching hopefully for a different financing model, should take a hint from the market. A new energy policy is required.
New Look cannot bet on a saviour
New Look fears its junior bondholders would like the overborrowed clothing chain to put itself up for sale. You can see why the juniors might push for that. Unlike the senior lenders, they will be virtually wiped out under the debt-for-equity scheme unveiled by the retailer last week. They might as well try to see if there’s a saviour out there.
To put mildly, it looks a long shot. New Look has £1.35bn of borrowings and 500 stores, which looks too many in the current retailing climate. Even Mike Ashley, one suspects, will not be making an appearance on this occasion.
