Pity poor aerospace? Never! It might be an unsung hero in the Midlands, but as other areas of manufacture decline it powers on, says Sam Metcalf.
Aerospace is the forgotten giant of Midlands manufacturing. More than 700 businesses work in the sector, making and servicing items from the giant engines on airliners to rivets, runway lights and complex composites.
Yet, despite names such as Rolls-Royce, Umeco and Thales in the region, aerospace fails to get the same recognition sectors such as the automotive or bioscience get. “The long-term trends in the commercial or civil aerospace sector are favourable,” says Jat Najran, managing director at accountants Haslehursts. “While risks exist with order loads, cancellations and tightening credit, backlogs are robust and international airline profitability is healthy.”
Aerospace systems designed and made in the Midlands are found on the world’s most advanced aircraft. The region’s cluster has a strong bias towards growth markets in civil aerospace, with more than three quarters of its sales going to non-military planes. The Midlands is home to various leading aerospace companies and significant supply chains. Core competencies of the Midlands aerospace cluster are systems that power aircraft, such as gas turbine and other aircraft propulsion systems; electrical, mechanical, hydraulic, pneumatic and electronic systems that control the moving parts of aircraft and their engines; specialist metal and composite materials; and equipments that enable these systems to perform with precision in exacting environments.
Although players are spread across the region, the Midlands’ aerospace capital is Derby. Planes – or at least bits of them – are its main employment sector. Derby is world HQ to the company’s civil aerospace operations of Rolls-Royce.
John Forkin, director of Marketing Derby, says: “What’s been amazing over the past year has been the endorsement of Derby’s wealth-creating economy, not only by the government via the State of the Cities report, but by independent think tanks such as Centre for Cities and the Financial Times, which recognised Derby as a hotspot.”
Rolls-Royce employs more than 12,000 people and invests £300m a year in research and development. In addition, 15,000 people are employed in its supply chain. The technology and skills level required is high – reflected by its average salary of £40,000.
But there is more to Midlands aerospace than old “RR”. Major suppliers in the region include Brierley Hill-based Hampson Group, which has reported a 50 per cent rise in pre-tax profits for the year to March 2008. Similarly Leamington Spa-based Umeco’s turnover rose 18.8 per cent to £335.2m.
But the pool of players may be shrinking: acquisitions have become a key feature for tier-one players and their suppliers. Players in the aerospace sector are becoming large, integrated and multinational. It could be reasoned that this places them in a more powerful bargaining position with buyers. But the enormous financial clout of the buyers dilutes this. And, despite the smaller scale of suppliers relative to the OEMs, the raw materials, components and sub-systems are important to their business.
This dynamic of the market, plus a general need for high levels of capital investment as well as specialist skills and expertise, makes aerospace a difficult place for new entrants. So while there may be some 700 companies in the Midlands aerospace cluster, consistent merger activity and fierce rivalry means there is intense competition for major contracts.
One of the leading, first-tier integrated suppliers to the civil aerospace OEMs is Nasmyth Group. Following the acquisition of Nottinghamshire’s Bulwell Precision Engineers by Nasmyth – created specifically to do that deal – the team, led by Peter Smith, quickly added two companies to the group. The first, Doughty, in Nottingham, manufactures components for electrical connectors used in the marine, automotive and aerospace industries. IEC was then added. It supplies precision mechanical components and systems to international customers. Each company has a customer base in the US and Europe.
Groups such as Hampson and Nasmyth have extended their reach by organic growth and targeted acquisitions. Hampson expects to complete the acquisitions of aerospace tool manufacturers Odyssey Industries and Global Tooling Systems in the US to “transform the business and give it global leadership positions”.
And Nasmyth has achieved enviable organic growth through its partnerships and products in precision machining. After establishing a plant in South Carolina, US, and integrating several corporate acquisitions, Nasmyth has acquired the former JS Chinn Group.
That company, previously headquartered in Coventry with four businesses in the region, was also focused on aerospace and complements Nasmyth, which purchased Chinns from the receivers. Chinns was founded in 1953 to manufacture quality mechanical components. It now manufactures a broad range of quality products machined and fabricated parts and systems to a variety of aerospace customers.
The Nasmyth purchase will enable the Chinn businesses to benefit from investment in training and equipment using the resources of the enlarged group. Experienced management are working to build on the high levels of customer service and excellent product range to boost sales and profitability.
Najran says: “The Nasmyth team is well established and motivated. It has earned the respect of key customers. We have worked with the group in considering consolidation and acquisition opportunities and have assisted in integrating their acquisitions to take the group to a turnover of circa £70m.”
Peter Smith, chairman and chief executive of Nasmyth Group, is confident about the future. He says: “The market has been growing steadily since the recovery after 9/11 and has been buoyant in civil and military areas.
“There are no signs of a cyclical downturn at present and there are factors that might prevent one. Fuel prices are a threat, as is the general UK trend for reducing numbers of young people to embark on careers in the engineering sector, meaning that our skilled workforces on whom the industry depends are risking becoming even more depleted.
The outlook for the 700-plus businesses in the Midlands aerospace cluster looks healthy despite the rise in oil prices and the tightening credit environment. While the market for aircraft is often cyclical the high price of fuel also drives the need for more fuel-efficient aircraft and improved maintenance. These factors help to balance other trends in the sector.
The business model typical of the market needs large amounts of capital expenditure as well as expertise to compete with the established players. The threat of new entrants and substitutes is low as the work is specialised and strict regulations and safety requirements need to be adhered to.
Our Midlands companies are part of a market involving large global companies that are diversified in the products they manufacture and their geographical presence. But their role in this supply chain is crucial.