Aerospace, defense and air transport companies spent Friday trying to put a brave face on the anticipated fall-out from the UK’s June 23 vote to leave the European Union (EU). Adverse market reaction to the so-called Brexit referendum sent stocks tumbling and pushed the British Pound to its lowest value against the U.S. dollar since 1985.
First to react was IAG—parent company of British Airways, Iberia and Vueling—which issued a profits warning for 2016 as the London Stock Exchange opened on June 24. The airline group said that while it “continues to expect a significant increase in operating profit this year, it no longer expects to generate an absolute operating profit increase similar to 2015.”
IAG’s written statement concluded that it “believes that the vote to leave the European Union will not have a long-term material impact on its business.” However, it did acknowledge that throughout June in the build-up to the referendum it saw weaker than expected sales. Generally, the UK travel industry reported slow bookings—especially for summer vacations—apparently due to uncertainty about the outcome of the vote amid dire warnings about a possible recession. IAG’s stock ended 22.54 percent down when the London market closed on June 24.
According to UK trade group Aerospace, Defence, Security & Space (ADS), leading member companies Airbus, BAE Systems, Rolls-Royce, Bombardier, MBDA and GKN all contacted their British employees ahead of the vote to make the case for staying in the EU. While no direct threat to cut the 65,000 UK jobs these companies collectively support was made, the reasons given were that British firms need to maintain direct access to EU customers and suppliers, that the UK should maintain influence over industry standards and regulations, and that EU membership is important for attracting further inward investment.
Airbus, which has major operations in France, Germany and Spain, did in fact warn its UK staff that further planned investment in the country could be abandoned in the event of a vote to leave the EU. It makes airliner wings at a factory in north Wales.
Within hours of the referendum results, Airbus Group CEO Tom Enders described the outcome as “a lose-lose result” for both Britain and Europe, adding that “Britain will suffer but it will focus even more now on the competitiveness of its economy versus the EU and rest of the world.”
Just over a week before the referendum, Rolls-Royce CEO Warren East warned that a vote to leave the EU could raise questions about plans the group has to invest in new aircraft engine test facilities at Derby in the UK. The company made no further comment in the immediate aftermath of the result being announced. In addition to 23,000 UK staff, Rolls-Royce has 14,000 employees in the rest of Europe.
“The aerospace, defense, security and space industries will work with the government to minimize the negative aspects of the decision to leave the EU, creating an environment in which these strategically important sectors can continue to prosper,” said ADS chief executive Paul Everitt.
Most major aerospace groups saw their equity take a hit on June 24, as the markets reacted to what in the end had been a somewhat surprising outcome to the referendum. While London’s FTSE100 lost an average of 3.15 percent in Friday trading, Airbus declined by 5.83 percent, followed by BAE Systems by 4.60 percent, Meggitt by 4.24 percent, GKN by 3.34 percent and Cobham by 3.08 percent. Rolls-Royce bucked the trend by gaining a modest 0.70 percent on the day.
Still to be untangled in what are expected to be protracted negotiations in the UK/EU divorce proceedings is the UK’s continued membership of the European Aviation Safety Agency and ATC agency Eurocontrol. Non-EU states such as Switzerland and Norway are already members of both bodies but never before has a state quit the EU, raising questions as to the basis for its continued participation in the regulatory and service provision aspects of the agencies.