Politicians claim to back UK jobs in aerospace but cut key spending

Farnborough's famous airshow relied mostly on civilian orders as reduced defence spending bites, writes Mark Leftly

It's not a bad gig being prime minister. Plane spotters the world over will have been jealous of pictures of David Cameron being shown around an incredibly cool-looking A400M airlifter at Farnborough Airshow last week. Even the chief test pilot showing the PM around the big boy toy had a suitably powerful name: Edward Strongman.

The Farnborough show takes place every two years – in the intervening 12 months there is a show in Le Bourget Airport in north Paris – and is the biggest event in the aircraft manufacturing calendar.

It is here that the biggest names in the industry, such as Airbus, Boeing and Bombardier, look to announce deals worth billions of dollars and launch huge pieces of kit to buttress their positions as industry top dogs.

Perhaps, though, the most interesting development this year was that Cameron opened the show. As well as affording him the opportunity to blame the previous government for allowing the defence budget to "fall apart at the seams", Cameron's presence was a signal that the Coalition was putting manufacturing at the heart of its economic plans.

Robin Southwell, chief executive at the UK division of Airbus-owner EADS, says: "What stood out for me was the commitment of the government. The extent and depth of government representation was impressive: the prime minister was at the show for four hours, [business secretary] Vince Cable and [defence secretary] Philip Hammond were there as well."

Cable announced £120m of government and industry investment in the Aerospace Growth Partnership, a scheme that is intended to aid research and development to maintain the UK's position as a world leader in hi-tech aviation equipment.

Such investments are important as EADS alone employs 15,000 people in the UK, while there are vast opportunities in aerospace. For example, airliners will need 27,000 new aircraft by 2030 and, no longer being a big industrial builder of planes, it is vital to ensure that the UK wins the higher-end work.

However, some observers were disappointed by what was on display this year. Zafar Khan, an aerospace analyst at Société Gé*érale, says: "The atmosphere was a little bit subdued compared to the shows in 2010 and 2011. On the civil aviation side there weren't the big product launches, nothing that really set pulses racing. And on defence there remains an uncertain outlook."

While the UK spending cuts are not good for the industry, the coming slashing of the US defence budget threatens to be devastating. Looming over the industry for a while now has been 'sequestration', which is the prospect of $1.2 trillion of government spending cuts over a 10-year period from the start of 2013.

An indication of just how harmful this could be for the industry is shown by the state of Virginia, which would lose more than 120,000 of its 900,000-strong defence workforce should the axe be wielded. The state's economy, local newspapers have warned, would be "crushed".

The Democrat leader in the Senate, Harry Reid, is pushing for tax rises to halt the worst of the cuts, while the Republicans want to cut the benefits bill, such as reducing food stamps.

The result is gridlock.

Khan says that the impression from Farnborough is that "everyone is hoping that sequestration will go away", though many of the big firms have started trimming their own budgets ahead of 2013 so that the strain on them and their workforces is not too sudden.

However, there were a few impressive civil aircraft orders to keep the mood relatively light. Bombardier confirmed an order for 20 of its C Series jets from Latvian group Air Baltic Corp, representing something of a breakthrough for the Canadian manufacturer in the European market. That deal could be worth nearly $1.6bn.

And Cathay Pacific became the first airliner to order Airbus's A350-1000 wide-bodied jets since the design was tweaked last year to accommodate powerful Rolls-Royce manufactured engines.

Airbus is also converting 16 of Cathay Pacific's aircraft into the A350-1000 model, in a deal that has been estimated at more than $4bn.

But Airbus's great rival, US-based Boeing, secured the most eye-catching order of the week: a $14.7bn deal with the world's biggest carrier, United Airlines. Saving the announcement to late Thursday afternoon, Boeing's new commercial boss, Ray Conner, put something of an exclamation mark on the business end of the show.

"For the past year we were playing a bit of catch-up on Airbus [in terms of orders]," says Boeing marketing vice president Randy Tinseth.

"But I like the direction we're headed now. We just consider this another week, but if airlines want to wait to make the announcements on orders until the airshow, we can accommodate that."

And the industry is probably thankful that some airlines like grandstanding. Without some of these huge orders, this would have been a week dominated by glum faces dreading the slashes they are going to have to make to their military arms.