{"id":26487,"date":"2017-11-15T22:28:54","date_gmt":"2017-11-16T03:28:54","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/impact-of-brexit-on-pan-european-champions-the-example-of-airbus\/"},"modified":"2017-11-15T22:54:17","modified_gmt":"2017-11-16T03:54:17","slug":"the-impact-of-brexit-on-pan-european-champions-the-example-of-airbus","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-impact-of-brexit-on-pan-european-champions-the-example-of-airbus\/","title":{"rendered":"The impact of Brexit on pan-European champions: the example of Airbus."},"content":{"rendered":"

How the UK\u2019s exit from the single market threatens Airbus\u2019 current commercial division supply chain.\u00a0 <\/strong><\/p>\n

Trade relationships between the UK and the European Union (\u201cEU\u201d) have been ruled by the single market, which guarantees freedom of circulation of goods, services, capital and people. This has allowed industrial players from various European countries to invest in facilities in the UK and to gain exposure to the British expertise in manufacturing of highly technological products.<\/p>\n

However, the recent vote for Brexit challenges the UK\u2019s position in the single market and calls for new trade agreements between the UK and the EU. These agreements are currently under discussion and outcomes remain uncertain, but the position of foreign players settled in the UK are definitely endangered. One such player is Airbus, a European aircraft manufacturer, operating two large industrial sites in the UK (Filton and Broughton). Both sites receive parts from other Airbus factories and suppliers in Europe and manufacture complex components, including wings, fuel systems and landing gears. These complex components are then shipped to final assembly lines located in Europe (Toulouse and Hamburg), China and in the US.<\/p>\n

The impact of Brexit on Airbus\u2019 supply chain in Europe will vary depending on the new terms of the trade relationship between the UK and the EU. Several scenarios are possible.<\/p>\n

Figure 1: Distinct scenarios for Airbus operations in the UK.<\/span><\/em><\/p>\n

\"\"<\/a><\/p>\n

A still-to-be-defined action plan for Airbus.<\/strong><\/p>\n

In the short run, Airbus has chosen to leverage its position as a large employer in the UK (it claims to support 110,000 jobs in the UK, directly or indirectly[1]<\/a>) to advocate for a \u201csoft Brexit\u201d and encourages UK politicians to do their best to reach similar trade terms as those of the single market. This is how for instance, Fabrice Br\u00e9gier, Chief Operating Officer at Airbus stated that the Company would find it \u201cvery easy to have a new plant somewhere in the world for new projects. We would have plenty of offers\u201d and added that Airbus \u201cwants to stay in the UK provided the conditions to work in an integrated organization are met\u201d[2]<\/a>.<\/p>\n

As far as the medium-term horizon is concerned, Airbus has not yet provided information around any specific risk hedging policy. Still, the Company follows a strategy of geographical diversification of its supplier base[3]<\/a>, which should de facto limit its exposure to risks arising from isolationist movements in some specific West European countries. Thus, Airbus targets to get 40% of its supplies outside Western Europe by 2020 and has created a dedicated team to achieve this goal; the team currently operates in strategic countries including the US, China and India.<\/p>\n

\u00a0<\/strong>Some recommendations: the A320 case.<\/strong><\/p>\n

Figure 2: Overview of Airbus A320 supply chain geographies<\/span><\/em><\/p>\n

\"\"<\/a><\/p>\n

Airbus\u2019 current commercial bestseller is the A320, which actually designates a wide range of distinct narrow-body, commercial passenger jet airliners. A320 represents 83% of Airbus commercial orders backlog<\/span>[4]<\/a>; outlook for the future seems positive (Airbus just signed an all-time high order for 430 A320 with the US investment firm Indigo Partner<\/span>[5]<\/a>). Most of the A320 are currently manufactured in final assembly lines in Europe (over 80% in volume as of early 2017), in Hamburg (Germany) and Toulouse (France). Both of these factories receive their wings from Airbus’ production sites in the UK. Other A320 assembly lines are located in China (since 2009) and in the US (since 2016).<\/span><\/p>\n

Airbus already struggles with the delivery times of its A320[6]<\/a>, and any additional delays could be fatal to the Company’s reputation and market position. Therefore Airbus\u2019 top priority should be to maintain a fluid and integrated supply chain. More specifically, Airbus could build up wing production capabilities around different countries within the wider EU territory by sharing of expertise with its current UK facilities. Airbus could also consider increasing the share of A320 produced in its China production facility (currently less than 10%) as it is supplied by a local wing manufacturer.<\/p>\n

All in all, it should be noted that isolationist risks for Airbus do not lie in European territories only. It would be interesting to get views on potential consequences of Trump election on global players which have chosen to locate part of their supply chain in the US.<\/p>\n

 <\/p>\n

(743 words).<\/p>\n

[1]<\/a> Airbus Company, \u201cAirbus in the UK\u201d, http:\/\/www.aircraft.airbus.com\/company\/worldwide-presence\/airbus-in-uk\/<\/a>. Accessed November 2017.<\/p>\n

[2]<\/a> \u201cAirbus may look beyond UK unless Brexit demands met \u2013 Sunday Times.\u201d, Reuters<\/em>, June 10, 2017. Accessed November 2017.<\/p>\n

[3]<\/a> Airbus Company, \u201cGlobal Sourcing\u201d, http:\/\/company.airbus.com\/company\/for-suppliers.html<\/a>. Accessed November 2017.<\/p>\n

[4]<\/a> Airbus Company, \u201cOrders and Deliveries\u201d, http:\/\/www.aircraft.airbus.com\/market\/orders-deliveries\/<\/a>. Accessed November 2017.<\/p>\n

[5]<\/a> \u201cDubai Airshow\u00a0: Airbus seals order with US firm Indigo\u201d, BBC,<\/em> November 15, 2017. Accessed November 2017.<\/p>\n

[6]<\/a> \u201cEngine delays hit Airbus profits, delivery targets fragile\u201d, Reuters,<\/em> July 27, 2017. Accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

Increase in isolationist movements throughout the world questions the model of globally integrated supply chains. 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