Rolls Royce adds to Brexit alarm sounded by UK manufacturers

Rolls Royce joined the list of household names to fire a warning shot about the cost of Brexit, turning up the heat on Prime Minister Theresa May to deliver a road map to a future economic relationship with the European Union (EU).

The aerospace giant told Bloomberg in a statement on Thursday that it’s moving the design approval for large jet engines to Germany to ensure it can continue operating whatever the Brexit outcome.

While it said the action is “precautionary and reversible” and won’t involve jobs moving, the move shows how UK businesses and their allies are losing patience.

Jaguar Land Rover on Wednesday warned the government against further bungling. Compounding the premier’s woes, Stephen Phipson, chief executive officer of the EEF manufacturing lobby group, said the UK’s industrial giants are all preparing for a no-deal Brexit that causes increased bureaucracy and border delays.

Those concerns were echoed in a letter sent to May by a group of Conservative Party lawmakers.

“People are starting to plan for the worst-case scenario,” Phipson said in an interview. “Just about everyone I’ve spoken to is starting to now go through this process.”

May is struggling to unify her divided cabinet and devise a negotiating position that can advance stalled talks in Brussels.

The premier convened a cabinet meeting on Friday at her Chequers country retreat to take another stab at agreeing to a proposal on trade with the EU. The UK is due to officially leave the bloc in March 2019.

Investment woes

Get it wrong, the message from manufacturers is, and Britain will hemorrhage jobs and investment.

A bad deal would jeopardize as much as £80bn of spending over the next five years, JLR CEO Ralf Speth said late on Wednesday.

Extra costs and parts-delivery delays due to new trade barriers would cut profit by £1.2bn a year, according to the automaker. Industrywide, the figure would top £4.5bn, according to automotive consultancy AutoAnalysis.

Until now, large manufacturers have limited their pronouncements on Brexit, but with key decision deadlines approaching, they are increasingly going public with their worries.

Airbus was the first major company to break cover last month, saying it may have to pull its UK investments in the event of a no-deal Brexit, which May refuses to rule out. The aerospace giant employs 14 000 people at 25 sites in Britain and supports more than 100 000 jobs in its British supply chain. BMW then said it would be forced to rethink production at its four UK plants if products are stopped at the border after Brexit.

Some 46 Conservative lawmakers, including former ministers under May, have written to May urging her to listen to business.

“A Brexit deal without our trading, enterprising and innovative businesses and their employees at its heart will miss the point,” the lawmakers wrote. “We also urge the Cabinet to recognize that the time for debating is over and that a model must be found which supports your ambition for a future partnership with the EU which allows for frictionless trade to continue.”

May in March gave a speech outlining her vision but has made little headway since then to unify both her party and her cabinet, which are split between pro-Europeans who want to maintain as close ties as possible with the EU, and Brexiteers who are calling for a clean break that frees Britain from the bloc’s laws and allows it to strike its own trade deals.

“A few months ago, manufacturers were rather hoping we’d be in a place now where it would all be clear,” said Phipson. “It’s really important we get some clear messages coming out of Chequers this week, and in the White Paper. What we do not want to see is just another set of aspirational objectives here. It needs to be quite detailed in order for people to use it for planning.”

Businesses want there to as much regulatory alignment with the EU as possible, so that they don’t have to produce products to two sets of specifications, which would be “uneconomic,” according to Phipson. They also want frictionless customs processes and the ability to move service engineers freely throughout the bloc to carry out maintenance work, he said.

In a worst-case scenario, planes would lose their certification and “it’s not alarmist to say that aircraft will not fly,” Paul Everitt, CEO of the aerospace and defence industry’s ADS said Thursday at an event in London. “It’s the same for supply chains with parts certified in the UK.”

Phipson said that large manufacturers are now all looking at how different Brexit scenarios will affect them and devising plans for what to do if border frictions increase, including whether to build warehouses and stockpile parts to avoid manufacturing delays, or whether to move abroad.

“Most of them will be operating on a zero-inventory basis at their manufacturing and assembly plants,” he said.

“Any delays that are put into that process will mean that either they’ve got to hold inventory, which is a cost many businesses don’t build into their economic model, or there are going to be delays, in which case they’ve got to think does that mean we can continue this assembly operation in this country or do we do it somewhere else in Europe?”