Aerospace production output – worse news than recession?

The UK is officially in a technical recession, we know this thanks to the ONS figures released this morning confirming so.

As discussed in our earlier blog, this is pretty much all because the UK economy went into lockdown in March and then had the worst UK GDP decline on record in April. Although the economy was slightly growing in May and June, we are still in the worst recession on record following restrictions on output, activity and movements imposed by the UK Government to try and limit the spread and destruction of COVID-19.

Widespread decline

Almost every single area of the UK economy saw decline in the three months between April and June 2020, with only expenditure on public administration and defence remaining broadly the same with an increase of 0.4%

Total production output decreased by 16.9% in Q2 2020 compared with Q1 2020.  Manufacturing contributed nearly 2-percentage points of the decline in GDP, shrinking by 20.2% in Q2 2020 as many areas of the sector saw shutdowns and furloughing of staff during this period.

Unsurprisingly, the accommodation and food services sector saw the largest decline in Q2 2020 falling by 86.7%, meaning services as a sector contributed a 16-percentage point decline in UK GDP as they were required to remain closed for a prolonged period.

Manufacturing Output

The decline in manufacturing output was felt across 12 of the 13 subsectors, as we have noted before, pharmaceuticals is the only area of manufacturing to have a positive output growth during this pandemic, unsurprisingly as demand has been increasing.

The quarterly breakdown for various areas of manufacturing saw 8.9% growth in pharmaceuticals index of production, a 6.9% decline in Q2 2020 for food manufacturing, a 71.5% decline in automotive output and last but not least a 26% decline in aerospace manufacturing output.

Without a doubt, the automotive sector shutdowns as a reaction to the crisis, created the largest decline in output for the sector. But, in line with the rest of the UK economy, the monthly figures show signs of resurgence as people went back to work and factories opened up again.

It’s worse news for aerospace output  

The aerospace manufacturing output decline of 26% Q2 2020 from Q1 is the largest quarterly decline on record. For aerospace repair and maintenance services, it’s a similar story with a quarterly decline of 21.8% as the whole sector suffered the impacts of COVID-19 and limited activity across global aviation.

Unlike the wider UK economy, output from the sector continue to decline in June 2020 by 5.9%, which means there have now been four months of declining output for the sector and June 2020 output was a third smaller when compared to February 2020, before COVID-19 really impacted.

Other areas of manufacturing are starting to see incremental improvements in output as UK restrictions ease, but for aerospace manufacturing output and services the outlook remains bleak.

UK manufacturers, service operators and suppliers are running out of cash fast. With global travel restrictions still in place any risk of a second wave hitting in Q3 will have devastating impacts on the aviation sector as a whole, and more specifically on the survivability of the UK aerospace industry.