Nicky Morgan MP, Chair of the Treasury Committee, called Brexit “the most important issue facing this country, our political system and our businesses at this time.” Unsurprisingly, it was also one of the hottest topics at Farnborough Airshow last week.
Morgan said that whilst fundamental issues need to be ironed out, she is ultimately optimistic. However, she expects negotiations to go to the wire and urges aerospace businesses to have their say before it is too late.
She was speaking during the FINN Sessions at Farnborough Airshow last week.
Morgan told attendees in the packed conference: “It’s hard to think of a sector that has more of a stake in the outcome of the Brexit negotiations than aerospace,” noting that the industry has benefitted “enormously” from the development of common rules and a common regulator under the EU.
These arrangements have facilitated aircraft production, enabling smaller firms to become part of pan-European supply chains and larger ones to achieve continent-wide economies of scale, as well as creating thousands of jobs, she said.
Morgan noted that EU rules have improved standards of safety while reducing the compliance costs of dealing with multiple national regulators. They have also enabled companies to operate freely within the European Union on a level playing field, greatly increasing choice and competition for consumers.
On the ground
With this in mind, “the consequences of a ‘no-deal’ Brexit are extremely serious,” Morgan told attendees.
“In short,” she said. “In a no-deal scenario, we won’t need to go to shows like this to see hundreds of grounded aircraft.”
Morgan also noted the importance of assessing and mitigating the impact on sectors related to aerospace, such as financial services.
“Planes are not cheap,” she said. “Financing purchases will require deep and liquid capital markets and a thriving commercial banking sector.”
She added: “If the activity and the expertise that gives [London] its world-leading edge becomes fragmented, the cost of raising finance for aircraft will rise. And already-tight margins will be further squeezed. Competitiveness will fall, and ultimately airfares for ordinary people will rise.”
The Treasury Committee is working with the Bank of England’s Financial Policy Committee to better understand what the consequences of the loss of existing rights to EU market access might be, and what the city can do to “retain its status as the leading place to raise finance”.
“More pressingly still, a no-deal Brexit raises questions about contractual continuity,” Morgan warned.
She explained: “Now, leasing of course has become an increasingly popular way of operating aircraft. Both sides of these deals need certainty that their contracts can continue to function and be serviced come what may.”
The Treasury Committee is also scrutinising the contingency arrangements in this area, she said.
The voice of business
Morgan told attendees: “If we left it to business to negotiate Brexit, I suspect that you’d have done it all much more quickly and much more cleanly, but the difficulty is we do have politics overlaid on it. Trying to balance all of the competing demands is what could make it look rather more chaotic than you’d have in any business deal. And, of course, it is a negotiation.”
Last month, Airbus warned that it could leave the UK under a ‘no-deal’ Brexit. Some have questioned whether companies should ‘go public’ in this way.
Morgan was clear: “You absolutely shouldn’t shut up and wait. I think that the Airbus intervention was pivotal. It was really, really important.
“What Airbus did was it spoke at a number of levels. The importance of a really large, successful company going public was very important. It spoke to government, to ministers, and reminded them of their obligations to business and to the economy. It spoke to the employees, some of whom had not perhaps been aware of some of the difficult decisions that bosses and businesses were going to have to take. I think it spoke to the wider public as well. And actually, regardless of what people said two years ago, there is nothing that speaks so loudly as a person from front-line business.”
She added: “I want to salute Airbus and others who’ve spoken up. I think that those interventions have been really critical. I know it’s difficult. I know it involves saying things that might be uncomfortable for employees and for customers, but if you don’t speak up now and then you end up with a deal that does not work, then the opportunity is lost.”
To the wire
“I’m still an optimist,” Morgan concluded. “I think that in this country, in this particular sector, we see ingenuity, innovation and inspiration so I think there are good grounds to be optimistic. But there are some fundamentals that have got to be ironed out, and fairly swiftly.”
On when we might get there, she added: “I’m a commercial corporate lawyer by background. It is an unwritten rule that all negotiations have to go right up to the wire. They have to involve all-night sessions, and everybody has to think at least ten times: ‘This is never going to happen,’ and then it does. And I very much hope and expect that’s what’s going to happen this time.”
Watch the full video for the additional audience Q&A with Nicky Morgan.