27/11/2018

Airbus Brexit Risk Assessment: An interview with Thierry Justice

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This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies. 

Airbus is a prime example of a businesses which has significant proportions of its operations on either side of the Channel. The European business has a total of €15bn of cross channel trade and employs 15,000 UK staff. In June, Airbus took the step of publishing their Brexit risk assessment and we have spoken to Thierry Justice, Head of Insurance Risk Management in order to discuss this.

We asked Thierry how Airbus came to the decision to publish their risk assessment.

As a business, we have to be honest with our shareholders, customers and employees: so we made the decision to publish our assessment which clearly showed that ‘no deal’ Brexit has severe negative consequences for the UK aerospace industry and Airbus in particular."

"In June, when we released the risk assessment we were criticized in some quarters for ‘Project Fear’. But far from it. As I say, we have a responsibility to be honest and the risk assessment outlined the dawning reality of ‘no deal’ to Airbus.”

Unique Position of the Aviation Industry

Airbus is in a relatively unique position with regards to its Brexit exposure. The aviation industry has robust safety standards which are regulated by the European Aviation Safety Agency (EASA). Despite this, 10,000 original aircraft parts originate in the UK which may leave EASA. In the absence of a Brexit agreement, there are concerns that components which have originated in the UK would not be able to be installed in EU27 aircrafts.

To add to this, Airbus operate a just-in-time supply chain in which many aircraft parts can cross the channel multiple times before they are operational.  This is already operating at maximum capacity. Thus, any losses relating to supply chain disruption cannot be later recovered by increasing manufacturing output.

According to the risk assessment document, they estimate the impact of a ‘no-deal’ scenario to be a €1bn weekly loss for several weeks. In the event of a UK-EU27 deal which left the UK outside of the Single Market, Customs Union and ECJ, but complete with a transition period, they argue this would still result in a €1bn loss for 1-2 weeks alongside an annual €1bn to account for non-tariff barriers such as customs procedures, airworthiness efforts and increased difficulty in moving staff.

Looking beyond the UK’s exit date, the French business has raised concerns about the divergence of standards, duplication of regulatory regimes and increasingly complex operational procedures. They have warned this will ultimately lead to more risk, more delays and more cost.

The Political Situation

To complicate the multifaceted risks of Brexit, Airbus have also had to deal with political uncertainty as a concrete overview of the future UK-EU27 relationship has failed to emerge.

“We have long argued that greater clarity was needed on what Brexit means for the United Kingdom and for us – as a major employer with 14,000 people and a turnover here of £6bn – the shape of the future relationship with the European Union is of critical importance."

"The announcement of a Brexit Withdrawal Agreement is a welcome first step forwards but there clearly remains much work to do.  As a responsible employer, we can only plan for ‘no deal’ and that’s why we look forward to further clarity and the removal of uncertainty as soon as possible so that Airbus, like every business in the UK, can properly plan for the future.”

How to respond

One of the most challenging aspects of Brexit has been its ability to expose businesses to risk in many different business areas.  To respond to this, Airbus have undertaken an approach which brings together all aspects of the business to communicate and co-ordinate their mitigation strategy.

“We have set up a Brexit Taskforce team which brings together experts from across the business to assess the potential risks, impacts. The team are also working on mitigations. It’s a big team including risk managers which is playing an important role in the company.”

“As we announced at the Farnborough Airshow in the July, we are stockpiling components and parts to ensure that in the event of a ‘no deal’ we can carry on production for several weeks. This is on-going and, unfortunately, is costing us a significant sum of money. However, stockpiling is the safest action we can take at this time. As an aerospace company, we can’t wait for the politicians – we must work in certainty.”

Brexit is a difficult situation for many international companies. Combined with political uncertainty and specific risks to the aviation industry, assessing risks in silos is not an option. The case of Airbus can be used as a prime example of how businesses in sectors particularly exposed to Brexit can develop a risk management structure in order to effectively assess and mitigate risk. The aircraft company have developed an approach that allows them to gain a comprehensive overview of the risks they are facing, alongside a plan to ensure any impact of a supply chain disruption can be effectively mitigated.