LAUNCH INVESTMENT

Launch Investment is a UK government investment in the design and development of civil aerospace projects. It is repayable at a real rate of return, usually via levies on sales of the product. The government shares in the risk, as the company may not achieve sales at the level or price forecast. Launch investment is available only to the aerospace sector as outlined in the Civil Aviation Act 1982.

Projects supported in the past include the Airbus A320 and A330/340 as well as Rolls-Royce Trent family of engines.  In 2000 the government announced a launch investment partnership to support the wing for the Airbus A380 and an investment in the Trent 900 engine for the same aircraft, which is expected to enter into service in 2006. All these projects have either repaid their expected return or are course to do so.

Launch investment projects are characterised by high costs, long payback periods, and a large number of private sector investors. Aerospace projects are highly international, and so launch investment enables the Government to secure valuable projects for the UK that might otherwise be carried out elsewhere.

The provision of launch investment is entirely discretionary. There is no formal scheme, promotion or budget for launch investment. Each application is considered on its merits against a range of established criteria and also, by the Treasury, against public expenditure constraints.

An applicant must demonstrate: that the project is technically and commercially viable; that Government investment is essential for the project to proceed on the scale and in the time-scale specified in the application; and that government will recoup the investment at a real rate of return.

The Government undertakes an assessment of:

·         The company’s business case and its claim it cannot be funded by alternative means.

·         The technical viability of the project and the potential market; and

·         The wider benefits to the economy, which can include the spin-off of new technologies or production methods with wider applications in other sectors, or transferable improvements to the skill base.

If it is decided to support an application, the government will provide the minimum support required for the project to go ahead.

The DTI closely monitors the progress of a supported programme. Payments are linked to actual expenditure by the company and to the achievement of specific technical milestones. Information is required on the development and commercial position of the project and the financial position of the company.

France, Germany, Spain, Netherlands and Italy have some form of launch investment. The US supports its industry by indirect measures, in particular the R&D programmes run by NASA and the Department of Defense. A range of international agreements exists to regulate financial support given to industry by governments, and these apply equally to launch investment. Any offer of launch investment must therefore be consistent with the UK’s international obligations.

Principally, these are the European Union’s State Aid rules and the EC/US Agreement on support for large civil aircraft. This 1992 Agreement, covers aircraft with a capacity of 100 or more seats manufactured in the EU or the US. The Agreement recognises the two main types of support as direct support (such as launch investment), and indirect support (such as the R&D programmes run in the US). The main provisions are:

·         Direct support limited to 33% of total development cost of a project;

·         Direct support to be repaid within 17 years at a rate of return at least marginally above the cost of Government borrowing;

·         Indirect support limited to 3% of the annual commercial turnover of the civil aircraft industry in the party concerned;

• Transparency on both direct and indirect supports.