The aerospace & defence sector was the second largest contributor to R&D in the UK850 and the seventh largest in the G1400 in 2007
- Globally, the largest R&D investor in the aerospace & defence sector was EADS which ranked thirtieth amongst the G1400.
- Rolls-Royce and Airbus were the two largest investors in R&D in the UK850: they ranked seventh and eight respectively and together spent 64% of the sector total, and 4% of the UK850 spend.
- One more aerospace & defence company entered the UK850 bringing the total to 25.
- Investment in R&D by foreign owned companies in the UK850 increased.
- R&D in the aerospace & defence continues to grow more quickly than sales amongst the largest investors.
This summary provides a brief overview of R&D expenditure by companies within the aerospace & defence sector based on the data which underpin the 2008 R&D Scoreboard. It:
- describes the broad features of R&D in the sector;
- explains the pattern of R&D both in the UK and globally;
- identifies the leading investors in the UK and globally; and
- highlights key trends in R&D spend by the sector
The aerospace & defence sector
R&D activity in the aerospace & defence sector is characterised by large programmes that require significant initial investments. Consequently, R&D expenditure in the sector is often lumpy, linked to periods of new product development. Governments are important customers for the sector’s products. As a result, the availability of government funding influences the nature and scale of companies’ R&D activity. In some cases, R&D is undertaken under contract to governments and in other cases it is undertaken on companies’ own accounts: the former is reflected in companies’ reported R&D expenditure as reported in the Scoreboard but not the latter.
R&D spending in the aerospace & defence sector has become increasingly concentrated. This reflects three factors: the complexity of aerospace & defence platforms, customer interest in the sector taking on more project responsibility (i.e. ‘whole life support’) and the rising cost of R&D. These factors have driven sector consolidation given the need to raise finance and assume risk.
The pattern of R&D expenditure
Amongst UK firms
In 2007, UK firms in the aerospace & defence sector invested £1.3bn in R&D making it the second largest sector in the UK850.
UK R&D spending is concentrated: three companies accounted for 77% of UK R&D in 2007. This pattern is consistent with that of other countries. The more open UK defence procurement process has increased foreign access to the UK market with the result that there has been rising investment by foreign companies. In 2007, 15 foreign companies were in the UK850 – two more than in the previous year - and they invested 40% of R&D expenditure by firms in the sector.
Table 1: The UK aerospace & defence sector – key facts
Amongst global firms
In 2007 the aerospace & defence sector accounted for 4.1% of the total
G1400 R&D spend, at £11.1 billion.
The top five companies globally accounted for 61.7% of total R&D
spending by companies in the sector. This is in keeping with the increasing
consolidation within the sector over the last decade or more.
Geographically spending is concentrated in those countries with the
largest defence budgets. The US dominates global defence spending,
accounting for around half of global spending, followed by European
countries, notably the UK and France.
The major firms
In the UK
R&D expenditure by UK companies was dominated by Rolls-Royce,
Airbus (part of EADS) and BAE Systems (see Table 2). These three
companies were all among the UK’s largest 25 investors in R&D.
Rolls-Royce increased its R&D investment, principally reflecting its
development of the Trent 1000 engine for the new Boeing 787. In
contrast, Airbus’ R&D spending declined having increased in previous
years, reflecting its role in the development of the A380 for which the UK
has designed and manufactured the wings (and also integrated the fuel
system and undercarriage).
BAE Systems’ spending on R&D in 2007 was considerably less (£1,072
million) than the figures quoted in last year’s Scoreboard. This is because
this year the Scoreboard only includes BAE Systems’ R&D spending on
its own account, rather than spending funded directly by its customers.
Previous years’ data have been restated to ensure consistency.
Besides the larger players in the sector, some of their smaller counterparts rank amongst the most R&D intensive companies in the UK. This reflects their high exposure to electronics and specialist products which necessitates high levels of R&D investment to maintain competitiveness. Meggitt replaced Goodrich Controls amongst the five largest companies in the sector by R&D expenditure in the UK850.
Table 2: The top five UK investors in R&D in the aerospace & defence sector
* - foreign owned firm
# - accounts not prepared using IFRS
Global spending by companies in the aerospace & defence sector was led by EADS (which owns Airbus) and Boeing which both invested significant sums in R&D in new aircraft development (see Table 3). Elsewhere, Finmeccanica’s R&D expenditure continued to grow steadily reflecting the group’s transformation from a regional to a global player in the sector. This has led to increased R&D in areas including electronics, helicopters and aeronautics. Together EADS, Boeing and Finmeccanica accounted for nearly 48% of the R&D spent in the industry.
None of the largest 25 global investors in R&D was from the aerospace & defence sector: the largest investor was EADS which was ranked thirtieth.
Table 3: The top five global investors in R&D in the aerospace & defence sector
# - accounts not prepared using IFRS
Trends in R&D expenditure
In the UK
The sales of UK850 companies in the aerospace & defence sector grew by 4.9% over the last year, slower than the previous year (6.7%), whereas R&D grew by 3.4% compared with no growth in 2006. In contrast, R&D growth over the last four years was 41.0% and this compares with sales growth of 33.0% over the same period.
Amongst the G1400 aerospace & defence companies, R&D expenditure increased by 6.9% in 2007 over the previous year, faster than amongst the UK850 companies. Sector R&D spending has grown by 53.1% over four years, and on a similar basis sector sales have grown by 40.0%. The sector is now the sixth largest globally in terms of R&D expenditure. The significant growth in sector performance reflects rising global defence expenditure (especially in the US) in response to terrorist threats and the growth in air travel which has led to the development of new aircraft by the major manufacturers (Boeing 787 & Airbus A380).