LAUNCH INVESTMENT
Launch Investment is a risk-sharing Government investment in the design
and development of specific civil aerospace projects in the UK. It has
been used to support developments of airframes (or parts of airframes,
such as wings), helicopters and aero engines. The investment is not
a grant and is repayable to the Government at a real rate of return,
usually via levies on sales of the product developed. By this means,
the Government shares in the risk of the project, since the company
may not achieve sales at the level or price forecast. Launch investment
is available only to the aerospace sector and stems from the provisions
of the Civil Aviation Act 1982.
Significant projects supported in the past include the Airbus A320
and A330/340 programmes. The A320 investment has already been repaid
to the Government, and continues to provide a return. The A330/340 is
contributing a steady stream of funds to the Exchequer, and is expected
to pay for itself in the medium term. In November 1997, the Government
reached agreement with Rolls-Royce to invest in new engines in the Trent
family. This included the Trent 500 for the new Airbus A340-500/600
project, and also upgraded Trent 800 engines for the Boeing 777 family.
On 13 March 2000 the Government announced a new launch investment partnership
with BAE SYSTEMS (Airbus UK) to support their participation in the Airbus
A3XX ‘super-jumbo’ (subsequently launched as the A380). BAE SYSTEMS
is now a 20% shareholder in the Airbus Integrated Company (AIC) with
the European Aeronautic, Defence and Space Company (EADS), holding the
remaining 80%. Airbus UK, the Centre of Excellence for wing design and
manufacture, became a subsidiary company to the AIC and will receive
the Launch Investment. This is the largest launch investment announced
to date. More recently, the Government has also announced that it has
joined with Rolls-Royce in an investment to develop the Trent 900 for
the A380 and also the Trent 600 for future Boeing projects.
Launch investment enables the company and the Government to share the
typically very high level of risk in aerospace projects, characterised
by high costs, long payback periods, and a dearth of private sector
investors. Launch Investment also recognises that modern aerospace projects
are highly internationally mobile, and it enables the Government to
capture valuable projects for the UK that might otherwise be carried
out abroad.
The provision of launch investment is entirely discretionary. There
is no formal scheme, promotion or budget for launch investment. Each
launch investment 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 a detailed assessment of the company’s business
case and its claim that the project cannot be funded by alternative
means. In addition, the Government assesses the technical viability
of the project and the market for the product. Finally, an assessment
is made of the wider benefits of the project to the economy beyond the
company itself. These 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.
In view of the significant amounts of public expenditure involved,
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 also required from
the company on the development programme, the commercial position of
the project and the financial position of the company.
Most Western countries with aerospace industries have some form of
launch investment (including France, Germany, Spain, Netherlands and
Italy). The US supports its industry by indirect measures, in particular
the very large 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 Agreement,
signed in July 1992, covers all Airbus aircraft and aircraft with a
capacity of 100 or more seats manufactured in 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 Government support limited to 33% of total development cost
of a project;
- direct support to be repaid to the Government within 17 years at
a rate of return at least marginally above the cost of Government
borrowing;
- Indirect support limited to 3% of the civil aircraft industry’s
annual commercial turnover;
- detailed transparency requirements on both direct and indirect supports.
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