Economy – Page 28 – John Vincent

Flying, Democracy and Safety 8.

Halfway through 2020. What a different kind of year than the one we’d expected. With 20-20 hindsight I’m sure we’d have approached it differently too. In that phrase, 20-20 is a reference to good vison but it could equally have been a joke on the year 2020. Now it’s July and Germany’s EU Council Presidency starts. Their theme is: “Together for Europe’s recovery” #EU2020DE[1].

It’s strange that during the years of Brexit debates those who supported it said that leaving the European Union (EU) would mean a break from competition rules to give Britain the opportunity to boost its own industries. What has happened recently has been the complete opposite. In the face of COVID-19, European Governments have been providing support to their aviation sector, but the UK has not provided similar support.

Now, UK Prime Minister Johnson repeats that the UK is ready to walk away without a deal with the EU if no agreement can be reached in what remains of the time available. At the same time, he’s “optimistic” that there’s a “good agreement” to be reached[2].

If the UK exits the mutually beneficial Withdrawal Agreement without a sound long-term deal, the effects will be felt by everyone[3]. With global tensions between many Countries and China continuing to mount, this is foolish.

Here we go again. The UK’s Conservative Government is getting more Brexity as the people of Britain are getting less Brexity. A recent European Social Survey has found support for Brexit has fallen to 35% of voters while a majority would prefer the UK to be in the EU[4].

The aviation sector hasn’t had a good week. Airbus plans to cut 15,000 jobs amid COVID-19 fallout. However, British politicians would rather talk about fishing than aviation. Yet, fishing contributes £1.4 billion to UK economy while aviation contributes £22 billion.

UK Foreign Office travel advice and the national quarantine continue to make it difficult for anyone to plan to travel. Portugal, a Country that the UK has always had excellent relationships with, has been left out in the cold.

The world’s biggest trading block is on the UK’s doorstep. The bare-bones of a trade deal could happen but making it more difficult to trade with the EU seems unwise to say the least. Again, it has been conformed that the British membership of the European Union Aviation Safety Agency (EASA) will come to an end on 31 December. Historians will look mystified at this period. Governments don’t normally work assiduously to diminish their place in the world.

[1] The programme for is now online on http://eu2020.de.

[2] LBC on Friday, 03 July 2020.

[3] https://www.ft.com/content/e4da78ae-a428-4466-9721-d3841cc0e005

[4] https://ldeg.org/en/article/2020/1366373/survey-finds-35-want-brexit-while-57-back-rejoin

Aviation & Brexit 91

90-days[1] to the next predictable Brexit cliff edge. The UK Government has still got a hell of a lot of work to do to get ready for a Brexit No-Deal scenario. The international currency markets have detected the fragility of the current situation and reacted accordingly. The British pound sterling is at 1.216 to the $ and 1.094 to the EURO as I write this short sentence. That’s an incredibly poor rate, even if you took the view that the pound sterling has been overvalued. British summer holiday makers are going to find this fact painful, but the flipside is tourist coming to the UK are going to have a great time. No doubt, air traffic will continue to grow to carry these welcome visitors from overseas. Unfortunately, in the short-term the threatened strike at British Airways (BA) may put a damper on that prospect.

The bigger issue is: what the state of the national currency says about the level of risk we are taking with Brexit. It’s not a vote of confidence. Currency rates may tumble further.

There’s a list of Brexit downsides and one is that British assets now look cheap to overseas purchasers.

I’m not saying that this is a specific example, but I noted with interest the sale of the British defence and aerospace group, Cobham to a US private equity firm for 4 billion pounds[2]. Today, Cobham employs 10,000 people. They were known for the development of airborne refuelling systems, which was a British innovation. This organisation is part of my aerospace design history. In the 1990s, on a regular basis, I visited what was then called; Flight Refuelling Ltd, just outside Bournemouth. I did numerous approvals of modifications to the Falcon 20 aircraft that they flew[3].

Sadly, the UK’s recent keenness to leave the European Union (EU) without a deal, on 31 October 2019 is like hanging out a big “For Sale” sign. Sound companies with valuable intellectual property look like a good buy. That said, this is not new for the UK. There are desperate periods in our history where selling the family silver was quite the vogue.

My point is that there are valuable British assets that look cheap to foreign investors given the uncertainties of Brexit. Which is ironic because it’s completely the opposite of what Brexit was supposed to be about, namely; take back control.

History always has lessons for us. Even recent history. I’d recommend an offering from the UK TV Channel 5 with Portillo’s series: “The Trouble with The Tories”[4]. He interviews many of the key players who brought the never-ending Brexit calamity upon us. I watched it and thought, just how useless knowledge with hindsight can be. Not only that but how dreadful British politicians are at assessing risk.

One thing I’m sure of, next week is going to another Brexit rollercoaster. It’s as if we have invented perpetual motion. It would be wrong to see No Deal as the end point or finish line.

[1] https://interactive.news.sky.com/2017/brexit-countdown/

[2] https://uk.reuters.com/article/us-cobham-m-a-advent/us-private-equity-group-advent-buys-uks-cobham-for-5-billion-idUKKCN1UK0NA

[3] http://www.aeroflight.co.uk/tag/flight-refuelling-ltd

[4] https://twitter.com/channel5_tv/status/1157040808845094912?s=20

Aviation & Brexit 85

The year’s longest day is almost with us. This week, for the first time in a while, The UK’s Brexit is not a major topic at a European Union (EU) summit[1]. Now, the new European Parliament (EP) is in place there’s much discussion about the big jobs that need filling. In the EU, a new team of European Commissioners is appointed every 5-years. Appointing the President and the College of Commissioners is one of the issues concentrating minds in Brussels and across Europe.

Today’s European Commissioners will be leave office on 31 October 2019. Coincidentally, that’s the date the UK is supposed to be leaving the EU. It’s impossible to say if that will happen, not even with the remaining candidates for UK Prime Minister saying; that they still wish to leave. The words of Donald Tusk, warning the UK to stop wasting time still echo around the room.

It’s worth noting that the Romanian Presidency of the Council of the EU will be replaced by the Finland’s Presidency[2] at the end of the month. This is interesting given that Finland held parliamentary elections in April this year. The new Government of Finland was appointed on 6 June. So, there’s not much time to prepare an agenda for their term but I feel certain Climate Change will be high on the list of issues.

Potentially, that means a lot more talk about EU policies that promote sustainable and “smart” mobility. In one direction, exhibited at the Paris Air Show are a horde of new electric propulsion systems for aircraft. In another direction, policies include the introduction of an aviation tax at EU level and a carbon floor price[3]. No doubt this subject is going to be highly controversial. The call for Net Zero emissions by 2050 is a major strategic shift for Europe.

Today, not all EU Countries have a flight tax, like the UK. It’s a tax on a ticket. Unfortunately, that ticket tax is not used to mitigate the environmental impacts of flying. Aviation taxes, such as fuel taxes or ticket taxes, do have an impact on the economy. If there’s not strong coordination and cooperation in the design of an aviation tax at EU level, then the danger of exporting jobs is real in what’s an international business.

Some studies do suggest that an aviation tax is not effective in reducing CO2 emissions. However, there’s a great deal to be debated and investigated on this key subject. I cannot believe the UK will not have a strong interest in the direction that the EU chooses to take on aviation taxes. Naturally, it would be better if the UK was part of the decision-making process but leaving the EU with “No-Deal” rules that out completely.

[1] https://www.consilium.europa.eu/en/meetings/european-council/2019/06/20-21/

[2] https://eu2019.fi/en/frontpage

[3] https://www.aviatax2019.nl/#home

What’s being lost?

WP_20170719_008 We do seem to be getting a lot of Brexit related announcements. There often of this flavour: “Great victory – things stay the same[1]”. Or “Success – something is not getting as bad as predicted”. This is most peculiar. Never has the status-quo been so advanced as a shining example of achievement.

The other strange phenomena are the; it was going to happen anyway but look how wonderful we are – we made it happen. It’s our great achievement. Passing off actions as their own, Government sidesteps the facts for the real propaganda value[2].

The problem is that a lot of people are swallowing this boloney hook-line-and-sinker. Ministers are putting their foot down all over the place to elegise about everyday continuity. I would not be surprised to read tomorrow’s headline as reading: “Sun rises again due to the popularity of Brexit. Minister says; predictions of Armageddon were misplaced (for now).”

I’m not a one for reading lots of business books but there are one or two on the shelf. By the way, we have an Austrian economist to blame for coining this phrase: Opportunity Costs. If a country, like ours, loses the opportunity to earn income, whereas it could have done so by making a different choice, we can call that income lost Opportunity Costs.

I wonder if anyone is doing the sums to add up the lost Opportunity Costs of Brexit. It’s not easy because the sums should include investments that weren’t made or businesses that didn’t start-up. That said, the tangible items, like; businesses that moved away or trade deals that will be exited should be easy to add up. I guess, the answer is a huge and growing number and one that Ministers can’t face. Now wonder this Conservative “magpie Government” must steal news from the everyday.

[1] BMW to continue to build cars in Oxford.

[2] EU action on unfair credit card fees.

Contradiction

We can have confidence in Britain’s capabilities without having to believe in Gove’s economic miracle. Anyway, there’s a huge contradiction at the heart of the leave campaign’s claim. They are saying; trust me because all the others are wrong. A long list of experts says; REMAIN is best option out of the two but Gove says the opposite.

Let’s consider this situation. If all the calculations of the world’s forecasters are all wrong, then major decisions are being poorly made across the globe. Investments and the spending of Governments are in error. The inevitable conclusion from this is that chaos and recession are imminent and inevitable. In such an event, Britain would be impacted regardless of being IN or OUT of the EU. Whatever happens; “No man is an island”.

However, if the calculations of the worlds forecasters are at least half way right there is a chance of continuing recovery and stability. There’s a chance risk is being managed and that decisions based on those forecasts are sound. To me this scenario seems by far the most plausible and a better bet.

It’s true we should not choose our vote solely on the basis of what experts say, particularly economists but it would be foolish to ignore their information. You can drive a car by looking out of the window and daydreaming but its far safer to pay attention and glance down at the instruments from time to time.

Britain is already a “progressive beacon” in the world. That position has been reached because we have embraced partnerships and understand how to work with others. Being in the EU does not stop Britain projecting its influence. In fact, leaving the EU would be a powerful negative signal to everyone we work with around the globe.

I conclude that the overwhelming case to REMAIN in the EU has not changed in the last weeks.

Two Boxes

WP_20160530_20_42_15_Pro Britain is in a good position. We have the best of both worlds. At the same time as having a seat at the table in Europe, Britain continues to be one of the major players at a global level. This comes from our unique history and an ability to lead in significant areas.

The choice for Britain is a stark one. It’s either to be a fully active member of the EU, as it has been or to stand apart protecting its own limited interests whilst at the same time being greatly affected by the EU. If Britain is no longer a member it will not be in a position to influence the development of the EU. At the same time, globalisation is going to require more collaboration and not less.

Today, Britain benefits from the level playing field created by the European single market. This is a bulwark against the destructive effects of national protectionism. Britain has moved the EU towards a more open and flexible approach to business. It has been a leading light in ensuring that necessary regulation is not a burden but an asset. Britain has also encouraged overseas investors to see it as a preferred route into Europe.

None of these things happened overnight. Decades of work at the heart of the EU have maximised the opportunities for British industry and services. This is particularly true for the pharmaceutical sector and financial services. It’s also true in the inherently international aviation sector.

No matter how you read it all the economic arguments stack up in favour of remaining in the EU. That’s not to say that the EU is perfect but neither is the alternative. In fact, leaving the EU carries an order of magnitude greater risk than remaining in.

That said, Britain will stay in the EU only if REMAIN supporters put their cross in the REMAIN box on the ballot paper. There are a great number of powerful distractions during the run up to the EU referendum vote. There are numerous red herrings all tempting voters to jump one way or another.

Putting to one side the political personalities pushing for your attention the basic choice is IN or OUT. It gets no more complex than the two sides of a coin. I believe the only way forward is to stay IN the EU and I hope you do too.

Plan for success

Do you try to manage or do you prefer to the laissez faire approach? I guess that’s one of the questions at the heart of the EU referendum debate. It’s clear that the European economy is at the centre of the referendum campaign. On both sides of the argument: REMAIN or LEAVE.
The detailed pros and cons of Britain’s EU membership can be debated until the cows come home but it doesn’t seem to move people’s voting intentions. Everyone agrees that the “pound in your pocket” is a big motivator but that’s set against lots of contradictory arguments. All but understating the fact that most economic big guns have come out firmly in support of REMAIN.
Let’s go back to the start; do you manage, that is plan, implement, check and make changes to meet your goals or do you kick-off your heals, throw caution to the wind and just see what turns up? That latter laissez faire approach would seem to be the one most favoured by the LEAVE camp.
Let’s be frank, I don’t think that will work at all. It certainly won’t work for the vast majority of people who are finding life financially hard going. What irritates me about much of the LEAVE campaign is the casual manner of saying that no matter what happens it will be “all right on the night”. That’s not reassuring if you’ve major bills to pay and a large mortgage.
I think, Britain needs to continue to take a managed approach. One of the most significant factors to consider is the governance of the EU and relations between euro and non-euro members. Outside the EU, Britain is more vulnerable than it is inside. Inside the EU, Britain can manage the relationship it has with the member states that use the euro. Outside the EU, there is the danger that economic conflict will emerge. Inside the EU, Britain can use its political power to ensure that there’s a level playing field.
It’s likely people’s voting intentions are moved by the balance between economic security and insecurity. My case is that we need to keep our seat at the table in the EU. Britain needs to REMAIN in the EU.