Commentary: The End of Globalization?

Commentary: The End of Globalization?
By Mike Hirschberg, Executive Director
From Vertiflite, September/October 2016 

Mike Hirschberg with G-LYNX, June 2011In signs across the world, globalism seems to be in retreat and countries hunker down, working to throw up barriers to international travel and trade. Global events this summer give pause to aspirations of continued globalization expansion.

On June 23, 2016, the United Kingdom’s European Union Membership Referendum (referred to as the “Brexit” referendum) carried an overall result of 52% of British voters advocating to leave the EU. Interestingly, the result was split between the constituent countries of the UK, with a majority in England and Wales voting to leave, and a majority in Scotland and Northern Ireland, as well as Gibraltar, voting to remain. The leader of the Scottish Government announced the following day that a new independence referendum was "highly likely." The lack of an open border between the Republic of Ireland and the UK’s Northern Ireland could also cause issues.

Since many businesses in the United States and other countries have based their European operations in the UK due to a more western orientation and an (essentially) common language, the Brexit decision will have significant financial implications. Financial markets faced turmoil in the following weeks. London may lose its status as the pre-eminent global financial capital. The governor of the Bank of England said that even with cutting rates to record lows and £170B of stimulus, hundreds of thousands of jobs would be lost over the next few years due to a slowdown of the British economy. The UK may need to negotiate new trade agreements with dozens of countries in short order.

Aerospace companies based on the continent — such as Leonardo Helicopters, Airbus Helicopters and Safran — will soon be divided from their British entities by new rules; and there will be similar issues for British-based companies like BAE Systems, QinetiQ and Rolls-Royce, who have large numbers of employees across Europe. The economic uncertainly for the UK’s aerospace and defense industry could cause it and other countries to reduce collaboration and scale back weapon system purchases, while potentially derailing intended industrial mergers and acquisitions, and other strategic plans.

But to paraphrase legendary American football coach, Lou Holtz, nothing is ever as good or as bad as it first seems. Both the “Leave” and “Stay” camps will find that the rhetoric and hyperbole of the past several months will largely not come to pass as feared or hoped.

The Brexit vote was buoyed by the flood of migrants fleeing war, persecution and poverty, primarily from war-torn Syria, Afghanistan, Iraq, Kosovo, Albania, Pakistan and several African countries. The “Leave” vote was inspired by more than 1.3 million asylum claims in the EU in 2015, with the uncontrolled borders unable to slow their movements.

Violent crime has grown in Europe with the overflow of refugees, and terrorist attacks — largely encouraged or inspired by the Islamic State — have increased in frequency, barbarity and lethality. The Islamist bombings in Brussels in March; the horrific truck attack in Nice, France, in July; and several blade attacks in France, Germany and Belgium have amplified the culture of fear and uncertainty. Hundreds more have been killed so far this year by Islamist extremists in terror attacks in Afghanistan, Bangladesh, Burkina Faso, Cameroon, Iraq, the Ivory Coast, Libya, Nigeria, Pakistan, Somalia, Turkey and Yemen.

In the United States, similar cause and effects are playing out in parallel. In June, a gunman who pledged allegiance to the Islamic State killed or injured more than 100 people at a nightclub in Orlando, Florida, which followed “lone-wolf” Islamist extremist shootings last year in Chattanooga, Tennessee, and San Bernardino, California.

Republican presidential nominee Donald Trump has gained some of his populist support through his tough rhetoric on Islamist terrorism — calling for "a total and complete shutdown of Muslims entering the United States" — and what he calls bad international trade deals. As he accepted the Republican nomination on July 21, he stated emphatically that “our plan will put America First. Americanism, not globalism, will be our credo.” Although free trade has for decades been a central Republican tenet, Trump wants to renegotiate the North American Free Trade Agreement (NAFTA), withdraw from the Trans-Pacific Partnership (TPP), reform the US-China trade relationship, and impose tariffs of up to 45% on China. Democrat Hillary Clinton now also opposes NAFTA and TPP.

How does this impact the rotorcraft industry?

After decades of efforts towards free trade and globalization, putting the genie back in the bottle would be devastating. The UK’s current turmoil highlights this. Limiting the flow of people, ideas, commerce and trade (and increasing tariffs) is bad for business.

The Brexit is not expected to have an immediate impact on Britain’s £56B ($73B) aerospace defense and security industry — the actual British exit from the EU probably won’t begin until 2017. However, analysts say that investment in the UK will likely decline, and economic deterioration will force government austerity measures, including defense spending cuts, according to the Royal United Services Institute. The UK is the second largest arms exporter, after the US, and global aerospace companies are warning that the UK must quickly develop new trading relationships or the Brexit will stymie business.

UK aerospace, defense and security trade association ADS Group noted that only 2% of its member companies supported leaving the European Union. ADS cited easy access to EU customers and suppliers; availability to about £1B ($1.4B) in annual EU research and development funding; and UK influence over EU regulations as the three strongest arguments to stay in the Union. Post-Brexit, the UK will have to significantly increase research funding in order to fill this gap.

If Brexit foreshadows broader international rejection of globalization, the vertical flight industry could be more negatively affected. Leonardo Helicopters has production sites in the US, UK, Italy and Poland; Boeing helicopters are assembled in the US, UK, Italy and Asia; Sikorsky assembles aircraft in the US, Poland and Turkey; and Airbus Helicopters has assembly plants on nearly every continent.

The rotorcraft industry is globally integrated as much as any industry and will almost assuredly remain that way. It would be difficult indeed to untie the global bonds of the industry (although such unexpected things have happened over the past 12 months, one should never say “never”).

Today’s aerospace manufacturers often outsource (both domestically and internationally) as much as 80% of the work, with their suppliers then outsourcing 80% of that work, and so on. Countries with developing aerospace industries often demand in-country assembly and component sourcing. Unfortunately local manufacturing and engineering jobs are lost as companies transition from fabricator to integrator, as we have clearly seen over the past several years.

Any economic policy has pros and cons, and winners and losers. Globalization has been a clear benefit to the rotorcraft industry — both manufacturers and customers — by producing state-of-the-art aircraft with parts sourced from highly qualified and competitive global suppliers, reducing the acquisition costs for operators, and developing high tech indigenous manufacturing and development expertise in both developed and newly industrialized countries.

What is needed to ensure a healthy, growing vertical flight industry are clear, stable and efficient trade agreements, strong relationships between countries and companies, and well-understood boundaries. Any new or revised international agreements need to support the flow of goods, ideas and funds.

What do you think? Let us know!

PDF of this article is also available. Find past Vertiflite Commentaries at

Posted August 18, 2016