March 6, 2018 / 3:01 PM / 18 days ago

Aero engine maker Safran planning for worst-case cliff-edge Brexit

PARIS (Reuters) - French aeronautics supplier Safran is contingency planning for a cliff-edge Brexit that disrupts cross-border supply chains and could lead to divergence in British and European Union regulations, a senior company director said on Tuesday.

FILE PHOTO: The logo of Safran Group is seen on the company's headquarters building in Toulouse, Southwestern France, April 18, 2017. REUTERS/Regis Duvignau

Marie de Saint-Cheron, Safran’s (SAF.PA) director for European Affairs, said she considered the proposed transition too short a period to negotiate new treaties and added that a hard Brexit, whereby World Trade Organisation rules apply, could not be ruled out.

“It’s a scenario we are preparing ... hoping that what we get is not as severe,” Saint-Cheron told a panel discussion, sat beside a British official from the Department for Exiting the EU.

British Prime Minister Theresa May on Friday said Britain will not join a customs union with the EU after Brexit, worrying businesses such as Safran, whose British activities include the production of landing and transmission systems for jets.

May also said Britain would explore how it could remain a member of a handful of specialist institutions like the European Aviation Safety Agency (EASA). Safran’s LEAP engine, made in a joint venture with GE Aviation (GE.N), powers all Boeing (BA.N) 737 MAX aircraft.

Saint-Cheron described regulatory divergence as the “key risk”, despite May’s attempts to reassure concerns felt in the aviation industry.

“What we worry about is that after the transition period ... regulatory divergence begins. And in that case it will be very difficult for us to work together,” she said.

Saint-Cheron said Safran did not envisage for now moving any of its subsidiaries out of Britain. In the event of a hard Brexit, she added, Safran would likely start by repatriating operations that do not require heavy investments, such as its maintenance operations.

Aviation industry players are pressing May for more certainty over the way borders will work.

Under a 1980 agreement among 32 members of the WTO, civil aerospace parts are not subject to duties. But the aerospace industry is concerned that extra paperwork caused by new customs borders may introduce expensive delays.

    Chris Hobley, director for market access at Britain’s Department for Exiting the EU, said London wanted a “strong, deep and ambitious” relationship with the EU.

    He also reiterated May’s pledge of a “strong commitment” to regulatory standards that remain as high as those of the EU.

    Airbus (AIR.PA), which manufactures its wings in Britain, said last week it might have to stockpile parts to cope with potential disruption when Britain leaves the EU.

    Saint-Cheron said customs data shows Safran makes some 70,000 France-to-Britain cross-border operations annually.

    “We’re thinking about putting people in place, and an IT system, to manage customs clearing,” Saint Cheron told Reuters after the event.

    “One or two additional days (at the border) will be costly so we’re trying to put in place a system which would be smooth enough to avoid such delays in the supply chain.”

    Reporting by Richard Lough, editing by Louise Heavens

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