Aerospace in the UK: industry profile

The UK’s aerospace industry is very large – the second largest in the world after that of the US. According to the Aerospace Defence Security (ADS) Group, it contributed £13.6bn in value added to the UK economy in 2024 (up 49% since 2014), turning over £34bn (up 24% over ten years) and employing around 100,000 people.

As is noted by the US International Trade Administration, the UK has a reputation as a global centre of excellence for the design and manufacturing of engines, helicopters, wings, structures, and aircraft systems, as well as a strong maintenance, repair, and overhaul (MRO) sector, which provides services to large numbers of military and civil aircraft.

Having been designated as a ‘frontier industry’ in the government’s June 2025 Advanced Manufacturing Sector Plan, the aerospace sector looks set to remain a highly significant component of the country’s economic landscape going forward.

Notably, the industry is R&D-intensive: ONS data show that it spent £1.912bn on R&D in 2023. It benefits from joint government-industry funding via the Aerospace Technology Institute (ATI) — with the government having pledged to contribute £975m for 2026–30.

Another noteworthy feature of the industry is its strong focus on exports, being positioned as a specialist supplier of systems and components to markets around the world. Around 70% of UK aerospace output is exported, reflecting deep integration in transatlantic and European supply chains. According to the ONS, exports of air and spacecraft and related machinery totalled £39.7bn in 2024.

Whilst export markets are highly lucrative for the industry, its export-intensiveness can make it vulnerable to global trade shocks, such as tariff increases. That said, the UK–US trade deal which came into force in June 2025 removed 10% US tariffs on goods produced by the sector, such as engines and aircraft parts.

At a high-level, the UK’s aerospace industry may be divided up into three primary segments. These are outlined below.

It should be noted, however, that many industry activities and outputs cut across these categories, and individual companies may serve more than one end-market. For example, Rolls-Royce produce jet engines for both civil and military aircraft, and Airbus Helicopters UK provide products and services for both the civil and military helicopter markets.

This segment is concerned with the design, manufacturing, and servicing of aircraft, components, and systems for civilian use.

Although the UK does not currently produce large commercial airliners domestically, it is deeply integrated into global civil aerospace programmes. For instance, UK facilities design and manufacture major airframe structures (notably wings for Airbus airliners), aero-engines (Rolls-Royce is a world leader in turbofan engines), avionics and electronic systems, landing gear, and aircraft interiors for airliners.

British companies also provide extensive maintenance, repair and overhaul (MRO) services to commercial airlines worldwide.

Civil aerospace is highly export-focused, driven by international passenger and cargo demand.

This segment encompasses the design, manufacturing, and servicing of military aircraft and related components and technologies – both for the UK armed forces and for export customers.

Key outputs include fighter and trainer jets (such as the Eurofighter Typhoon, developed in part by BAE Systems), military transport aircraft, unmanned aerial vehicles, and helicopters for defence or security roles.

The UK also produces subsystems like radar and sensors, air-to-air missiles, and engines for military platforms.

Defence aerospace activity is supported by UK government procurement and export campaigns. Though spending plans in this area tend to be long-term in scope, the segment can be subject to demand fluctuations based on geopolitical events.

Increasingly, UK aerospace companies are concerned with the design and building of satellites, spacecraft, launch vehicles, and related systems and components. These are used for communications, navigation, and earth observation.

Here, government investment is an important source of funding. In January 2025, for example, the government committed £20 million to help fund the construction and launch of the first UK-manufactured and UK-launched orbital rocket.

More information on the UK’s space sector can be found in a House of Commons Library briefing on the subject.

Heightened post-pandemic demand for air travel has driven a surge in orders across the global aerospace sector, and the UK industry is no exception. Commercial aircraft orders are booming, with 125 placed in August 2025 alone — an 84% rise on the same month the previous year. 1,325 orders were placed during the first eight months of 2025, almost double the number placed during the same period in 2024.

Whilst this clearly represents a significant opportunity for the industry, production is struggling to keep pace. Delivery numbers are improving — 118 commercial aircraft were delivered in August 2025, up almost a third on August 2024 — but they remain insufficient to meet escalating demand. Recently, the order backlog for civilian aircraft has climbed above 16,000.

A key constraint lies in supply chain fragility. Persistent shortages of critical materials and components, including semiconductors, have slowed manufacturing output and created bottlenecks throughout the production process. Industry commentators such as Gowling WLG stress that strengthening supply chain resilience — for instance through diversification, technology adoption, and collaborative partnerships — will be vital to sustaining growth and clearing the backlog.

Alongside supply chain challenges, workforce shortages are compounding the problem. As noted in a recent ADS Group report, the sector faces acute recruitment difficulties despite offering above-average wages. In response, the report calls for measures such as a sector-wide apprenticeship pooling system, greater flexibility on qualification requirements, and initiatives to make aerospace careers more appealing to young people.

Restoring balance between demand, capacity, and capability remains a pressing challenge for UK aerospace.

As IBISWorld have noted, the UK aerospace industry is entering a period of exceptional opportunity thanks to elevated defence spending at home and abroad. Driven by rising geopolitical tensions, global defence spending has increased markedly in recent years — reaching $2.4 trillion in 2023. Here, the UK is no exception: as noted in the Defence Industrial Strategy (September 2025), spending on defence will rise to 2.6% of GDP by 2027, with a longer-term goal of 5% by 2035.

This surge in investment is translating into tangible opportunities for aerospace manufacturers and innovators. There have been recent significant contracts for Typhoon aircraft, for example, whilst flagship programmes such as the Future Combat Air System (FCAS) and the Global Combat Air Programme (GCAP) position the UK as a hub for cutting-edge defence aviation. The Ministry of Defence (MoD) provided £1.3 billion in funding for FCAS in the 2024-25 financial year alone. Meanwhile, the creation of UK Defence Innovation (UKDI) in July 2025 further underscores the government’s commitment to supporting growth in this area.

However, access to finance remains a persistent obstacle for defence aerospace businesses — particularly small and medium-sized enterprises (SMEs). A 2023 guide by UK Finance and ADS reports growing difficulty among defence-sector firms in securing banking and credit facilities, with SMEs reporting account closures, onerous bond requirements, and strict compliance checks. Heightened regulation and financial crime controls have led some providers to treat defence clients as higher risk, making it more difficult for them to secure finance.

To improve their chances of obtaining funding, defence aerospace businesses are advised to proactively demonstrate transparency and compliance, as well as alignment with lender ESG policies, export licensing requirements, and evolving international regulations. However, ADS stress that meaningful progress will depend on sustained government support, particularly through tailored export assistance for smaller firms.

The UK’s space sector continues to cement its reputation as one of the country’s most dynamic high-technology fields, with particular strengths in small and nano satellite manufacturing, where it holds a world-leading position. According to the US International Trade Administration, an estimated 40% of all small satellites currently in orbit were built in the UK.

Significant progress is also being made in the emerging launch segment. Several spaceports are planned across the UK, leveraging the country’s island geography and extensive coastline to support both horizontal and vertical launch capability. Industry and government collaboration on launch vehicle and small satellite technologies is positioning the UK as a competitive location for end-to-end space services. Here, companies such as Orbex are enjoying success.

Investment in space-related research and development has risen steadily, reaching £1.05 billion in 2022/23 (equivalent to 5.7% of total industry income). Meanwhile, a recent report from the UK Space Agency highlights broad optimism within the sector: 61% of companies expect higher income over the next three years, and around half anticipate growth in exports, employment, and R&D spending.

Challenges remain — notably access to finance, cited by many firms as a key constraint alongside skills shortages and reduced EU programme involvement — but initiatives such as European Space Agency partnerships offer vital support. Overall, the trajectory for the UK’s space segment appears positive.

The aerospace industry sits at the centre of the UK’s Net Zero transition. With a national commitment to achieving net-zero aviation by 2050, the sector faces both an environmental imperative and a commercial opportunity. Growth in the coming decades is likely to be defined by the shift toward cleaner propulsion and improved aircraft efficiency — areas in which the UK has already established world-leading expertise. At the heart of the transition are advances in Sustainable Aviation Fuels (SAF), hydrogen powertrains, and electrification.

Flagship government–industry collaborations such as the Aerospace Technology Institute (ATI) and the Jet Zero Taskforce are driving innovation in these areas through large-scale R&D investment — with a further £2.3 billion committed to 2035. In June 2025, over £250 million in joint government and industry funding was announced for green aerospace technologies.

Programmes such as Airbus’s Wing of Tomorrow, Rolls-Royce’s UltraFan engine, GKN’s H2GEAR, and ZeroAvia’s HyFlyer II hydrogen-electric engine exemplify how UK engineering is making significant strides forward in this area. 

However, the transition is not without its challenges. Commentators such as the ATI point to gaps in enabling infrastructure and skills — for instance around liquid hydrogen storage. Moreover, the ADS Group stresses the need to end “the age-old cycle of good discovery and poor exploitation,” calling for continued funding beyond the research phase to support testing and commercialisation.

One of the most notable trends in UK aerospace today is the rapid development of Advanced Air Mobility (AAM) technologies, and the evolution of drones from military and recreational devices into indispensable commercial tools. Here, the UK is seeking to position itself as a leader in a global market projected to be worth tens of billions within the next decade.

At the centre of this shift is the rise of electric vertical take-off and landing (eVTOL) aircraft, often described as “air taxis”. Bristol-based Vertical Aerospace is among the most prominent UK players, developing the VX4 eVTOL, a four-passenger zero-emission aircraft that has already secured hundreds of provisional orders.

Parallel progress is being made in the uncrewed aircraft systems (UAS) segment, as drones take on new civilian uses in logistics, agriculture, infrastructure inspection, and emergency response — supported by a growing ecosystem of platform, sensor, and software providers. Beyond-visual-line-of-sight (BVLOS) drone operations are one key frontier.

Through its Future of Flight programme, the government is taking steps to deliver the technologies, regulations, and infrastructure required for routine BVLOS and eVTOL operations. The Civil Aviation Authority (CAA) has published a regulatory “Delivery Model” that charts a pathway toward commercial eVTOL flights in the UK by 2028, as well as a publication setting out its plans for enabling routine BVLOS operations.

With government support, agile regulation, and strong domestic innovators, the UK is well placed to capture a leading share of the emerging market in this area.

The tax treatment of the UK aerospace industry is complex, meaning that a comprehensive explication of its nuances is impossible here.

That said, given that the industry is highly R&D- and capital-intensive (having spent over £1.9bn on R&D in 2023, according to the ONS), perhaps the most significant features of the tax landscape for businesses operating in this sector are the various tax incentives aimed at promoting innovation and investment, including:

• Research & Development (R&D) tax relief
• Patent Box – profits from patented inventions taxed at a reduced rate of 10%.
• Capital allowances and full expensing – tax relief on qualifying equipment and machinery.
• Place-based incentives – designated Freeport and Investment Zone sites can offer (time-limited) business rates relief, enhanced capital allowances and NICs relief; check the current scheme rules and local designations.

The size and diversity of the UK aerospace industry means that any list of notable players will not be fully representative or comprehensive.

That said, some examples of noteworthy players are set out below.

• BAE Systems – the UK’s largest aerospace and defence firm; co-developer of the Typhoon and Tempest fighter aircraft.
• Rolls-Royce – world-leading engine maker, serving both civil and military markets.
• Airbus UK – producer of wings for Airbus aircraft at Filton and Broughton.
• GKN Aerospace – key supplier of aerostructures and composites.
• Leonardo UK – builder of helicopters (eg, Merlin, Wildcat) and major supplier of avionics.
• MBDA UK – manufacturer of missile systems (Meteor, Brimstone, ASRAAM).
• Vertical Aerospace – Bristol-based start-up developing eVTOL air taxis.
• Marshall Aerospace – Cambridge-based independent firm specialising in aircraft MRO and conversions.
• Orbex – leading orbital launch services company, serving the small satellite industry.

ICAEW’s Library & Information Service can provide information on UK and Irish participants in the aerospace industry via its wide range of company information services. This includes:

• Information on company acquisitions in the sector
• Private company transaction multiples
• Company data
• Beta values for companies and the sector
• P/E ratios for companies and the sector

For more information, please contact our enquiry team on +44 (0)20 7920 8620 or at library@icaew.com to discuss your requirements.

• ADS Group
• Aerospace Technology Institute (ATI)
• Air League
• Aircraft Research Association (ARA)
• Royal Aeronautical Society (RAeS)
• UKspace

• Aerospace Industries Association (AIA)
• Aerospace, Security and Defence Industries Association of Europe (ASD)
• International Astronautical Federation (IAF)
• International Coordinating Council of Aerospace Industries Associations (ICCAIA)
• SAE International