By Denise Roland and Robert Wall
British Prime Minister Theresa May's failure to get U.K.
parliamentary approval for a deal to split the country from the
European Union adds significant pressure on companies as they plan
for the now greater possibility of an abrupt and disorderly
exit.
Lawmakers on Tuesday soundly rejected Mrs. May's agreement with
Brussels and approved by her cabinet, putting the process in
jeopardy ahead of a March 29 deadline to leave. The repudiation has
opened up a variety of possible outcomes considered unlikely until
recently, from Britain crashing out of the EU without a deal to a
new referendum on whether to leave at all.
With the deadline just weeks away, many big companies find
themselves making contingency plans for disaster.
"The worst case for us is not that we sell a little less fizzy
pop," said Hugo Fry, managing director of Sanofi SA's U.K.
operations. "It's patients don't get medicine." He has spent almost
two years planning how to insulate the French drugmaker from a
messy Brexit.
"The scenario of a no-deal Brexit is less and less unlikely,"
French Prime Minister Édouard Philippe said Thursday as his
government activated its contingency plans for a no-deal Brexit.
The senate approved on Thursday evening a new law allowing the
government to take Brexit-related decisions by decree over the next
few weeks. The government plans to give British nationals living in
France one year to obtain the necessary legal documents for them to
stay in the country, and will invest EUR50 million ($57 million) in
new border infrastructures, he added, saying French authorities
were also in the process of recruiting nearly 600 customs officers,
he said.
"Our goal is to meet our obligations and to ensure that the
lives of our fellow citizens, and in some ways of British nationals
living in France, is impacted as little as possible," Mr. Philippe
said.
Many British business leaders never liked Mrs. May's deal.
Executives from large international firms with big operations in
the U.K. or Europe had pushed for no exit at all in the 2016
referendum and then lobbied for the U.K. to at least remain in a
customs union with the EU, its major trade partner. But that didn't
happen.
Still, executives viewed Mrs. May's agreement with Brussels as
better than no deal because it would end 2 1/2 years of uncertainty
that has made investment decisions difficult and raised the threat
of major new obstacles and costs for exports and imports. Now, even
that is at risk, as Mrs. May tries to cobble together a new
compromise Brexit deal after surviving a no-confidence vote on
Wednesday. The EU has given no indication it would make further
concessions.
"There are no more words to describe the frustration,
impatience, and growing anger amongst business," said Adam
Marshall, director general of the British Chamber of Commerce in a
statement after the vote. "Basic questions on real-world
operational issues remain unanswered."
A no-deal Brexit threatens time-consuming customs checks and
potentially expensive tariffs on goods that now move across the
English Channel seamlessly and tax-free. Many big companies have
already spent millions of dollars locking in extra parts and
storage space ahead of time, and planning out alternative supply
lines in case confusion overwhelms British and European ports.
"You have to check every eventuality," said Mr. Fry of Sanofi.
"Is there something that, taking a certain route, [might] upset a
medicine?"
Mr. Fry technically runs the French company's U.K. business, but
he has taken on the unofficial role of chief Brexit officer. He and
a team that now numbers 20 have been planning how to avoid
catastrophe since soon after Britons voted in June 2016 to exit
from the EU.
Sanofi supplies drugs and vaccines to the U.K. mostly from
plants located elsewhere in Europe. Mr. Fry said his biggest worry
is that without a deal, that medicine will be subject to
time-consuming border checks. Sanofi supplies around a fifth of
Britain's insulin, among other medicines.
Lantus, one of Britain's most widely prescribed brands of
insulin, is made by Sanofi in Frankfurt. Once a week, doses
destined for Britain travel by refrigerated truck to Calais,
France. Those trucks cross to Dover in the south of England, either
by ferry or the Channel Tunnel, and then drive to a distribution
center in the north of England that supplies every pharmacy in the
U.K. That journey takes two or three days.
Mr. Fry set Sanofi's contingency plans in motion more than a
year ago to hold to that schedule and prevent any shortages. Ahead
of the Brexit deadline, Sanofi ramped up its production of Lantus
in Germany, sending an extra six weeks' worth of supply to the U.K.
The U.K. government has ordered all drugs makers to do so.
The company is also testing out alternative ferry routes so it
has other options if Dover, one of Europe's busiest ports, becomes
jammed up. It has started sending some containers through Harwich
in eastern England and Newhaven, south of Dover. Mr. Fry has
overseen the same process for dozens of other U.K.-bound Sanofi
products made in plants in other parts of Europe.
The Brexit bite also goes the other way. Until recently, Sanofi
used its U.K. plant in Haverhill, in eastern England, as a hub for
final packaging and quality testing for most of its rare-disease
drugs. Mr. Fry now uses a Sanofi site in Waterford, Ireland,
instead because it is unclear whether quality tests performed in
the U.K. will be recognized in the rest of Europe after Brexit.
"A lot of these decisions are not reversible," Mr. Fry said.
British aircraft-engine maker Rolls-Royce Holdings PLC is
considering bypassing British ports altogether. The company
ordinarily dispatches its big aircraft engines by truck to European
plane maker Airbus SE on the continent. One option to avoid any
Brexit-related disruptions is trucking the engines -- which can
each weigh more than 16,000 pounds -- to an Airbus facility in
Wales, part of the U.K. There they would hitch a ride in a giant
Beluga cargo aircraft that Airbus uses to ferry other large parts
from its wing-production facility to Toulouse, France, said a
person familiar with the planning.
Airbus is now building its A350 long-haul jets at a record pace
of 10 a month. All are supplied with British-made wings and powered
by Rolls-Royce engines. Any problems getting the engines on time
could pose a risk of delayed plane deliveries and angry airline
customers.
"The uncertainty is pretty unbearable," Airbus Chief Executive
Tom Enders said last week.
--Noemie Bisserbe contributed to this article.
Write to Denise Roland at Denise.Roland@wsj.com and Robert Wall
at robert.wall@wsj.com
(END) Dow Jones Newswires
January 17, 2019 19:21 ET (00:21 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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