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The notion that knowledge and skills are at the heart of innovation and competitiveness has become widely accepted by spatial academics and policy-makers. The role that knowledge and skills play in aerospace has only been examined by few accounts, however, and outsourcing as a key feature has hardly been studied. Hence, this article investigates how and to what extent knowledge and skills influence the outsourcing decisions of the aerospace industry, located in two agglomerations, in Wales. It emerges that the availability of technological capabilities and competencies is indeed the key to understanding outsourcing decisions. Airbus compensates for its own knowledge deficits through outsourcing to benefit from suppliers' enhanced expertise. The availability of well-developed skills is crucial to the success of the Airbus supply chain and other aerospace firms. Although skilled companies perform well today, challenges from future technologies must be addressed to remain competitive. An overdue upgrading of knowledge and skills, if met, promises to improve the competitive position of Welsh aerospace.

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