The Institute - which is aiming to become the leading aerospace research facility in the world - is set to play a crucial role in the development of quieter, more efficient and more durable aircraft.
Its interdisciplinary approach will also see key issues such as environmental, health and economic impacts addressed and considered.
More than one hundred researchers at The University of Manchester from across a range of traditional disciplines are already working on an array of projects within the Institute.
UMARI offers industrial access to world-class research and facilities, plus the expertise of 120 academic staff members in 12 industrially themed research areas, which map capability directly onto the National Aerospace Strategy (NATS).
It also boasts the second largest number of Engineering and Physical Science Research Council-funded (EPSRC) research projects for the aerospace and defence sector.
The interdisciplinary approach adopted by UMARI brings together aero engineers, materials scientists, electrical and mechanical engineers, mathematicians, electronics and computing experts, manufacturing specialists and environmental scientists.
The Institute has made a flying start in its bid to secure at least one £1 million project each year, by landing a £2.2 million funding package from EPSRC to develop work a new 3D x-ray tomographic imaging facility capable of producing detailed cross-sections of structures.
This new resource will be available to researchers across the country, and will represent a major leap forward in their ability to study high-resolution 3D imagery of real-time aerospace problems such as cracking or corrosion without the need for hugely expensive and cumbersome synchrotron equipment.
While intended primarily for aerospace research, the facility will also be invaluable to other investigations looking into structures of organic materials, measuring and predicting seismic activity, or revealing buried fossils.
Another area the new Institute will focus on is the use of lightweight composite materials. Previously too costly for use in aviation, new materials and manufacturing methods are making the weight, strength and durability benefits of composites economically viable.
The University of Manchester also houses the Rolls-Royce University Technology Centre, which conducts research into advanced power systems for extreme environments.
Present at the official launch was the Science and Innovation Minister Ian Pearson, and senior figures from companies such as Airbus, BAE Systems, Rolls-Royce, Rapiscan - underlining the strength and breadth of the University's existing research links with industry and the expectations for an innovative future.
Science and Innovation Minister Ian Pearson said: "Research and innovation have an increasing part to play in business as the global economy gets more competitive. Linking research and business is at the heart of what we do at the Department for Innovation, Universities and Skills.
"Aerospace is one of the UK's most successful business sectors and Manchester is one of our leading universities. I am therefore delighted to see the two coming together with the creation of UMARI, which will help maintain the UK's position as a world leader in aerospace research."
Director of UMARI, Professor Phil Withers, said: "This new institute puts The University of Manchester at the top table of university aerospace research in Britain.
"We are now better equipped than ever to play a lead role in working with UK companies to maintain and enhance their position as major players in the full gamut of aviation-related fields.
"Whether it is finding better-performing composite materials or testing new manufacturing methods, modelling the environmental impact of air travel or combating the civil aviation terrorist threat, The University of Manchester is set to make a major contribution to all areas of aerospace research and development."
Professor John Perkins, Vice-President and Dean of the Faculty of Engineering and Physical Sciences, said: "UMARI brings together a hugely talented pool of researchers across a diverse range of disciplines. With world-class facilities available on campus, the Institute is poised to make a huge contribution to the future development of aerospace and aviation technology.
"The launch of this major new institute is another very significant step towards our goal of becoming one of the world's top 25 universities by 2015."
Jon Keighren | alfa
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