Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)




  120. I really do admire your honesty. It would normally take the MOD half an hour to say that. We are both frank; I really do appreciate it.
  (Sir Robert Walmsley) Somewhere between 150 and 200.

Mr Cohen

  121. Up to 200.
  (Sir Robert Walmsley) No; I am in the "about 50 frigates" regime.

  122. That is an interesting benchmark number because we are only ordering 25 and that leaves a lot to be ordered by other countries to make that viable.
  (Sir Robert Walmsley) It does.

  123. Are you happy that they are going to reach that number? We have had experience in the past where numbers are plucked out of the air, people say they are going to purchase this number and some way down the road they drop out and the figures are not realistic. Are you confident that the numbers they commit themselves to will be realistic?
  (Sir Robert Walmsley) I am certainly happy that once we have a number from any country, including us, involved in this contract, then if that country chooses to change that number, all the resultant costs will have to be borne by them for the other partners. There is no question about that. That is what a commercial contract does. That is how new commercial airliners are bought. The launch customers, sometimes it is one airline, very, very rarely, come to some agreement amongst themselves and they all sign on the same day. We are actually going to have a single contract covering the supply of all the aircraft to all the countries. That is our current plan. If anybody drops out, they will take the financial consequences. I am happy about that. I just say that this issue of getting countries actually to commit to numbers of aircraft, is something I am concerned about. The rapture with which our decision was received last week, makes me feel there is no question about them not wanting to join the programme. It is a question of them screwing money out of their treasuries in order to get them to commit to sufficient numbers of aircraft. They know the score. Germany and France have always vehemently said that they want far more aircraft than the United Kingdom. That is where the majority of the orders is going to come from.

Mr Cann

  124. Are you sure about that?
  (Sir Robert Walmsley) Yes.

  125. How many pieces of paper do you have?
  (Sir Robert Walmsley) Not signed by the Chancellor or the President but on a piece of paper, yes.

Mr Cohen

  126. Is the likelihood not that we have set 25 at a low level because we do not want to have contract costs if we did not actually get to that level? We have pitched it at a low level, including what we would probably want and require and the likelihood is that it would be nearer to the 45 than the 25 in reality. I know you cannot say.
  (Sir Robert Walmsley) It is extremely helpful of this country to have made its position absolutely clear, not to be shilly-shallying around an imaginary number far higher than those we are going to order. The sooner we get everybody to real numbers, the sooner we shall get this show on the road. We promoted that process.


  127. Have the Germans abandoned their Antonov enthusiasm? That must have an effect on their commitment to this aircraft.
  (Sir Robert Walmsley) That might take a few days. They no doubt have various foreign visitors in their country over the next few weeks and they probably want to think about the impact of that factor. It is of course very difficult for Germany but I have no doubt that by the time France, Italy, Spain, all powerful European aerospace countries, plus Turkey, plus Belgium, have committed or are committing clearly to a specific number of aircraft, Germany, who have long espoused the integration of the European aerospace industry, will see the advantage of joining the programme. Germany was one of the most enthusiastic receivers of our announcement.

Mr Cohen

  128. Is it possible that Rolls-Royce engines might actually be the best value for money but might not be chosen to go in this aircraft?
  (Sir Robert Walmsley) The prime contractor, Airbus Military Company, will be behaving in a very non-Darwinian way if they choose to put in a more expensive engine. We are not going to pay them for a more expensive engine, so they will directly reduce their own profit if they do that. We very much hope that Rolls-Royce will feature in the power plant of this aircraft, either as the sole provider of the engine or, in fact much more likely, as part of a team. What I do think is that combining the best from a number of air engine companies in Europe is a very sensible way to go about this and if that is what comes out of it, then so much the better. There is no way we are going to subsidise a more expensive engine in order to keep some factory in Europe turning its lathes over with more people than would otherwise be the case.

  129. I assume from that, including in those cost points, that if Rolls-Royce were not chosen, we would not unilaterally put Rolls-Royce engines into them once we had bought them because that would add to the cost.
  (Sir Robert Walmsley) Dead right. We have been there, done that, never again.

  130. What sort of implications are there for UK jobs if Rolls-Royce is not chosen?
  (Sir Robert Walmsley) I do not really want to get myself hooked in on that because it really depends how the partnership works out. I hinted quite strongly, and it can only be a hint at the moment, that there is a possibility of it not being a winner takes all situation, with either Rolls-Royce or some other company saying they have got it and they will take it away. There are some very good things in Rolls-Royce and some very good things in other companies as well, huge experience of turboprops and it would be much more sensible perhaps for them to come together and offer us a cheaper engine than either of them going off on their own. The resultant jobs depend of course on the workshare involved in that arrangement and I just cannot predict that at the moment.


  131. Airbus is French dominated. Snecma and Rolls-Royce are long-standing competitors. Can you give us some guarantees, if it is possible, that the competition is a fair one, that it is not decided by a Franco-German axis to buy a French engine and that we are going to have to acquiesce to that choice? If Snecma come up with a better engine at a genuinely cheaper price, then competition determines that they will win. I would want to be absolutely certain that Rolls-Royce had a fair shout in this. Are you satisfied that the rules of engagement will be such that you can look carefully through the figures and the choice will be a genuine one and a fair one and Rolls-Royce will not be a victim of some stitch up by our colleagues? I am not saying it will happen, but experience has shown me that it might.
  (Sir Robert Walmsley) I very much agree with that. I am as confident as I can be that our arrangements for having transparent visibility of the bids, of understanding the assessment process, will permit us to be quite confident that the selection has been on best value for money grounds. What I would have to say though, the other side of the same coin, is that the partner governments and in particular this Government, are not going to find themselves responsible for the selection of the engine, because otherwise they become responsible for the performance of the aircraft. Somewhere between us choosing the engine and them applying a process which includes total visibility to the partner governments, there is a very sensible line which we shall be careful not to cross.

  132. You may be careful not to cross it. Can you imagine the French Government being a disinterested partner when it comes to a company losing a contract to Rolls-Royce? As long as the rules are accepted by all, I am perfectly happy. I have no shares in Rolls-Royce, I am just anxious to ensure that when the choice is made, it is a fair choice and not a fixed choice.
  (Sir Robert Walmsley) As have we been. I can only say that nobody has been stronger than my French opposite number in supporting the commercial approach to this air craft, in transferring responsibility to the Airbus Military Company and in joining us in the competition, an unheard of concept quite frankly in French defence procurement even a few years ago. I think we have some rock solid support in France from the defence side. Of course there are government interests, and that is why we are going to pay attention to the competition.

  133. When the choice of engines is made, we shall do all we can to ensure that we have access to information and would like the people concerned to assure us that the right decision was made. I hope you would bear that in mind and pass that on.
  (Sir Robert Walmsley) I will.

Mr Cohen

  134. The Chairman has already asked about delays to the A400M but in your answer to him on the leasing of the shorter-term one you said that nine years does not become economic. There are all sorts of costs which build up in the system for us if there are delays in Airbus producing their aeroplanes on time. Is there going to be anything in the contract to punish the Airbus Military Company.
  (Sir Robert Walmsley) They will not get paid. We have milestone payments and if they do not deliver they do not get their money. I think it is appropriate for me, in this Committee hearing, if I may, to comment on your point about the C-17s? First of all I hope I did not say that nine years was uneconomic. I said it was getting a much longer period than we would normally think was automatically satisfactory for leasing. The reason we have been able to contemplate leasing these C-17 aircraft is that we are not having to establish ab initio and at our cost all the support facilities associated with this wonderful transport aircraft. The reason we have been able to do that is that the Boeing company and the United States Air Force have worked with us in a very, very close way to establish how we can sensibly make use of the United States Air Force facilities for undertaking work at our expense, but without having the cost of establishing those facilities themselves. That is why it is economic, because we are not establishing some huge infrastructure here which then becomes essentially worthless when the lease period expires.


  135. If the lease period expires, do you mean?
  (Sir Robert Walmsley) The envisaged lease will expire; I cannot guarantee there would not be another one some time.

Mr Gapes

  136. May I take you back to the C-17s? You have decided to lease rather than buy the four C-17s for the short term. Would the decision have been different if the United States Air Force had taken up the special offer from Boeing for further C-17s from which we too might have benefited?
  (Sir Robert Walmsley) It is always difficult to think what would have been different if completely separate circumstances had arisen. I think you are talking about the possibility of a further order for 60 C-17s being made by the United States Air Force on the Boeing company. I can assure you that if such an order were to come through, and it might well not be until substantially after the new administration has taken office because it is such a huge commitment, then we shall ensure that we obtain benefit from any price reductions due to economies of scale.

  137. Would that price reduction affect lease arrangements as well?
  (Sir Robert Walmsley) It depends on the timing. The leased aircraft will have already been built, so you cannot say these aircraft which were built under the previous contract suddenly ought to have been cheaper because they ought to have known they were going to get an order for another 60, but ... If of course it were much earlier and they were going to be built as part of an extended contract, then we would expect to get the advantage in price. I think the timing is going to rule that out. We are not going to ignore the possibility.

  138. It would not have changed your decision as regards the A400Ms.
  (Sir Robert Walmsley) No. I hope this does not sound too school-masterly. It would have been very foolish indeed for us to base a decision on a hypothetical order by another government which they have not yet committed to.

  139. I was not talking about a hypothetical order, I was talking about a real order.
  (Sir Robert Walmsley) They have not negotiated a price for that yet.

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