Examination of Witnesses (Questions 120
- 139)
TUESDAY 23 MAY 2000
SIR ROBERT
WALMSLEY AND
VICE-ADMIRAL
SIR JEREMY
BLACKHAM
Chairman
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.
Chairman
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.
Chairman
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.
Chairman
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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