WEDNESDAY 2 MAY 2001

SIR ROBERT WALMSLEY KCB AND VICE-ADMIRAL SIR JEREMY BLACKHAM KCB

  40. Do all the designs offer sufficient scope for deploying early warning aircraft?
  (Sir Robert Walmsley) I think you made the point earlier as to whether a STOVL-only carrier would be able to operate E2C. Patently the answer is no, but as Admiral Blackham carefully explained, we are not committed to E2C.

  41. Can you reiterate your assumptions about which type of aircraft may best fill that role?
  (Sir Robert Walmsley) I cannot add anything to what has been said.
  (Vice-Admiral Sir Jeremy Blackham) I do not have an assumption yet. I have an open mind about it. We are busy studying our overall surveillance architecture.

  42. Have the CVF assessment studies indicated that the force projection capability envisaged in the SDR can still be delivered with a two-vessel programme that is still affordable? I would like a ministerial response from both of you. Will the number be two or three?
  (Sir Robert Walmsley) My answer is so far so good.
  (Vice-Admiral Sir Jeremy Blackham) I think my answer is much the same. Once again, we are concerned with whether we can put this amount of force where we want it when we need it. I am quite certain that these aircraft carriers will have a much higher rate of reliability. We have changed our design and build philosophy and we have changed our maintenance philosophy. They will have a much higher rate of availability than our existing ships. I am therefore expecting that we shall be able to produce one of those all the time.

  43. I would hope so. For how long in each 12-month period will we have two available, or even 1.7 available?
  (Vice-Admiral Sir Jeremy Blackham) I cannot answer that question at this point. There is no requirement in the SDR to do that.
  (Sir Robert Walmsley) The ships are being designed not to depend on major refits, which is when ships go to the dockyards for long periods of time.
  (Vice-Admiral Sir Jeremy Blackham) It is worth saying that one has to define the terms. The requirement for two may have a longer warning time than a situation in which only one is needed. A ship can be available at five-minutes notice, or at 10, 30 or 40-days notice. A ship has to be very deep in refit—Sir Robert has said that we do not anticipate that—for it to be unable to be deployed within a short period.

  44. I am delighted to know that we shall have two carriers that will be available at short notice permanently.
  (Vice-Admiral Sir Jeremy Blackham) That is not exactly what I said.

  45. That seems to be a good answer as to why there should be two carriers—the fact that they will always be available. Unless physics and finances change, one or other or both of them will be undertaking a major refit or something substantial will have gone wrong. I would have thought that if you want two available, there is a good case for arguing that you should have three, in order to guarantee two, as opposed to two to guarantee two, which appears to be the current position of the MoD.
  (Vice-Admiral Sir Jeremy Blackham) I do not think that we have undertaken that two will be permanently available at short notice.

  46. As long as our adversaries read the record of our proceedings. I can imagine a situation where there may be two simultaneous crises.
  (Vice-Admiral Sir Jeremy Blackham) There may be. In the past, even in the days when we did deep refits, within a matter of days we got the ships out of the refits ready to go into conflict.

  47. Is it still your intention to let phase-two CVF assessment contracts to both bidders—BAE Systems and Thales?
  (Sir Robert Walmsley) That remains the plan.

  48. Is that what will happen?
  (Sir Robert Walmsley) It is the plan today to let the contracts by about the end of next month or early in July. I would never guarantee anyone a contract, otherwise they could put me against the wall.

  49. Do you consider that the phase-two work, as currently scoped, will deliver carrier designs in 2003 which adequately address and minimise the project's technical risks? You may have heard something to the contrary.
  (Sir Robert Walmsley) Indeed, I have.

  50. Frequently?
  (Sir Robert Walmsley) More frequently recently than a while ago when we embarked on this plan with the agreement of all parties. It is important to listen to the concerns. We listen very carefully to the concerns of the companies involved. These people know their business, otherwise we would not be employing them. We have decided to split the next phase of the work which, if you work out my arithmetic, you will see is worth about £25 million to each of the companies, into half a dozen phases of equal duration during which we shall try to have an assessment with the company—not a formal assessment with a capital A, but a discussion with the company as to how the work has proceeded with that £5 million slice of work. That will ensure that both we and the contractor will be content that adequate progress is being made. I know that there have been suggestions that we are grossly under-spending on the assessment phase of this programme. It is worth analysing that quite carefully. In today's money, the ships will be about £1 billion each. There are no intrinsic risks that I know of that flow from constructing two that are more than constructing one. Therefore, what is appropriate for the assessment phase expenditure can probably be looked at on the basis of the design work and the integration task that has to be undertaken on the first ship. The cost of all that will be more than £1 billion because it will bear all the design costs. We have planned to spend just about £90 million in total on the assessment phase which is about 6 or 7 per cent. That is way below the 15 per cent that has been used as a benchmark figure for total expenditure, but 6 or 7 per cent is way above what has been spent by the United States on the Joint Strike Fighter before entering the EMD phase of that programme. So we are not out of kilter.

  51. That is two carriers as opposed to 3,000 aircraft.
  (Sir Robert Walmsley) I am simply making the point that the arbitrary application of 15 per cent of total programme costs is a guide to assessment. If the total programme costs of Joint Strike Fighter is £250 billion, you can quite quickly work out that they have not spent £40 billion on the assessment phase. It shows that that arbitrary number is an interesting guideline, but there are circumstances in which it is wholly inappropriate. I would suggest that our expenditure on a carrier needs to be watched, which is why we shall slice the work into these components and watch progress very carefully with both teams. It needs to be watched, but I do not think that we are that far wrong in our assessment of the figure.

  52. Have either bidder indicated to the MoD that they may need a longer or more sophisticated assessment phase in order to tackle properly the risks of the programme?
  (Sir Robert Walmsley) It is difficult for me to answer that. I am starting to get into competition differentiators, so I would rather not answer that. At the moment both bidders recognise the programme to which we are working.

  53. What conclusions have you reached about changing the format of the forthcoming assessment studies, or are you perfectly happy with the ground rules currently being operated?
  (Sir Robert Walmsley) We are right at the point where we are planning and going to let the phase-two assessment contracts. I do not want to indicate now—because I do not know—that we are not going to adjust in some marginal way the figures that I have indicated to you. We are not going to adjust them in a big way, and we are going to stick to our timetable, which absolutely requires ordering these ships at the beginning of 2004, which means making a decision in 2003, which means getting on with the assessment phase work starting the next big slice in the summer of this year.

  54. When we were delighted to hear that there were to be two new carriers, the principal reason that we embarked on this was to ensure that there would be no slippage. It is ironic, therefore, that we are asking questions that may lead to slippage. How firmly is the 2012 in-service date, tied to a "main gate" decision in 2003?
  (Sir Robert Walmsley) I think it is fairly firmly tied. If you allow dates to slip at the beginning of a programme, allowing them to telescope or compress the work over the later years, you are bequeathing an horrendous situation to your successors. We have no plans to do that. We think that the right decision is to order the ships in 2004 with a "main gate" decision in 2003.

  55. For how long would it be possible within existing budgets to maintain competition for the CVF programme and to put off the selection of the winning bidder? Do you perceive a risk that one or both CVF bidders might decide unilaterally that the risk of staying in the race is too great?
  (Sir Robert Walmsley) First, we are going to order ships from only one contractor. So by the beginning of 2004 we shall be down to one company. The plan is to keep two groups of prime contractors going through the assessment phase and we shall complete that in 2003 in order to achieve "main gate" later that year. If people are putting in a lot of their own money, there is always a risk that those who approve that money—the board of the company—will say, "Just a minute, will we make enough money out of this?" I think we have seen a lot of pressures on the companies in Europe, in the United Kingdom and in the United States to deliver what I believe nowadays is called "shareholder value". That means that there is great sensitivity in companies to the profitability of their defence contracting. That means that there is a risk, but I do not expect it to be unilateral in the sense that we suddenly get a letter in the post saying that they have stopped work and gone away. I would expect it to be discussed and I would expect to see whether there was some other way in which we could conclude the work with two competitors during the assessment phase.

  56. Are the carrier assessment studies that are now underway steering you towards one aircraft variant or the other?
  (Sir Robert Walmsley) No. We are deliberately working on the basis that the aircraft is the driving factor. In round numbers, on rule of thumb stuff, in any aircraft and carrier programme the ship costs one-third and the aircraft cost two-thirds. The central matter is to make the right choice in relation to the aircraft and then in relation to the ship. That is why I mentioned the twin-track approach, which will cost us about £10 million which Admiral Blackham has seen as appropriate to provide to my people.

  57. When is the latest point at which decisions about the JSF variant can be made without jeopardising the timely completion of the carrier?
  (Sir Robert Walmsley) I think probably about the middle of 2002, but we would like to make it January 2002. We may make it sooner than that.

  58. You would like to make it by then, but you cannot guarantee that?
  (Sir Robert Walmsley) No, because we do not control the Joint Strike Fighter programme. In a sense, we are having to adapt our ship procurement to the progress on that programme.

  59. Does that programme show any sign of slippage?
  (Sir Robert Walmsley) It has slipped a bit, but nothing substantial. The biggest question is the one raised by the Chairman at the beginning about how confident we are that the programme will go ahead as planned. Obviously, that is in the hands of the United States administration. I am absolutely confident that they will take account of our concerns that the programme should proceed.