APPENDIX 9
Memorandum submitted by AIRLINE—the
Aerospace Industry Regional and Local Authority Network
1. INTRODUCTION
1.1 AIRLINE (the Aerospace Industry Regional
and Local Authority Network) is a network of local authorities
from across the UK, formed in 1990 to represent the interests
of key aerospace manufacturing regions. The Network aims to:
(a) Represent the interests of local communities
as long-term stakeholders in the future viability and prosperity
of the UK aerospace industry.
(b) Help promote the aerospace industry's
contribution to the manufacturing and wealth creating capacity
of the UK national economy.
(c) Maximise local employment and business
benefits of both established and new investments in the UK aerospace
industry.
(d) Influence future UK Government and EU
decisions about regional development, international trade and
other policies wherever they impact upon the long-term viability
of aerospace areas.
(e) Work with and influence the aerospace
industry at every level to secure their manufacturing, research
and development investments in the UK regions.
2. NATIONAL EMPLOYMENT
AND BUSINESS
ISSUES
2.1 Direct employment in UK aerospace manufacturing
stands at around 150,000 with another 350,000 jobs in the supply
chain. The industry turns over almost £18 billion annually
and exports 60 per cent of its sales. Aerospace is a huge net
earner for the national economy, making a massive contribution
to the balance of trade (yielding a positive balance worth £2.13
billion in 1999). Overseas-owned aerospace assets are also very
significant, with UK companies employing around 40,000 people
outside the UK (mostly in North America).
2.2 All this means that "UK Aerospace
plc" is consistently in the world's top three in terms of
market share and technological innovation.
2.3 Technology leadership in this industry
is critical, combined with the constant pursuit of cost savings
and productivity gains—all are key competitiveness factors
in global aerospace markets.
2.4 Maintaining competitiveness in these
areas depends absolutely on the quality of two things: the UK
skills base and UK suppliers companies. But it also relies heavily
on appropriate support from Government for skills development
and for adequate, ongoing investments in the "knowledge base"
(principally through R&D programmes and longer-term launch
loans to the industry).
2.5 In the areas which AIRLINE represents,
the supply of high-quality skills and the presence of world-class
suppliers have long been acknowledged by the prime contractors/Original
Equipment Manufacturers (OEMs) as major factors influencing their
investment and sourcing decisions.
2.6 The aerospace supply chain in the UK
represents a very significant part of a "hidden" aerospace
economy. The SBAC's recent survey of the equipment sector supply
chain alone showed that:
(a) Of around 1,400 suppliers to first tier
equipment sector companies (including Rolls-Royce, Smiths Industries,
Lucas and Dowty), 70 per cent are UK based, providing £1.3
billion worth of manufactured goods and related services annually.
(b) Almost half of these firms are single
site operations. 70 per cent are private limited companies, and
a similar proportion are small to medium size enterprises (SMEs).
So most suppliers are relatively small, locally owned and managed
firms.
(c) Despite this, the majority are offering
quite specialised, highly skilled services.
(d) A very high proportion of the workforce
employed in the supply chain at this level (48 per cent) is in
professional, technical, scientific and skilled manual occupations.
Well over a quarter (27 per cent) are qualified to at least HNC/D
level or equivalent (higher than the UK average).
(e) An unusually large number of these small
firms (84 per cent) offer structured training to their employees—from
update training for skilled workers, through apprenticeships and
graduate programme, to management development.
2.7 The investment being made in both R&D
and skills by businesses at this level in the supply chain is
very considerable. But they depend ultimately on the prime contractors—the
likes of BAE SYSTEMS, Rolls-Royce and GKN—maintaining a
significant manufacturing presence in this country.
2.8 However, the industry at prime contractor/OEM
level is changing fast. The globalisation of markets is being
matched by the increasingly international presence of UK aerospace
companies. Overseas assets mean that these companies now have
capacity and capability in other countries as well. This also
means that UK companies have access to support from foreign Governments
that do see the strategic advantage of having a strong domestic
aerospace industry and are willing to invest in it.
2.9 As a result, we are now seeing a steady
migration of manufacturing activities and contracts from UK sites
and suppliers. This poses a direct threat to the wealth creating
capacity of our local communities, both in terms of direct employment
with the OEMs, and jobs and businesses in the supply chain.
3. DEFENCE PROCUREMENT
POLICIES AND
PRACTICES
3.1 As a key customer of the aerospace industry,
Government decisions, particularly those made by the MoD, play
a significant role in determining economic and industrial impacts
in our communities.
3.2 Based on AIRLINE's recent fact-finding
and research on defence procurement policies, it appears that
issues of defence capability and service needs, together with
cost and programme timetables (especially over the last 10-15
years), are at the forefront in decision making.
3.3 The Government decision-making process
continues to pay insufficient methodical and systematic attention
to a range of economic factors and implications. Insufficient
information is generated and analysis undertaken on the industrial
impact and economic factors associated with procurement decisions.
In AIRLINE's view, the quality of decision-making suffers accordingly,
and the long-term strategic benefits of this industry to the prosperity
of UK aerospace communities are placed at risk.
3.4 Among the factors that should be addressed
are:
(a) An accurate assessment of industry and
employment implications, incorporating the entire UK supply chain.
(b) The quality of employment involved, including
skills levels, knowledge and technology contents of aerospace
work (from R&D through to systems integration/final assembly).
(c) The long-term skills and capabilities
of the UK aerospace workforce.
(d) The longer-term implications for the
competitiveness of the aerospace supply chain in the UK.
(e) Long-term strategic capabilities of prime
contractors and key technology providers.
3.5 AIRLINE research suggests that these
factors are not yet being addressed methodically and systematically,
for the following reasons:
(a) The introduction of a new "commercial"
approach to defence procurement in the mid-1980s, which took no
formal account of "industrial base" economic factors.
(b) The introduction of "Smart Procurement"
policies in the late 1990s, which recognised in principle the
industrial base/economic issues but does not yet provide sufficient
methods and organisational processes for evaluating and taking
them into account.
(c) Major decisions made at Cabinet level
appear to take broad and basic economic factors into account,
but it is not known which factors are considered, how they are
being measured or how accurately.
4. CONCLUSIONS
4.1 Our view is that, although the prime
aerospace contractors remain heavily locked in to the UK as a
source of skills, innovation and supplies for the time being,
the situation is changing fast. The UK Government must be alerted
to the potential threat posed by these companies continuing along
the path of globalisation.
4.2 Urgent consideration therefore needs
to be given to the nature and scale of UK Government support for
aerospace R&D and launch investment/loans. The goal must be
to improve this country's attractiveness vis a" vis
competitor nations that are providing a much more positive investment
environment.
4.3 The Government should also be developing
(a) an explicit policy on the economic development implications
of its aerospace/defence procurement activities and (b) a methodology
for measuring and justifying the UK impact of specific procurement
decisions over a certain value.
4.4 We can make a choice about the future
of UK aerospace. We can choose to prevent this crucial industry
haemorrhaging from the UK economy by recognising its strategic
importance and maintaining an investment environment that is conducive
to that continuing role. Or we can let it wither on the vine and
see our competitor nations benefit from the export of UK skills
and expertise.
18 January 2001
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