Memorandum submitted by the Manufacturing
Science and Finance Union (MSF) Group based at BAE SYSTEMS (Combat
and Radar Systems) Ltd, Cowes, Isle of Wight
The MSF Group at the Cowes site is a union body
representing staff (ie non manual) employed by BAE SYSTEMS (Combat
and Radar Systems) Ltd. However, the views expressed are also
representative of the unions that represent manual workers on
The above company is a wholly owned part of
BAE SYSTEMS. The majority of the work undertaken at the Cowes
site is currently defence radar design and production.
This submission wishes to inform the Committee
of the view that the divestment of manufacturing work by BAE SYSTEMS
to contracting companies will lead to a reduced skill base within
the UK, that mergers/joint ventures with European partners will
threaten UK jobs, and that the UK aerospace industry is under
threat owing to unequal competition for UK Government defence
contracts resulting from support given to EU aerospace companies
by their respective governments.
There is a move within BAE SYSTEMS to divest
itself of what is termed non-core activities. This is based upon
the core competency model whereby non-core activities are essentially
those deemed to be non-value adding to the business which can
be undertaken more cheaply elsewhere. The non-core activities
have been defined as those activities that take place in "tiers"
4 and 5, and in the case of the Cowes site, some of those activities
within tier 3. The attached appendix gives a brief overview of
the core competency model, which includes the division of work
This work is contracted out to companies that
specialises in work that encompasses the above mentioned tiers.
It is the belief of the company that it is cheaper to divest this
work than to undertake it in-house. The result is that there is
a cost of jobs within BAE SYSTEMS. At the Cowes site this cost
to jobs equates to 29 per cent of the manual workforce, with a
resultant, though smaller cost to the non-manual workforce.
We believe that there are other long-term problems
that result from divesting work. From the information we have,
following meetings with two of the contractors bidding for work
being divested from Cowes, there appears to be reluctance to provide
that which could traditionally be termed apprenticeships. This
presumably helps them keep costs down. Secondly, the wage rates
are substantially (approximately 15 per cent) lower than those
currently paid within BAE SYSTEMS. The result of both of these,
it is argued, will be to prevent and/or dissuade young people
from entering the trades associated with this work. Hence in the
long term, it will result in a reduction of available jobs for
young people within the UK. It could also have a knock-on effect
for BAE SYSTEMS if there is no longer the resource available to
undertake the work if requires.
Another related issue is the secondary outsourcing
of contracted work to low wage Eastern European countries by UK
contractors in order to further reduce costs. This clearly reduces
UK employment. Whilst it is not being suggested that this is the
case in relation to work being divested from Cowes, it is believed
to be the case at other BAE SYSTEMS sites. Further information
is expected to be supplied by unions from other BAE SYSTEMS sites
on this point. It is suggested that this is a matter from which
further information could be sought from BAE SYSTEMS to ascertain
its extent, and to ascertain whether secondary outsourcing is
occurring on government contracts.
As part of the consolidation of the defence
industry across the world, mergers and joint ventures are increasingly
being formed. Currently, BAE SYSTEMS are negotiating with Finnmeccanica
of Italy about an expansion of their existing joint venture, Alenia
Marconi Systems (AMS). This would see BAE SYSTEMS (Combat and
Radar Systems) Ltd and AMS being formed into a 50:50 joint venture
between BAE SYSTEMS and Finnmeccanica.
Whilst the logic in creating joint ventures
can be understood, the fear is that they often result in job losses.
When such joint ventures occur with companies based in certain
European countries, the danger is that it is far more likely that
the job losses will occur within the UK.
The reason for this lies in the differing labour
laws across Europe. From the recent job losses announced within
Ford and Vauxhall, there appears to be significant evidence to
support this argument. Within some European countries it is both
easier and cheaper to make workers redundant. In relation to Finnmeccanica,
it is understood that the Italian government has prevented a number
of redundancies that the company wanted to make. The clear implication,
therefore, for UK employees who are currently or expected to become
part of the enlarged AMS, is that they are more likely to lose
their jobs (if redundancies become necessary) than their Italian
counterparts even if the UK part of the business is more efficient.
The Committee may be able to obtain further information on this
matter from BAE SYSTEMS.
One of the main tenets of the European Union
is fair competition. Hence, companies from all EU countries should
have an equal chance of obtaining work from companies and governments
within other EU countries. However, there is a concern that this
may not be the case within the aerospace industry.
It is believed that the UK Government is allowing
bids from non-UK companies within the EU for defence contracts.
Whilst not criticising the UK Government for taking this approach,
as it is not known whether the UK Government is required to do
this under EU law in relation to all defence contracts, there
is a concern that BAE SYSEMS will be competing on an unequal basis
against companies from other EU countries who are being subsidised
in one form or another by their respective governments. Ultimately,
this will be to the disadvantage of workers within the UK aerospace
industry. It is suggested that the Committee consider the extent
of competition for UK defence contracts from non-UK EU companies
and whether there are factors as detailed above that may be putting
UK aerospace companies at a disadvantage. It is also suggested
that the Committee consider the extent to which UK aerospace companies
are able to compete for contracts from governments elsewhere in
5 January 2001