Select Committee on Trade and Industry Appendices to the Minutes of Evidence


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 site.

  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 into tiers.

  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 the EU.

5 January 2001

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