Defence Aviation

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The Chairman: Order. If members of the Committee wish to discuss their future contributions to the debate, I ask them to do so outside.

Mr. Key: Thank you, Mr. O'Hara. I was not bothered by the noise, but I agree that it is nice to listen to the debate. We could no doubt pursue several interesting conversations outside on the future of fishing or how to save the pound, but we are here considering an important issue.

I also have questions on the retention of strategic capabilities. DARA will to some extent be handicapped by the Ministry of Defence's desire to retain strategic capabilities and preserve surge capacity. It is that surge capacity on which the Committee needs some answers. What estimate has the Minister made of the cost of retaining key strategic capabilities that may not be commercially viable? We know that there is excess capacity. What estimate has the Minister made of the cost of retaining DARA's surge capacity in an emergency? Will the surge capacity take into account the employment of civilian workers, or even a sponsored reserve force, who can be required to work in a war zone? That is an important issue because, as we saw in the Gulf war, for example, a number of contractors worked close to the front line. What will happen to DARA in that regard?

It is clear in the report of the Select Committee on Defence that DARA's favoured option is to move from St. Athan to Cardiff airport. What plans does the Minister have for St. Athan if DARA moves from the site? What effect would such a move have on other site users? Does the Minister intend to sell the site if DARA leaves? Is that part of the Treasury's equation and the reason that it has been prepared to give a three-year holiday—

The Chairman: Order. I have been listening extremely carefully to the hon. Gentleman's contribution. The order is narrowly confined to the establishment of the fund. I understand that the fund changes the basis of trading for DARA, so I have allowed him to expatiate on developed trading practices as a result of the change of the basis of funding, but he is now on the point of going beyond the debate's terms of reference.

Mr. Key: I stand admonished, Mr. O'Hara. You will be relieved to know that I was coming to my last point, which concerns the future of the trading fund. The Ministry of Defence seems not to have ruled out future privatisation of DARA, which of course would change the status of the fund. The Select Committee's report states in paragraph 15 on page IX that the longer-term requirement for DARA has yet to be decided and that

    ``the Agency's strategic operational role is unlikely to disappear completely. It is in that context, the MoD assured us, that DARA's future status was as a trading fund rather than as a private company—

    That is why we took the decision that we should move to trading fund status. We did not take a decision to privatise DARA. We believe that at this stage of our development it is absolutely right that we should have surge capability available to us.''

I emphasise the next comment in the report:

    ``We note that phrase `at this stage of our development'.''

As the Minister said at the start of the debate, this is a step along a long road. It seems that neither the Government nor anyone else are sure where that road will end, so that is why I thought it right to flag up a number of concerns about the status of the trading fund. It is not that we object in principle to efforts to make the Ministry of Defence and its agencies more efficient. Far from it: such efforts are part of a long process that has gone on for many years under successive Governments. Nevertheless, for the sake of the employees at all the sites—whether Almondbank in Perth, Gosport, St. Athan, or elsewhere—we should have more certainty about what will happen over the next three to five years.

4.58 pm

Mr. Paul Flynn (Newport, West): The future of the jobs in south Wales is a great concern. As the hon. Member for Salisbury (Mr. Key) mentioned, that has caused a great deal of anxiety. He can be excused, because he is the son of a bishop and well-schooled in the fairly recent, brash Anglican religion, which has not been around for very long. Tathan was the saint of a church that existed in the fourth century. Like Teilo, Dyfrig and Dewi, it was part of the Celtic church, a literate, Christian society that existed when the ancestors of English speakers were pagan barbarians who dressed themselves in cloaks, painted themselves blue and howled at the moon from high mountains.

The Chairman: I am extremely reluctant to interrupt the hon. Gentleman, but I am sure that he will now come to the point of the debate.

Mr. Flynn: I do not want to be accused of expatiation, but I and my colleagues have been having a discussion—I believe that you are the only person in the Committee who would know the answer, Mr. O'Hara—about the word to use when the first consonant of a word is transferred to the word in front of it; the original saint's name was Tathan, which became St. Athan.

Although there is relief that DARA is likely to be centred in Cardiff airport, only a few miles away, and that the main employers will remain there, there is great anxiety that the head of the organisation will be transferred to the Bristol-Bath area because of a poor response to the attempts to recruit high-level technical staff. There should be some convincing evidence that such staff will be available in the Bristol-Bath area before the head is parted from the body in the way proposed. It is not sensible to decapitate the organisation without an absolute guarantee that staff are available elsewhere. I hope that serious consideration will be given to the matter, because it will damage the viability of the organisation if the Severn channel comes between the two parts of the company.

5 pm

Mr. Spellar: Having taken note of Anne Robinson's experience, I shall not respond to the opening remarks of my hon. Friend the Member for Newport, West (Mr. Flynn).

I stress that even up until now, DARA has been a success story; I can tell the hon. Member for Salisbury that early in this Government, when I was Under-Secretary of State, the then Minister for the Armed Forces rejected a proposal to contract out the work of St. Athan. The creation and success of DARA would not have been possible had we not rejected that proposal, which has enabled the bringing together of the capabilities and the great advances in efficiency that I shall detail in a moment.

There are four sites, and no plans to move away from them; Almondbank is an extremely successful site undertaking work for the Government and sub-contracting work from Boeing for the Chinook helicopters of the Royal Dutch Air Force. That shows the considerable skill of the work force and the dramatic changes that have taken place in efficiency, many of them driven by the shop floor work force.

The hon. Gentleman seemed to have difficulty with the concepts of competition and partnering, which are in a dynamic tension. That concept is faced not only by the Ministry of Defence in DARA, as the hon. Gentleman rightly said, but elsewhere in the Ministry of Defence and indeed in most other companies in Britain and throughout the world. As I said earlier, companies are considering competition; partnering, common goals, and gain sharing are not just motherhood statements but real industrial experiences building on the experience of the commercial sector, underpinned by competitive contractor selection whenever that provides best value for money. It is a common commercial concept to have initial competition for a project and, on that basis, to move towards a partnering concept and continuous gain-sharing. As long as that is successful, that particular contract is sustained. That is an effective commercial approach and one that we have been driving through under the strategic defence review; the situation we inherited did not reflect best commercial practice. In that sense, DARA's role has been recognised by it having been admitted to the Defence Manufacturers Association.

The hon. Gentleman mentioned project Whirlwind, which involves joint management of the supply chain between industry and DARA, but it will run competitions for repair and overhaul so that value for money is consistently delivered. In many of our equipment purchases we are dealing with a sole supplier, but there is also competition in the various sub-contracts. That is something with which we regularly have to deal.

We also will examine third-party work. As the hon. Gentleman rightly said, to retain surge capability, the workload often—but not always—requires high-tech equipment. Several international companies are considering being involved in service provision, and DARA would make an excellent partner. I mentioned a couple today, but there are others with which we are in discussion. That is good for the surge capability and sustainability of the Royal Air Force; it is also good for the work force and for British industry. It is innovative, worth while and already happening. Surge capability might require overtime, and he is right to say that we must have the correct balance between uniformed and non-uniformed personnel. We also should be able to have support closer to the front line, although we are debating third or fourth line rather than first or second line repair, which would be the main area in a combat situation.

The hon. Member for Salisbury also mentioned the important subject of intellectual property rights. In many ways, that reinforces DARA's unique position because, were its work undertaken solely by a private company, it would make for a much more difficult relationship with the original equipment manufacturers and their intellectual property rights. We are constantly involved in negotiations with companies about international property rights, and DARA is well placed to operate in that environment.

The hon. Gentleman also talked about the 90 per cent. allocation over three years, which will enable DARA to rationalise its work. One of the issues that he might have heard about when he was watching television in the bar before he went to the rugby—or whatever it was—in Cardiff was the transfer of work from a site-based to a product-based system. That builds on the specialist competencies of particular sites and means that engine work is going to Fleetlands, while aviation work has transferred from Fleetlands up to Sealand. Again, that has been handled well, with minimal disruption to the work force while avoiding redundancies and maintaining the uniformed-civilian balance.

That is how we view the future role of DARA. Inevitably, it is evolving, as supply and maintenance have evolved in private industry as well. One only has to look at the experience of airlines to see the changes that have taken place between contractors and the logistics chain and airlines. Undoubtedly, we have learnt from some of their experiences, but we have also adapted and applied our own.

The hon. Gentleman also alluded to the move to Cardiff airport, which is being discussed with the Welsh Development Agency and the Welsh Executive. An investment appraisal of that is being undertaken. We have a number of old buildings at St. Athan; we must either look to replace them and bring them into a more coherent estate, or examine the advantages of the Cardiff airport move. The two sites are fairly close to each other, and we recognise the considerable skills available there; particularly because of the investment made by DARA and the Royal Air Force over the years. Indeed, that is probably why another aerospace equipment manufacturer moved its repair depot there; to poach our extremely good work force. On the question of the headquarters, the hon. Gentleman is right that, after a period of time, it will be subject to review. Ultimately, it is subject to ministerial decision.

I am grateful to hon. Members on both sides of the Committee for their interest in the order. It is right that the proposal to place DARA on a trading fund footing should be carefully considered before we embark on it. The debate has reaffirmed the importance of enabling DARA to face the more challenging commercial world in which it will need to operate successfully in the years to come. Trading fund status is a natural development for DARA and will supply the flexibility, disciplines and stimulus needed to meet the challenges ahead.

5.10 pm

Question put and agreed to.


    That the Committee has considered the Draft Defence Aviation Repair Agency Trading Fund Order 2001.

        Committee rose at ten minutes past Five o'clock.

The following Members attended the Committee:
O'Hara, Mr. Eddie (Chairman)
Butler, Mrs.
Clelland, Mr.
Flynn, Mr.
Follett, Barbara
Hurst, Mr.
Jones, Ms Jenny
Key, Mr.
Pound, Mr.
Randall, Mr.
Salter, Mr.
Spellar, Mr.
Watts, Mr.

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Prepared 19 March 2001