APPENDIX 3
Memorandum submitted by the Royal Aeronautical
Society
1. The Committee intervention is timely.
Finalisation of the arrangement between MoD and Carlyle is imminent.
At the same time the DTI sponsored "Aerospace Innovation
& Growth Team" (AeIGT) led by Sir Richard Evans of BAE
SYSTEMS is preparing to deliver its report on the future of the
UK aerospace industry, which will include the underpinning UK
R&T base. Meanwhile a European Strategic Research Agenda has
recently been published by the Advisory Council for Aeronautics
Research in Europe and the US Presidential Commission on the future
of the United States Aerospace Industry has published its final
report. Both of the latter two publications expound a vision of
the future in which a vibrant and globally competitive aerospace
sector continues to be at the core of meeting society's needs,
in terms of security, economic well-being, transport and communications.
Both see research and innovation as key to delivery and we expect
the AeIGT to conclude along similar lines. In this context QinetiQ's
aerospace systems and applied research capability is a unique
UK national resource. This resource needs to be safeguarded, notwithstanding
its transition to the private sector.
The Committee might therefore wish to explore
what safeguards are in place to ensure that QinetiQ's aerospace
systems and applied research capability remains accessible to,
and at the service of, the UK aerospace enterprise.
2. A public Private Partnership in combination
with a competitive approach to applied research is a unique and
innovative model for a national aerospace research capability.
Taken together with other recent MoD initiatives, in particular
Defence Technology Centres and "Towers of Excellence",
and with changes to the DTI research funding framework, it may
be that the UK can claim to be laying the basis for a uniquely
responsive and potentially competitive R&T framework. However,
major innovation carries with it proportionate risk.
The Committee might therefore like to explore
both the MoD vision for a national aerospace research capability
emerging from the current developments and the extent to which
associated risks have been recognised. What risks has the MoD
identified and what arrangements for risk management are in place?
3. People and relationships are at the core
of the aerospace applied research capability contained within
QinetiQ. Engineers, scientists and technologists trained in the
national laboratories from which first the Defence Research Agency,
then the Defence Evaluation and Research Agency, now QinetiQ have
emerged have long provided a central pool of expertise to staff
project teams (now Integrated Project Teams) in the Defence Procurement
Agency, its predecessor organisations, and the Defence Scientific
Staffs. The mobility from which these staffs previously benefited
no longer exists within a fragmented and mostly privatised framework.
The Committee might therefore wish to examine
what account has been taken in MoD manpower planning of the impact
of QinetiQ privatisation on the ability to recruit and retain
the skills necessary to retain "intelligent customer capability".
4. The network of relationships with overseas
national aerospace applied research establishments and programmes
through Government to Government collaborative arrangements has
long and disproportionately benefited the UK. Much of the expertise
valued by overseas partners will transition into the private sector
in QinetiQ.
The Committee may therefore wish to examine
what impact the Public Private Partnership arrangement has already
had on these relationships and how they are expected to evolve
under joint MoD/Carlyle stewardship of QinetiQ.
5. The retention of an element of aerospace
related expertise in the Defence Science and Technology laboratory
is welcomed. However, without the attraction of in-house ground
breaking research for new entrants and given the "limited
half-life" of existing, largely management level in-house
expertise it is of concern that there is insufficient "critical
mass" within the laboratory to provide a robust capability
over time.
The Committee might therefore wish to explore
this point, and the likely consequences as far as the issues raised
above are concerned.
6. The essential nature of the route to
privatisation selected by the MoD for QinetiQ is that of a Venture
Capital investment. Venture Capital normally operates on the basis
of a 3-5 year holding, anticipating a substantial return on investment
on exit. Doubtless in this case Carlyle Group will have judged
their likely return on exit in the expectation of a market recovery
over 3-5 years. However, it is likely that they will have recognised
the possibilities of growth beyond the relatively low margin MoD
business that currently dominates QinetiQ turnover, further staff
rationalisation and the sale of assets surplus to requirements
(possibly inclusive of land holdings). While recognising Carlyle's
legitimate interest in extracting maximum value from their investment.
Some assurance that any loss of strategic
capabilities resulting from possible further rationalisation and
asset sales are recognised by all concerned and properly managed
in the national interest would be welcome. A particular concern
is the Aircraft Test & Evaluation capability at Boscombe Down
and on the Trials Ranges. The Committee may also wish to pursue
this point.
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