House of Commons - Trade and Industry

Select Committee on Trade and Industry Fifteenth Report

5 Aerospace Innovation and Growth Team (AeIGT)

84. In 2002 the Secretary of State asked Sir Richard Evans, former chairman of BAE Systems, to establish an Aerospace Innovation and Growth Team (AeIGT) to look at the future of the UKAI. The Team's brief was to draw on the expertise of the major stakeholders in the UKAI and look 20 years ahead to consider ways in which UK aerospace could continue to remain globally competitive, with the vision that by 2022: "the UK will offer a global Aerospace Industry the world's most innovative and productive location, leading to sustainable growth for all its stakeholders".[182] The AeIGT's first report, published in June 2003, contained a set of objective recommendations on how to make that vision a reality:

— Research and Technology: "The UK must sustain a level of focused Aerospace applied research and demonstration sufficient to maintain and enhance the UK's position in the global Aerospace market";

— Process Excellence: "The UK must systematically and continuously deliver productivity improvement at a rate faster than its competitors";

— Skills and People Management: "UK Industry must continuously develop a world-class workforce";

— Environment, Safety and Security: "The UK must be at the forefront of international sustainable development of the Aerospace Industry in the areas of safety, security, capacity and the environment"; and

— Socio-economic environment: "Deliver the macroeconomic conditions, the wider socio-economic environment and focused policies required to improve UK Aerospace's competitive advantage and its potential to thrive in world markets."[183]

85. Following the publication of the Report, the AeGIT programme moved into an initial implementation stage, running from August 2003 to July 2004. July 2004 onwards has been described as the second implementation stage. We previously took evidence on the work of the AeIGT in 2003.[184] This section of the Report looks at the progress which has been made towards the recommendations of the AeIGT since that time, in particular the establishment of a National Aerospace Technology Strategy (NATS), and measures to reduce the productivity gap with the UKAI's main competitors through Product Excellence.

Research and technology (R&T)

86. The AeIGT Report recommended the establishment of a National Aerospace Technology Strategy (NATS) as a partnership between industry, government and academia.[185] This recommendation was based on the following grounds:

— The success of the UKAI depending on the ability to deploy world-class technology, which required long-term investment in research;

— Aerospace being a safety critical and highly regulated industry, which required focused research and validation before new technology could be applied. The strength of the UKAI stems from its history of R&D programmes, promoted by governments in collaboration with the UKAI, and aimed at bridging the gap between pure science and industrial exploitation; and

— The major UKAI companies having a global footprint. While prepared to invest in technology acquisition, they have tended to do so where the conditions are most favourable and, in particular, where they can work in partnership with governmentfunded R&D.[186]

87. Following acceptance of the AeIGT's recommendations, implementation of the NATS commenced in September 2003, under the leadership of the Aerospace Technology Steering Group (ATSG),[187] with Mr Ken Maciver, former President and Chief Executive Officer of TRW Aeronautical Systems, as Chairman. When giving evidence to us on behalf of the ATSG, Mr Maciver reiterated the basis for the AeIGT's recommendation for a NATS.[188]

NATIONAL AEROSPACE TECHNOLOGY STRATEGY (NATS)

88. The NATS - Implementation Report was published in July 2004.[189] The Report defined the background, process and structures necessary for the implementation of the NATS. The ATSG told they believed that the NATS addressed the challenges faced by the UKAI, through the mechanisms of research and validation of 'key' and 'enabling' technologies,[190] supported by coordinated and balanced public and private sector investment.[191] The Strategy describes how the required research and validation must be realised through: "a phased programme involving industrial, university and research establishment partnerships, defined through Aerospace Innovation Networks (AINs) and Aerospace Technology Validation Programmes (ATVPs)",[192] which build upon a number of existing mechanisms.[193]

AEROSPACE INNOVATION NETWORKS (AINS)

89. AINs are based on Defence Technology Centres (DTCs),[194] a model of a group of companies and technology providers, with a focus on a specific research theme. However, DTCs serve only the MoD's technology requirements and the defence industry. AINs will provide a similar mechanism to serve the civil aerospace sector (with some possible dual defence/civil aerospace applications).[195] Unlike DTCs, the facilities and research of the AINs will be open to any company willing to make the required financial commitment.[196]

90. Individual AINs will be focused on a 'core' research theme[197] over a rolling five-year period, led by industry but jointly-funded by government, regions, industrial partners, selected universities and research establishments. They are expected to be a set of networked research institutions with distributed research facilities (rather than occupying a single location). So far, 12 potential AINs have been identified:

— Aerodynamics and Computational Fluid Dynamics;

— Environmental Technology;

— Advanced Aerospace Materials & Structures;

— High Temperature Materials;

— Advanced Electrical Power Systems;

— Systems Engineering;

— Sensor Technologies;

— Interactive Network Systems;

— Health Management & Prognostics;

— Through-Life Support;

— Electro-Magnetic Interaction & Effects; and

— Synthetic Environments and Systems Simulation.[198]

91. The NATS Implementation Report suggested that DTI support for establishing the AINs would be drawn from the Department's Technology Programme, through the Knowledge Transfer Networks (KTNs) programme,[199] and support for specific projects through the Collaborative R&D programme.[200]

AEROSPACE TECHNOLOGY VALIDATION PROGRAMMES (ATVPS)

92. ATVPs are based on a US model, which has recently been adopted by the European Commission for its Framework Programme for R&D and will: "make a major contribution to risk reduction in down-stream product programmes, as well as generating valuable experience and capabilities in technology integration".[201] Each ATVP will be led by a single UKAI company and jointly funded by central Government, regions and industry but involving a group of industrial partners and selected universities and research establishments, jointly undertaking one of the specified ATVPs.

93. The NATS Implementation Report suggested that there would be six ATVPs required, which it identified as:

— Civil Powered Wing;

— Environmentally Friendly Engine;

— More Electric Aircraft;

— Autonomous Systems;

— Future Air Battlespace; and

— Air Traffic Management.[202]

94. ATVP funding will be sought from similar sources to that of the AINs. It is expected that the DTI will provide support through the Collaborative R&D programme and through overall coordination of public sector funding streams. This will be matched by UKAI support and supplemented by funds from the EC Framework Programme for R&D, Research Councils (primarily the Engineering and Physical Sciences Research Council (EPSRC) for underpinning research), and the Regional Development Agencies (RDAs). Which RDAs would be approached to support each ATVP project depends on the siting of facilities, the location of prime suppliers of components, or the prime integrator.[203]

95. AINs and ATVPs are expected to start in 2005 and all the programmes are required to have started by 2008. Priority has been given to establishing AINs and ATVPs in aerospace sectors where there is currently little activity, or where funding may be due to end, for example project funding from the now defunct CARAD programme.[204]

FUNDING THE NATS

96. The AeIGT estimated that the level of funding required for each AIN will rise to around £10 million per annum,[205] while the funding required for each major ATVP will cost between £20 million and £200 million.[206] The NATS Implementation Report estimated the total cost of NATS would be in the region of £300 million per annum.[207] For this to be provided, the report identified the need for an additional £50 million of public sector support per annum for civil and dual use (civil and defence) applied research and technology validation.[208]

97. The termination of the Civil Aircraft Research and Technology Demonstration (CARAD) programme has left the UK as the only country with a major aerospace sector which does not have a dedicated publicly-funded civil aerospace research programme.[209] In consequence the NATS will have to compete for DTI innovation funding on a non-sectoral basis.[210] The ATSG told us: "it is already clear [to them] that the innovation funding available from the DTI is inadequate to support the NATS on the basis originally envisaged and that the public share of funding for the NATS will have to come from Regional Development Agencies (RDAs), Devolved Administrations and Research Councils as well as the traditional DTI and MoD Sources".[211]

98. The ATSG also told us that the Government had already recognised the challenge it faced in co-ordinating the funding streams which would be required to enable the NATS to be put into action.[212] In February 2004, the Prime Minister assigned the task of co-ordinating public funding for the NATS to the Minister for Science and Innovation, Lord Sainsbury, who convened a National Aerospace Strategy Group (NASG) for this purpose.[213] We asked the DTI if they could tell us about the role and remit of the NASG. They told us that Lord Sainsbury: "chairs this group, which brings together all those departments: the MoD, ourselves [the DTI], representatives of the RDAs and EPSRC, that have a potential interest as either funders or as interested in the technology strategy. That group has the particular remit to help deliver the strategy […] Lord Sainsbury holds meetings with industry and attends those meetings. We take stock of progress and say, 'How did this call go? How are we getting on in developing the detailed programmes and projects' that we were talking about earlier? Once they have been identified, how can these be funded?".[214] And later: "the onus is on us to coordinate the various public sector bodies that are potentially able to fund this".[215]

99. We were interested to find out how the progress towards the implementation of NATS and the work of the NASG was being reported. The DTI told us that the formal reporting process was through the executive of the AeIGT and through themselves: "we track it ourselves because we are trying to act as the co-ordinators. There will be milestones. Given that this is tending to revolve around the DTI technology strategy calls and those are made every six months, one significant milestone is how successful are the projects that are put into that call, because it is a competitive bidding process, in terms of securing funding. That will be pretty clear and pretty public. Whether, for instance, the Aerospace Technology Group that produced the implementation report will want to have an annual report on how it is going I do not know. That is something that maybe they would want to do. I do not think we have discussed that with them particularly".[216]

100. We are content that the DTI holds a 'watching brief' over the implementation of the National Aerospace Technology Strategy (NATS) by the Aerospace Technology Steering Group (ATSG) and the co-ordination of funding for the NATS by the National Aerospace Strategy Group (NASG). However, we believe that there is a wider public interest which needs to be addressed. We therefore recommend that a report be made to Parliament annually by the Government on the progress that has been made towards the NATS. This should, as a minimum, include a report on the work of the ATSG and the progress that has been made by the NASG.

101. Aerospace is a technology-intensive industry and the benefits from public sector investment in aerospace R&D are not confined solely to the industry itself. This is witnessed by the number of 'technology spill-overs' into the wider economy, which has allowed other sectors, such as the UK motor racing industry, to be world beaters. We recommend that the work of the National Aerospace Strategy Group should be prioritised and the public funding requirements of the NATS be granted so that the vision of the Aerospace Innovation and Growth Team, that the UK will continue to be recognised as one of the world's most innovative and productive locations, can be realised.

Process Excellence

102. Despite improvements over the past ten years, the UKAI continues to lag behind other countries in terms of aerospace industry productivity. For example, in 2001, UKAI productivity was 75 percent that of the US aerospace industry (table 4).[217] In response to the UKAI's continuing productivity ranking, the AeIGT Report called for the wider use and take up of Process Excellence techniques within the UKAI supply chain.[218] Although the report acknowledged that Process Excellence techniques were already used within the UKAI supply chain, the AeIGT advocated that there was a need for their wider adoption to improve the UKAI's productivity ranking: "by 2022, UK Aerospace must exhibit world-class Process Excellence across complete businesses and extended enterprises, and throughout entire supply chains".[219] The AeIGT Process Excellence Working Group (PEWG) has been leading on the implementation of the Process Excellence objective. However, this working group has now been amalgamated with the SBAC's Enterprise Excellence Board (EEB). The new EEB, chaired by Dr John Ferrie (Managing Director of Smiths Aerospace), held its first meeting in November 2004.[220]

103. Prior to its amalgamation with the EEB, the PEWG launched a number of Product Excellence pilot programmes to: "provide a catalyst for productivity improvement across entire supply chains, and the promotion of initiatives such as the UK Lean Aerospace Initiative and Supply Chain Relationships In Action (SCRIA)".[221] In the autumn of 2003, three pilots were launched to demonstrate Process Excellence:

— Pilot 1: The A318/319/320 Fuel Quantity Indication System. Led by Smiths Aerospace;

— Pilot 2: The Meteor Missile Fin Actuation System Supply Chain. Led by Claverham Limited; and

— Pilot 3: The Tornado Tactical Data Link Supply Chain, Tactical Information Exchange Capability (TIEC). Led by BAE Systems.[222]

104. The pilots adopted an untraditional approach in that they were not led in a 'top-down' method by a 'prime' aerospace manufacturer, as had traditionally been the case, but by the next layer down (a 'tier 1' aerospace company). Each pilot considered a specific supply chain, its constituent components and how those companies in the supply chain could work collaboratively to improve their business performance. This focus on the supply chain enabled proven improvements to be disseminated within other supply chains across the participant companies.[223]

105. The pilot programmes are now complete and 'step change' improvements against quality, cost and delivery targets have been achieved.[224] For example, a 15 percent price reduction in Pilot 1 was achieved, as was a two-year lead time reduction in Pilot 3. The EEB is expected to launch further pilots in the near future. The results from all these pilots will create the basis for a Directory of Learning, which will act as an evolving industry resource, as new experience is gained.[225] The prototype Directory of Learning is expected to be available by May 2005, at which point the EEB will consult with stakeholders within the UKAI, for feedback and validation.[226]

Skills and People Management

106. The AeIGT Report concluded that it was necessary for the UKAI to develop a world-class workforce to 'drive through' R&D from innovation to production and: "must take action to quantify its skills requirements and to ensure that they are met by continuous training and development of its world class workforce".[227] The Science, Engineering and Manufacturing Training Agency (SEMTA) is currently working with the AeIGT and academia to produce an Aerospace Sector Skills Agreement.[228] The DTI told us there was already a clear view of the current and future skills need, which would be covered by such an agreement. These were:

— Software systems, modelling and simulation;

— Systems design and modelling, advanced manufacturing design and simulation, advanced electrical systems design;

— Advanced materials engineering;

— Diagnostic and prognostic techniques; and

— Skills to support emerging technologies, particularly in relation to environmental impact.[229]

107. The DTI also told us that the UKAI was working on a "gap analysis and costed action plan", which would be fed into the work of the Department of Education and Skills. The Government was also funding a study by Templeton College, Oxford, into the practices and constituents of a High Performance Work Organisation (HPWO),[230] a plan being delivered by the SBAC in conjunction with Amicus.[231] In order to spread and capture best practice from HPWOs, the SBAC's People Management Board (PMB) and EEB are collaborating to increase the awareness and engagement of the UKAI through a consolidated regional roll-out programme.[232] The DTI told us that the final results of the HPWO study are expected to be available towards the end of 2005.[233]

Safety, Security and Environment

108. The AeIGT Report concluded that the UKAI must be at the forefront of ensuring safety and security in aerospace and aviation, as well as setting and meeting environmental standards.[234] The SBAC told us that the activities of the Safety, Security & the Environment Working Group (SSE) were moving forward with the National Aerospace Technology Strategy (NATS), of which sustainability was a central theme. Further, the programme of the SSE was aligned to meeting EU aerospace industry environmental emissions targets: "hence the need to look at reduced emission combustion technologies in aircraft design".[235] Research under the SSE programme will initially be focused on the need to have a better understanding of the impact of aircraft emissions (contrails) on the upper-atmosphere, and the role which future air traffic management might play in diminishing that impact. The AeIGT is currently talking to the Natural Environment Research Council (NERC) and EPSRC about a jointly-funded research project into the impact of aircraft on the environment and others were already discussing plans for a new national institute for aviation and the environment.[236]

109. The SBAC told us that an UKAI-wide sustainability strategy, the Commercial Aviation Sustainability Strategy (CASS), would be published sometime during 2005.[237] The Strategy will be "a blueprint for achieving sustainable aviation, which requires consolidated support from the major UK industrial stakeholders including airports, airlines and Air Traffic Management operators. Currently these stakeholders are making progress towards achieving a consensus of agreement and in signing-up to the commitments set out in the CASS".[238]

Socio-Economic Environment

110. The AeIGT Report recommended that the UKAI should develop an aerospace market observatory to create: "a single analysis and intelligence system for the benefit of industry, government and universities, and a [online] portal to inform companies of all the sources and forms of support and advice that were available to them".[239] The Market Observatory and Aerospace Portal concept 'demonstrators' were launched at Farnborough International 2004.[240] The Aerospace Portal is intended to inform UKAI companies of the sources and forms of support and advice which are available to them. The Market Observatory, by contrast, looks at the sources of fact-based information and analysis. The SBAC told us that, eventually, the Observatory "will generate its own research for stakeholders in the industry".[241]

111. The AeIGT's Aerospace Finance Working Group (continued from the original AeIGT team) is currently drawing together a report to summarise the investigations it has carried out into the productivity of the UKAI, the economic benefits of externalities (the economic benefits to the wider economy from spill-overs from the aerospace industry), and the role of capital markets with respect to the provision of development capital for UKAI.[242]

112. The work of the Aerospace Innovation and Growth Team (AeIGT) is a prime example of what can be achieved for an industry through the willing collaboration of all of its stakeholders. The UKAI is one of the most important sectors of the UK economy and we believe that, through its support for the AeIGT, this has been recognised by the Government.

113. With a target date of 2022 for the implementation of the recommendations of the AeIGT's Report on the future of the UKAI, we believe it will be some time before a meaningful assessment of progress towards the vision of the AeIGT can be made with any degree of confidence. However, the progress which has been reported to us suggests that a 'good start' has already been made. We have no doubt that our successors will wish to investigate the competitiveness of the UKAI before 2022. The progress made towards the AeIGT's vision, that by 2022 "the UK will offer a global Aerospace Industry the world's most innovative and productive location, leading to sustainable growth for all its stakeholders", would doubtless be one of the main areas that they would wish to look at.

182 DTI/AeGIT, An Independent Report on the Future of the UK Aerospace Industry, June 2003, p 10 Back

183 Ibid. Back

184 See: Trade and Industry Committee, Minutes of Evidence for Tuesday 15 July 2003, Session 2002-03, HC 1023-i Back

185 DTI/AeGIT, An Independent Report on the Future of the UK Aerospace Industry, June 2003 Back

186 Appendix 1, para 2 Back

187 Ibid., para 4 Back

188 Q 161 Back

189 AeIGT, National Aerospace Technology Strategy - Implementation Report, 2 August 2004 Back

190 Q 162 Back

191 Appendix 2, para 3.2 Back

192 ATSG website (11 March 2005): www.aeigt.co.uk/workinggroup1.shtml Back

193 See: AeIGT, National Aerospace Technology Strategy - Implementation Report, 2 August 2004, para 21 Back