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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 557-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE DEFENCE COMMITTEE
Delivering Front Line Capability to the RAF
Tuesday 29 November 2005 MR STEPHEN HILL RT HON ADAM INGRAM MP, AIR VICE MARSHAL BARRY THORNTON CB and MR NICK EVANS Evidence heard in Public Questions 69 - 124
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Defence Committee on Tuesday 29 November 2005 Members present Mr James Arbuthnot, in the Chair Mr David S Borrow Derek Conway Mr David Crausby Linda Gilroy Mr Dai Havard Mr Kevan Jones Robert Key John Smith Mr Desmond Swayne ________________ Memorandum submitted by Mr Stephen Hill
Examination of Witness
Witness: Mr Stephen Hill, DARA Chief Executive (1999-2003), examined. Q1 Chairman: Good morning, Mr Hill. Mr Hill: Good morning. Q2 Chairman: Thank you very much for coming to give evidence on the inquiry that the Defence Committee is doing into delivering front line capability to the RAF. You have kindly provided us with written evidence and we would like to ask you some questions about that and about other things. One of the things, which is in paragraph 3 of your evidence, was that the rational for forming DARA as a Trading Fund was to do three things: provide a benchmark and competitive alternative to industry; deliver a more competitive service and better value-for-money support to the front line, and concentration of all deep maintenance, and expand into wider markets, increasing overall volume of business and reduce prices to the MoD. As a person closely involved with DARA, can you tell us how you believe DARA fulfilled those original intentions? Mr Hill: Yes, I can. Back in 1998 there were two separate agencies, the Royal Air Force's Maintenance Group Defence Agency and the Naval Aircraft Report Organisation, which I had been heading up as Chief Executive for a period of two years. The two agencies had developed separately and independently, one under the auspices of the Navy, one under the Royal Air Force, and there was huge duplication within both, and the aim of bringing them together was to shake them down and rationalise them into a single facility, and then, with the cutting edge of moving to Trading Fund, where we would have to survive by the services that we sold, change the processes into real commercial processes that would help us to get into, ultimately, wider markets. As part of the rationalisation, we significantly reshaped the business. We inherited very large estates which were under-utilised, had too many buildings and many of the buildings were in a very poor condition. So we set about forming what we termed centres of excellence: we had two major engine facilities which we rationalised into one at Fleetlands; we had three avionics centres which we rationalised into one at Sealand, and we had five machine workshops which we rationalised into two - one at St Athan and one at Almondbank. Those are examples of the significant rationalisations that we went through. The early years of the agency, as we were running up to Trading Fund and the first year of Trading Fund, were very much focused on getting the business shaped right. So all the energy of the board and of the senior people was in shaping it up for the future. We did not only concentrate on the production side, we also concentrated in the support areas, and we established an HR support centre on one site instead of having four separate entities around the country. We formed a finance shared service centre for all transaction processing down at Fleetlands. Just to give you an example of the impact on the business, we had 168 finance people when we formed and we went down to 58 ultimately after we shaped it down into one single centre. Those are the examples. They are all about rationalising, taking cost out, re-engineering processes, utilising a smaller number of buildings and getting better value for money out of the assets that we had. Q3 Chairman: So you did all these things. How do you think your primary customer, the RAF, reacted to that? Do you think they were satisfied with the changes that you made? Mr Hill: There was always a tension at the interface with the Royal Air Force - less so with the Army and the Navy. They were our major customer. We worked very hard to establish a good customer supply relationship. We put, for instance, a sales team in both the major sites involved in running the business at Wyton and down in Yeovilton, but we had to change the business processes; in what was formerly a government organisation purely operating on the vote where everything was "free" to the customer, we had to put in hard-nosed business processes, and part of the process of driving that through generated quite a bit of difficulty because people said: "We did not have to do this before and now it is more work for us in the IPTs in order to deliver the business." There were also tensions because of a lack of understanding on the true costs of the business. Nobody, prior to moving to Trading Fund, knew the true cost of deep maintenance in the military arena. It is only by moving to Trading Fund and going to a full-cost basis, communicating and hard charging, effectively, all the costs between customer and supplier that you really get to the point where you understand what the prices really are - what the real cost is. Many customers baulked at the seeming increase in prices but, in fact, they were seeing the real prices for the first time. By paying for services that we bought from the customer base as well as them buying from us, you end up with a true cost; the true cost of facilities, the true cost of delivering services and all the overheads associated with running a business. Q4 Chairman: Do you think you delivered a more competitive service? Mr Hill: Absolutely unquestionably. We went through massive rationalisation and change, and with quite similar volumes we halved our operating costs in three years. We also halved the workforce and that was the pain that they had to take. Part of that cost down was reducing the level of service personnel in the agency for particular reasons, which I am very happy to explain. However, we significantly drove down cost, and the rationalisations that we achieved also took masses amounts of inventory out. By streamlining and speeding up processes on one site alone we took nearly £1 billion of inventory and that enabled us to take that out of the system and to close the workshop facilities. So, if you take Sealand as an example, 338 acres when we took it over, we drove it down to 40 acres; from 70 buildings to 20 buildings, and what we were able to do by making the savings was that part of the savings were reinvested in the business to give us more modern facilities. So if you go to Sealand today you will see very excellent, open-plan offices that were fed from the savings we generated from changing the business. Chairman: Then came the End to End Review. Q5 Mr Swayne: Did the End to End review destroy confidence in DARA? Mr Hill: Absolutely unquestionably. We were partnering with industry on a wide front and more and more our whole focus was on survival; so my personal time, my board's time and that of many of my senior managers, was all focused on trying to save the business rather than capturing new business. I cannot remember the number of times that I cancelled meetings that were arranged to try to get business internationally because I was concentrating on fire-brigading back home in the agency. So more and more, as we tried to work up relationships with industrial partners (let me tell you, we pioneered partnering with industry in NARO and carried that into the DARA; we had 25 international partnering arrangements in place, so we put a huge commitment to partnering with industry) those partners lost interest in us - and understandably so; they could see that the agency was under threat. Why would they want to go into long-term partnerships with us while they saw no future for the agency? Unquestionably, End to End had a hugely damaging impact on the business. Q6 Mr Swayne: You say DARA was not involved in the study until after many protests. Mr Hill: It was not. Q7 Mr Swayne: By which time key decisions had been made. What role did you have in the End to End Review? Mr Hill: As far as the rolling forward of Tornado and Harrier, and elements like that, that was given to us as a fait accompli, effectively. We had all sorts of inklings, even a year before End to End; we had all the rumours coming out through the system that this was going to happen. Indeed, I was approached a number of times and asked would we be prepared to do more work on front line bases? As an agency we are delighted to do work on front line bases with civilian working parties and that was part of our whole holistic service, but obviously you cannot have centralised facilities and then disperse all your people all around the country - it does not make any sense at all. DARA was formed as a centralised facility to deliver cost-effective support to the front line, and by bringing it all together there were huge economies of scale. Q8 Mr Swayne: What factors, do you think, lay behind this decision to reconsider the whole logistics principle? Mr Hill: We understood that the whole thing was driven by CMR (Crisis Manning Reinforcement). If you go back to when the agency was formed we had something like 1800 Service personnel in the agency. However, the cost of Service personnel is greater than their civilian counterparts, for all sorts of good reasons; Service personnel have to do additional things that civilians do not. The structure in the Services is very different from a civilian structure, so there are added costs. What we tried to do when we formed the agency was to resolve this by trying to get agreement to the premium for holding Service personnel in the agency being paid as a separate bill by the customer. This was not agreed. So progressively then, in order to be competitive, we had to take the numbers down. So that the 1800 actually was very helpful in some ways in that we did not have to make civilians redundant because the Service personnel had a job to go back to in their parent Service. So progressively we ran down and we managed that between Strike Command, Air Secretary and myself in the agency. The numbers required for CMR was always in contention. In 1999 we talked about CMR2000 giving us an absolutely definitive picture on the numbers that had to be held, and we were very happy to hold whatever that number ended up being - whether it was 200 or whether it was 1,000. However, that rolled on to 2001 and then 2002 and then it just got lost in the mists of time, as far as DARA was concerned. The rational for End to End, as far as we interpreted and was briefed to us, was that by holding that CMR element on the main operating bases you could get greater utilisation out of those personnel. There is an argument for that. There is, however, a counter-argument that says when you start splitting up a centralised service and you split it and replicate it on a number of bases then your costs are likely to go up. Now the RAF has very laudably, as we did in the agency, re-engineered their processes themselves and they are continuing to do that, as I am sure DARA is since I left. The CMR issue has always been a contentious area, as far as I am concerned. Chairman: We will come back to CMR in just a few seconds. Q9 Mr Swayne: Has the effect of End of End been to undermine RAF capability? Mr Hill: To undermine RAF capability? No, I do not think so. No. I cannot see any way it would undermine RAF capability. Q10 Mr Havard: The End to End review was about the whole of logistics activity, it was not just St Athans it was fast jets ---- Mr Hill: That is right; it was Army and Air Force. Q11 Mr Havard: What I have been concerned about is understanding exactly what its driver was, in a sense. It seems to me that what you are saying to me is that certain decisions had been made and then the End to End review was done in order to show something - presumably to show the efficiency of that decision or show how that decision could be made efficient, rather than it being a real examination of what you call true costs? Mr Hill: That is right. I absolutely agree with that. I believe the decision was taken to move forward to main operating bases prior to the End to End review being carried out, and consultants will always give you what you pay them for. You tell them the answer and they will make sure that you get to that answer as part of their processes. Q12 Mr Havard: No surprise in that. Effectively, what I get a feel for is that no matter what you did in terms of showing efficiencies at DARA, you could never, as it were "win" in this argument. Mr Hill: No. Q13 Mr Havard: You made various other suggestions of how you might "win" in the argument but none of them were taken up. Is that right? Mr Hill: That is absolutely right. We were perfectly prepared to hold Service personnel within the agency if that is what the customer wanted, as long as they were prepared to pay the premium for that. Q14 John Smith: Are we to take it from the reply that you have given already that you are not persuaded by the Ministry of Defence argument that CMR necessitates rolling forward to depth support for the front line? Mr Hill: No, I do not agree it is necessary at all. The RAF itself held CMR at St Athan for many, many years. There is absolutely no problem; you are giving the guys the skills, they have got more opportunity to capture those skills if they are working on the kind of depth that DARA offered across a number of air frame types and processes. So, no, I do not think that is necessarily the case. Q15 John Smith: On this question of air frame types, given your experience in both rotary and fixed wing, do you agree with the MoD's analysis that the Crisis Manning Requirement is much different for fixed wing than it is for rotary wing aircraft? Could you take us through that from your evidence? Mr Hill: As far as the rotary side of the business is concerned, you have got different scenarios between the three Services. The RAF has always needed additional people in times of tension and war whereas the Navy goes to sea with a full complement - it cannot go with a ship half full. So the ship-to-shore ratio is managed by the Navy very effectively. As far as the helicopters are concerned, having served on helicopters myself and been involved in many international detachments with them, it is very demanding and the rationale for rolling forward on Chinook, I believe, is exactly the same as on Tornado - if there is a rationale. So I cannot see the logic of rolling back into Fleetlands Chinook and rolling forward Harrier and Tornado on to main operating bases, but I guess the RAF may well come back to that later, and you will see a roll forward in due course. That is my guess. Q16 John Smith: That is very interesting. In your written submission you suggested that front line operational bases are less capable of meeting surge in aircraft than DARA used to be. Why do you say that? Mr Hill: From one perspective only, Mr Smith, and that is that we have the flexibility of a much larger workforce to be able to draw on and, generally, if you have a priority operationally for Tornados it does not coincide with priorities on Hawk Aircraft or VC10 or on Jaguar, or whatever. So we have the flexibility of a large workforce and being able to concentrate them where the customer has its greatest operational needs. So the example that I gave was Kosovo where we went on to 24-hour day, 7-day week working and generated Tornados and VC10s that went straight into the front line. In order to be able to do that we had the flexibility of moving people from a much wider base than a single operating base would have at the front line. John Smith: I think that has covered my last question, which was going to be on Kosovo. Chairman: Now we get on to pulse line maintenance and leaning, which we have heard a lot about over the weeks. Q17 Linda Gilroy: The MoD places a lot of faith in its expectation that lean principles and pulse line maintenance will deliver cost and efficiency savings over a sustained period without compromising safety. Do you share that faith in pulse line maintenance? Mr Hill: I share it in parts. What you are doing with a pulse line is you are trying to get what the Germans call "tant" (?); you are trying to get movement into maintenance. Pulse line is critically dependent on the timely provision of spares and technical support, because once it starts to pause and stop then inefficiencies build in, and that is one of the biggest problems in military maintenance - getting timely delivery of spares and timely technical support from industry. So I do believe that the RAF has done a huge amount in bringing together industry with the front line Service personnel to improve performance. However, you can run a pulse line anywhere, and we re-engineered significantly our processes in DARA. I can give you many examples of the improvements that we made through that process and pulse is one way - it is not the only way - of making things get turned out faster and more efficiently. Q18 Linda Gilroy: Are you saying that you did use that at DARA? Mr Hill: We used re-engineering of processes, and the pulse line demanded re-engineering of processes. There are differences in that the maintenance is done on a flow line principle rather than in stalls, as we had done, and there are pros and cons of both, which we have not got time to go into today. There are advantages and disadvantages to both elements. So, yes, I absolutely support pulse. We actually got in touch with the company Simplar (?) and brought them in to help us go to pulse on VC10. So no problem at all with the concepts, and as long as it is properly supported it will work well. Q19 Linda Gilroy: That seems to be what the MoD and the RAF are relying on to bring in the big savings, however. Can you just tell us one or two reasons why you did not go further with that? You have mentioned you did it with the VC10. Why did you not introduce it as far as the other ---- Mr Hill: The main reason for us was that, in terms of priority, understandably, the front line always gets top priority for provision of spares and technical support. We could not go to pulse line on Harrier or on Tornado because we simply could not get the spares to keep things rolling. So we ended up with a stop/start scenario, and working the stall system - that is the aircraft in the stall and it sits and waits until it gets it spares or technical support - is fine. One of the huge frustrations for us in the time just before I left was while Cottesmore's pulse line was being established all the priority in terms of technical support from BAe systems was going to Cottesmore and we were not getting a fair share of that to be able to deliver aircraft ourselves. So we were disadvantaged by the process. Also, in terms of delivery of the crucial spares that we required, understandably, I would always endorse that the front line has to come first, but, ultimately, if you want to get your jets out of deep maintenance you are going to have to deliver the spares and the technical support. We were always a second-class citizen as far as that was concerned, and that prevented us going to pulse line. Q20 Linda Gilroy: Do you think you would have done that in the course of time? Mr Hill: Only with the right kind of relationship. If BAe Systems had been in real partnership with us to help deliver that kind of service to us I think we could have speeded up and improved even further than we have done. However, the frustration factor, particularly on Harrier, was always spares. It was one of the most difficult aircraft to support in that context. Q21 John Smith: Just coming from the questions, Mr Chairman, how important do you think the physical environment is for the success of a pulse line? The Defence Committee visited RAF Marham about a fortnight or three weeks ago and my understanding is that the pulse line will be spread across four military hangars. I understand the jets will be moved from one hangar to another, although I think the fourth one has yet to be refurbished. You mentioned in your earlier evidence that the physical environment was a factor in rationalising DARA. Do you think it is a factor in the successful operation of a pulse line? Mr Hill: I think spreading a pulse line across four hangars is an inefficiency in itself. Our aim always was to try to get all the maintenance on a particular aircraft type into one work centre. We rationalised Harrier by improving turn-round times into one single hangar from three separate hangars. That gave significant efficiencies. While you are transporting between hangars you are wasting time. Certainly the Red Dragon facility at St Athan offers huge opportunity to be able to run a pulse line on aircraft types where there is not any need to move them other than in that immediate environment. I am not familiar, however, Mr Smith, with Marham. I have visited it a number of times in the past but I am not up to speed with what is going on at Marham. That is better handled by others than me. Q22 Linda Gilroy: On the Harrier, do you consider there are any risks associated with the extension of the Harrier flying hours between servicing? Can you tell the Committee who is responsible for making that sort of decision? Mr Hill: I think that is very much for the engineering authority to give you an answer on that, because that very much is their decision. Our job was to take aircraft to the schedule that was spelt out by the customer and deliver against that schedule, not to dictate what that schedule was in the first place. So I have to defer on that one. Q23 Linda Gilroy: Are you prepared to comment on whether you think there are any risks involved in the extension? Mr Hill: There are always risks involved in extending but the more analysis that is done before you make a decision to extend the more you mitigate those risks. So it depends upon arising rates, it depends on faults, and the customer - and certainly not DARA - has access to all that kind of data to be able to make a decision. So you have various processes that are applied, some of them used in the airlines, like MSG, where you look at the arising rates of problems and you tailor your servicing periods to that. It also depends what comes out of the results of inspecting aircraft. There is no point in over-servicing aircraft, that is for sure. Q24 Mr Borrow: There are a couple of questions I have got which I think you have touched on but I would like a bit more expansion. The first one was: you mentioned in your written statement that "there is a very compelling reason to take aircraft away from the front line pressures to a separate site for upgrade and deep maintenance". Would you like to elaborate on the reasons for that statement? Mr Hill: Having served on a number of main operating bases on helicopters and on fast jets there is always a huge pressure on the ground crew to deliver aircraft to the flight line - always. That is absolutely understandable. However, if you start putting pressures on those people, if there are shortages or lots of detachments - as frequently can come up, they frequently come together rather than singly - so you have got multi-demands placed on people, if you are trying to do deep maintenance which needs a lot of skills, a lot of time and a lot of care, then I firmly believe that putting it into the centralised facility out of the pressures of front line operations is a good thing to do. You have people who build up their skills and experience over the years; they are not subject to the same levels of turnover that they are on main operating bases and, therefore, you can generally apply a deeper skill base to deep maintenance in a centralised facility such as the DARA. Q25 Mr Borrow: If I can just make sure in my own mind I have got it right, you mentioned earlier that in your opinion bringing everything together had cost benefits. Mr Hill: Yes. Q26 Mr Borrow: However, what you are saying now is that in addition to any cost benefits there are also benefits in terms of the quality of the maintenance itself and, therefore, the reliability of the aircraft when they go back into service. Am I reading that right? Mr Hill: That is absolutely right. Also, you can justify, with a facility like the DARA, investing in a single set of absolute leading-edge equipment - autoclaves for GRP, paint facilities, all the machine shops, all the structures bays - where you can invest in one-off machines that are hugely expensive. Replicating those and the skills that are needed to operate them across a number of main operating bases is, I believe, much more expensive. Q27 Mr Borrow: You have mentioned the difficulties in terms of getting supplies and specialist support from industry. I wanted you to say a little bit about what you see are any dangers in relying on industry for fall-back support in aircraft maintenance. Mr Hill: Having worked in industry myself, with BAe Systems, during a time when there was conflict, BAe Systems responded extremely well. The problem that you have got in taking away the independence of the DARA is you have no longer got a benchmark to see whether you are getting good value for money for that service. Industry will always do the work for you, but at what price? If there is no competition, as there will not be now, as far as Tornado and Harrier are concerned, you have no longer any benchmark to be able to measure performance. Chairman: Now, getting on to the Red Dragon project, Mr Key. Q28 Robert Key: Mr Hill, last week we went and saw the £100 million worth of super hangar and I was surprised by this statement from the Ministry of Defence. They said: "DARA's viability as a Trading Fund was an issue before the decisions on Red Dragon and the future depth support of the RAF's fast jets was taken." So they went ahead and spent about £17 million on Red Dragon. Do you accept that DARA's viability was an issue before those decisions were taken? Mr Hill: Yes, I do. The reason for that is that there was no in-depth support for making it a success as a Trading Fund. The Ministerial Advisory Board failed to support the Trading Fund that it had created. It was no secret that the Chief of Defence Logistics, at the time, opposed not only Trading Funds but agencies. So he was supposed to be my "Fraser" figure, as it is termed in the framework document; I never had one single meeting with him that was helpful towards the agency. In fact, quite the opposite. So if you are going to form a Trading Fund in government you have got to support it. What you need is a volume of business that enables it to kick start, get going and then, on the back of that, move into wider markets. That was the whole premise of forming the agency in the first place. Q29 Robert Key: You said you did not have a single meeting that was helpful. Did you have meetings that were unhelpful? Mr Hill: Yes, indeed, a number of times. Q30 Robert Key: Please can you tell us about them? Mr Hill: Meetings that were unhelpful in terms of challenging our position. It was always felt that our position was very much as a bit player, as a sub-contractor to industry, and that disadvantaged us. If we had been given the right level of support we could have partnered in much stronger terms with industry. It is very interesting, in that context, that overseas and internationally organisations like Boeing and Honeywell, that had no vested interest in on-shore facilities in the UK, or even in Europe, we had enormously helpful relationships with them and we had the opportunities of getting into wider markets. Q31 Robert Key: In what way were those relationships helpful - with Boeing, for example? Mr Hill: Boeing, for instance, when there was a crisis in Holland and the Chinook fleet was grounded they fired gear boxes into the agency and we turned them round extremely fast and got the Dutch helicopters flying. We got Spanish gearboxes as well. We were working with them on partnership for work in Europe with the US Army in Europe. You cannot do that without the support of the design authority because they hold the intellectual property. So it was really helpful working with those people internationally; it was much more difficult working in the UK with the original equipment manufacturers. Q32 Robert Key: Can I turn, for a moment, to the super hangar at St Athan? Is it always going to be a white elephant? We were told last week that it would help attract commercial investment - the implication being therefore that something different has happened, and it is all for the best in the end. Do you think that is true? Will it? Can it ever be anything other than a white elephant? Mr Hill: I certainly do not think that that was the intention in the first place. Our aim was to have a core of work and certainly in the business case that we put forward to the Minister we had Tornado work going until the end of its life. That was hugely helpful in terms of having the volumes to be able to launch further. Where the military could have helped us, and we made pleas to them to do this, was to put large aircraft in; the VC10 is there but it has got a limited life, but Hercules, for instance, or C17 - aircraft like that. The facility can accommodate those kind of aircraft and there is a natural relationship between that type of aircraft and commercial aircraft. We were also, at one stage, working with a potential commercial player who was interested in bringing their business into St Athan. That was torpedoed by the End to End study. That would have been hugely successful. So at no time need it have been a white elephant. It may be considered a white elephant now but I believe that with the will it could be turned into a highly successful facility, and wanted it to. Q33 Robert Key: Was the company that was sniffing around British Airways, who subsequently built that enormous hangar just down the road? Mr Hill: No, no, the hangar at Rhoose Airport, the British Airways Maintenance Centre, predates Red Dragon. Q34 Robert Key: Who was it then? Mr Hill: I cannot say. I signed a confidentiality agreement and I really cannot say that in open forum. Q35 Chairman: Mr Hill, you are telling us most peculiar tale. You have told us about an End to End Review that you believe was pre-judged before it even began. Do you have any evidence for that? Mr Hill: No, I do not. Other than there was lots of word-of-mouth evidence that was given. There were actually quite a number of people in the integrated project teams who were very supportive of the agency. They were the people who gave us the warnings. We also got a number of warnings from industry. We were getting messages from industry that the direction was going towards them partnering with the customer and that, ultimately, we were going to be withering on the vine. I was so concerned about this that I had meetings with my Minister on this to express my concerns. That predated the End to End Review. Q36 Chairman: In the meetings with your Minister, did you bring out the problem that you felt you had with the Chief of Defence Logistics? Mr Hill: Oh yes, oh yes. Q37 Chairman: Did you have any confidence in the investment appraisal? Mr Hill: In the investment appraisal for Red Dragon? Q38 Chairman: Yes. Mr Hill: Absolutely. Based on the volumes of work that were going through and on the work we were doing with various potential partners, yes, I think the investment appraisal was quite sound, based upon the information that we had at that time. Q39 Mr Havard: You make a reference to lessons to be learnt for future agencies and funds from your experience. Could you say something more about that? Mr Hill: I think if you end up in a Trading Fund scenario where the supplier, in this case DARA, is in competition with its customer then you are bound to fail. It can only generate conflict. You have got to have a purity between decider and provider. The problem is that --- Q40 Mr Havard: Is that the thing that changed in the End to End Review? Mr Hill: Absolutely it did, yes. John Smith: Just a point of clarification, to put on the record, Mr Chairman, your question referred to the investment appraisal for the Red Dragon project, not the investment appraisal for the End to End Review. Chairman: Would you like to pursue that? Q41 John Smith: I am not sure whether Mr Hill would be in a position to respond to that because I am not sure of the timings involved. Were you aware of the investment appraisal for the End to End Review which, of course, was also used for making a decision as to whether aircraft would roll forward or roll back? Mr Hill: I was not a party to that investment appraisal at all. I was a party to the investment appraisal on the business case for Red Dragon as a project. That was pushed through the Ministerial Advisory Board, as far as I recall, in January 2003. The business case stood up to scrutiny at that time and was endorsed by everybody on the Ministerial Advisory Board at that time, including the Royal Air Force. John Smith: I just want to clarify the difference. I did not want the Members of the Committee thinking it was the investment appraisal of the review. Q42 Chairman: Perfectly fair point. Mr Hill, thank you very much indeed for that evidence and thank you for writing to us beforehand as well. Mr Hill: Thank you very much. Memorandum submitted by Ministry of Defence Examination of Witnesses
Witnesses: Rt Hon Adam Ingram, a Member of the House, Minister of State for the Armed Forces, Air Vice Marshal Barry Thornton CB, Director General, Logistics (Strike) and Mr Nick Evans, Director General, Management and Organisation. Q43 Chairman: Minister, welcome to the Committee. This is the first time you have been in front of this Committee in its new incarnation. I would be most grateful if you could introduce your team, whom we have met before but, nevertheless, for the record. Mr Ingram: Thank you for the invitation to attend this session, and I look forward to attending future sessions if it falls to me to be engaged in your future inquiries. On my left is Air Vice Marshal Barry Thornton, otherwise known as DG Log/Strike - but we will decide on the best way to name him through the session. On my right is Nick Evans, who is the Director General of the Management Organisation - DGMO, as he is known affectionately in the MoD. Those are the two subject experts; the senior level, in one case officer, and official who have been dealing with this and know the process intimately. Q44 Chairman: As you know, we are doing a inquiry into delivering front line capability to the RAF. I wonder if you could begin by telling us the rationale for the Ministry of Defence's End to End Review? What prompted it and how did it begin, please? Mr Ingram: In a sense it goes back earlier than that. I came into post in 2001 and inherited the newly formed Trading Fund of DARA and, of course, ABRO (?) in terms of line systems. The early processes were about getting the structures right, the way forward, for DARA overall in terms of support. At a point in 2002 we then started examining the question of the new structure that could take place at St Athan that then became known as the Red Dragon project. What happened with that was that there was a lot of debate: was this a terrible project? Was it something that was desirable? Would it deliver the results? With the department we chewed over this argument, we took best advice from every senior player - was this something that should or should not happen? Q45 Chairman: Did that discussion include the Chief Executive of DARA? Mr Ingram: In terms of Red Dragon? Very much so. He was lobbying extremely hard for it, understandably, and not just him; the Welsh Development Agency, the Welsh Assembly as well were very keen on the project overall. So, again, all the main players were engaged in that process. That was stimulated, given what we had, the old and inefficient facilities by their very nature I was advised, and therefore a new approach consolidating activity into one major facility was the best way forward in this. As ever (and, again, I know the Committee will appreciate this) a series of business cases then had to be built in order to justify it; it was not a case of someone saying: "This looks good; we want this off Santa; let's get it off the Christmas tree"; this had to be justified in a hard-nosed business case assessment. That is exactly what happened. We came to the point where that was reaching a point of maturity and we had then commissioned Mackenzie to look at the whole question of end-to-end logistics. That was stimulated as a better way of doing the support in this case to the RAF and it was all part of the DLO transformation programme. We were beginning to look at how best we delivered DLO support overall. So this was part of a wider package. It may be something you want to look at in the future, as to what stimulated us to go down that road in terms of the support, because we had initially kicked off with a warship support modernisation initiative where fleet had decided over-capacity in terms of support of the fleet. Was there a better way of delivering that? Was it better done in a different way and a different structure? The conclusion to that was yes. We took on some difficult decisions, remembering within the dockyard support facilities there was over-capacity which had not been addressed and we are now beginning to address it. That then set a standard for the other two Services, the RAF and the Army, and the RAF took that lesson on very clearly, and I must say they are now pushing the boundaries even further forward and are now beginning to look at similar types of solutions. So what I am saying is this was not just motivated by one Service and one Service solution; it is part of a wider strategy and a wider drive to deliver logistic support to the front line across the three Services. Q46 Chairman: You have talked about inherent inefficiencies that you were advised about and other Services taking decisions, which implies that you had already decided that the RAF support structure was wrong because of those inherent inefficiencies. Mr Ingram: No, I had not, because it had not been proved. What had happened was that it had been proved in terms of warship support, and similar ingredients were there: over-capacity and the structure between Service and industry personnel and MoD direct support personnel. That had already got under way and had been difficult; there had been a lot of resistance to it, but as that developed within a very short period of time the message coming back was this was the right decision. So that, in my mind, would have given me the concept that there must be a better way of doing things. That, I think, is the right approach: at all times we have got to examine the way in which this has been delivered. However, of course, within, in this case, the RAF there was the same thinking taking place: can we do this in a different way, remembering what we had were four levels of maintenance support? So the question to be answered is: is there a more rational way to do this? Is there a better way to do this? Q47 Chairman: You were already doing it in a different way because DARA had only just been set up. Mr Ingram: That does not mean you do not have continuous improvement. The concept that because you have done something - you have made a change - that should be the end of change, when you know that you are having to drive out significant costs from your overheads and your support in terms of defence logistics, I do not think would be the right approach for me to adopt or for the department to adopt. If we had adopted that - "All the change is finished; we are not examining anything any more" - we would have rightly been criticised: "Why are you not examining better means of delivery?" Q48 Chairman: So here you are; you set up a Trading Fund. Do you not think there is something to be said for giving it a period of stability in which it can establish whether it can trade profitably? Mr Ingram: Yes and no to that question. Yes, if you have the time to allow it to mature; no, if you find better ways of doing things. That was the dilemma which we were faced with. What came out of the End to End study was the examination of how better to restructure and reorganise with the same outputs at better value for money. Again, you are faced with a dilemma, both in terms of all the Service chiefs and within the DLO organisation. We now know this, in terms of possible solutions. Do we put this to the test? Do we examine it, or do we not? Do we let things stand still? Meanwhile, we are having to then take a major cost penalty because of allowing what we put in place to have time to mature so you can see the benefits which could possibly accrue and, therefore, we then had to take that on board as a process of analysis. That is why we then undertook, as I say, a hard-nosed business case assessment. We did the investment appraisal in all of this, and it has been through all the examination. That investment appraisal was given to the trade unions at senior level; we exchanged considerable correspondence with them on that because, rightly so, they tried to examine us and raise a number of detailed and comprehensive questions - all of which were answered - and that investment appraisal, the logic of it (if that is the right description) has never been broken in terms of where the benefit then flowed. So I have a Trading Fund (and we had more than one Trading Fund that had been established), we find a better and more rational way of delivering that support, and it then goes under an assessment analysis to see if it does stack up - what are the implications? - because there are a significant number of decisions in the MoD at the present time we do not proceed with because the up-front investment is too heavy to bear. So you say that that, therefore, is not the best solution because we cannot afford it. I can give, as an example of that, the support to the MRA4 at Kinloss. The best solution for support of all of that aircraft type was to go to Waddington. When we examined it we then decided that to put the up-front investment cost in there just made it prohibitive. So the solution then is Waddington retains the surveillance aircraft that they have and Kinloss has a long-term commitment for the MRA4. So in one sense there was a better solution, but you cannot afford it, but if there is a better solution which you can afford, and you then get measurable payback, the hard logic is that we have to do it. If we had not done it you would have criticised us. Chairman: Almost certainly. Let us now go into whether you are looking at a better solution. You have mentioned the investment appraisal. One of the central issues in the investment appraisal was the Crisis Manpower Requirement. Q49 John Smith: Could I ask Air vice Marshal Barry Thornton why it is that RAF technicians engaged in depth support need to be deployed to operational front lines? What is the military case for depth support skills on the front line? Air Vice Marshal Thornton: Let me explain, first of all, the four traditional light (?) ways of doing maintenance, support levels of maintenance: three of those were depth and the first line, forward support, the front line squadrons of the Royal Air Force. They are not service stations; they are not where we just refuel aircraft and send them into the air to carry out a mission. A significant amount of rectification is carried out on a front line squadron. We tend to take the rectification work away from a front line squadron when it is too much for them to cope with - the volume is too much - and it is detracting away from the generation of other aircraft. So rectification skills are required for the front line; rectification skills are particularly required when you are on deployed operations when you do not have, immediately to hand, the sort of support that we might have back in the UK. So we require all of our technicians and mechanics to be trained to a high level. By employment in depth they get more experience in those deeper rectification tasks/maintenance tasks but they are all trained to the basic level. Q50 John Smith: So, in your opinion, rectification skills, as you describe them, are the same kind of skills that are needed for depth support. Do you make any distinction at all between front line support skills and depth support skills? In the evidence that we have taken on recent occasions the case has been put forward that there are distinct differences. Air Vice Marshal Thornton: We are able to enhance the skills of the technicians and mechanics by exposing them to the depth environment. They get more experience on a day-to-day basis of dismantling an aircraft, rebuilding an aircraft, component replacing, whereas at the front line it tends to be more unplug a particular avionics unit and put a serviceable one in. When you are on a deployed operation you may need to do structural repair, you may need to do wiring changes. Those sorts of instances happen all the time. Sadly, combat aircraft tend to return from any mission with a series of faults that need to be rectified before they can embark upon the next mission. All our tradesmen receive the same training: the basic training and the follow-on training; they are the RAF apprenticeships, they receive the same, it is just the further development of those skills which is why we believe it is beneficial to move people between the forward and the depth organisation - it enhances skills. Also, we believe it is important because it gives people a respite from that operational tempo that you find on the front line squadrons. We have what we call harmony rules that direct how much time any of our individuals should spend away from home in a given period. That, and the logistics footprint that we need to send out to support our aircraft, determines the Crisis Manpower Requirement. Q51 John Smith: Just to confirm that the front line serving technicians need major depth experience - major servicing not just minor servicing. Air Vice Marshal Thornton: I think it might be useful if I help the Committee, who probably are not experienced with the way that we service aircraft. I have looked back to try and understand when it was that we labelled servicing as minor and major, and I am sure that leaves you with the impression that what we do in a minor is actually quite superficial aircraft maintenance and what we do in a major is deep. That is not the case. If I look at the instance of the Harrier, the difference between what we call "minor star" servicing (and the servicing cycle goes: minor, minor star, minor, major, and that is the way servicings are conducted throughout an aircraft's life) and a major is 8 per cent - it is 500 hours. So we are using the skills today that would be used on a major. The only real difference between a major and a minor or a minor star is more components are taken off the aircraft and perhaps more structural examination, but in the main it is taking it back down to bare metal and repainting it. That happens on a major. There is not a significant difference in terms of the skills employed between the various levels of the depth organisation. Q52 Mr Jones: I am very interested in what you say and I do not dispute what you have said in any way, shape or form, but when was this discovered, in terms of when you needed this? DARA was set up three years earlier and, surely, if it is a case now was it a case then? Air Vice Marshal Thornton: Let us start with the history of DARA. DARA, St Athan, as an instance, has been a maintenance unit for 30-odd years. Most of that period it has been manned by a significant number of RAF people, in the majority, in the early days. As the previous Chief Executive said, when he took over there were some 1800 Servicemen in DARA. So we have always employed Servicemen in DARA. The reason we were able to take Servicemen out of DARA and only employ them in the depth organisations in the hangars and servicing bays on all of our stations was that our Crisis Manpower Requirement had come down. The size of the Air Force has come down; it is a different posture; we are an expeditionary Air Force now, we are not a Cold War Air Force. In the Cold War we needed lots of people throughout the whole of the organisation to supplement ---- Q53 Mr Jones: I accept all that but you are not talking about the Cold War you are talking about three years ago. What has changed? If it is the case now why was it not the case three years ago when DARA was set up? Air Vice Marshal Thornton: I am sorry, maybe I am not explaining it correctly. When DARA was set up there was sufficient volume of work for DARA to do the majors and for the RAF to do the minors and the minor stars in all the hangars, all the bays and all the RAF stations. There was a volume of work there. Now we do not have that same volume of work, for several reasons. Partly, we have made all of our maintenance processes more efficient through leaning, we have adopted pulse line techniques which remove waste, we have reviewed our maintenance policy, which we do on regular occasions, and that has reduced the frequency of servicings, and we have got fewer aircraft in service. Chairman: I want to take us back to Crisis Manpower Requirement, but I think we are going to come back to the issue Kevan Jones has raised. Q54 John Smith: CMR is figuring as an important concept for this Committee because it was clearly an important factor when making these decisions. The CMR has changed with the changing threat scenario, from a Cold War scenario to an expedition. So I think we all accept the principle there. What we are not quite sure about is exactly how CMR is calculated and why, for example, does there seem to be a different calculation for rotary wing aircraft, as there is for fixed wing. I wonder if you could explain to us, both militarily why the requirement is different and technically why the requirement is different. Air Vice Marshal Thornton: Certainly within the Air Force there is no difference between the way we calculate the crisis manpower requirement for rotary wing or for fixed wing. It is the same procedure that is adopted. What we do is we look at what the defence planning assumptions require us to deploy within terms of the number of aircraft, we work out for particular scenarios, we work out what that means in the number of support people that need to deploy and when you calculated what your logistics footprint is in terms of manpower, then, based on the no more than four months away out of 20, that determines the number of people we need in uniform, and that is the crisis manpower requirement. When you have got that crisis manpower requirement, you say, "Where can we employ them?" We employ the bulk of them in the front-line squadrons, but we cannot just pad out the front-line squadrons with people if there is no work to do - you would not wish us to do that - so those that are the residue are employed in the depth organisation. It has benefits - i.e. the skills transfer that we talked about - but they have to be employed, so we employed them in the depth organisation. When there was a large volume of work it was sufficient just to employ the CMR in our second-line hangars and bays, but now that we have amalgamated it together they still need to be employed in that depth organisation, and it does not matter whether they have been employed back at DARA St Athan or whether they have been employed on the main operating basis, it was the financial assessment appraisal that determined the decision. I know that Recommendation 40 said that we should deploy to the main operating bases - that should be where our single depth location is - but we did not accept that. The Minister directed it was an investment appraisal that looked at each one of those aircraft (and you have seen Recommendation 40), and so the decisions were made on best value for money for the tax-payer. Mr Ingram: I was just going to supplement. I think John Smith is right, the CMR was crucial and was vital to a lot of the reasoning and logic within the present appraisal. I just did not roll-over and say, "Well, I accept that is what it says." This was put under test, and the RAF was put under test. I had to be satisfied that what was being argued there actually stacked up. So, whether it is a case of getting the investment appraisal implemented, we crawled over this, we analysed it and everyone put forward arguments to conclude on what became known as Recommendation 40 and it then had to be fully examined. The CMR, I went through all of this as to what it was, why it was vital, why it was necessary and why that solution which was then being concluded was the only way forward; otherwise we would have had a significant number of RAF personnel not doing anything, and that would have been untenable, unacceptable and, I think, probably putting things into an unsafe environment as well. If you have got people are who are not working, their skill fades very dramatically. As has been said, the decision to transfer the work, whether it was onto an inaugurating base or on to St Athan, that quantum of RAF personnel were required. I go back to one of my earlier answers. If this had been something that could have been financially afforded - the road back to St Athan - then the 1100 or so RAF personnel would have gone on to the base and the civilian numbers would have gone out, because we needed to detain that capability. It did not matter where it was, the civilian numbers were going to be replaced and the skill level and the outputs were going to be improved, and that is a conclusion of Recommendation 40: hard logic. I say that, an exaggeration of this, and the unions hopefully crawled over it with a fine tooth comb, certainly the correspondence I got involved in at the time showed that they did, but they could not break that logic. Q55 John Smith: An observation, Chairman, and then a further question. I think the Committee accepts the Minister's argument. The Committee is looking at front-line capability. If there is an argument for this level of CMR, then I think it is recognised that this may well have had to roll back to St Athan. What we are looking at is front-line capability, not civilian jobs at St Athan, it is whether that calculation is a correct one, and I am not sure in the Air Vice Marshal's reply that we did get a clear distinction between militarily the CMR requirement for fast jets. Air Vice Marshal Thornton: I am sorry; there was one area that did not properly answer for you. If I look at the rotary wing fleets of the Royal Air Force, we have Merlins Mk3, we have Chinooks, we have Pumas and we have Sea King search and rescue helicopters. The search and rescue helicopters do not deploy, there is no CMR requirement and, indeed, we are contract pricing the first-line support of those aircraft. The Pumas, the decision was to collapse the maintenance forward to the main operating base and CMR people are employed in that depth organisation on the main operating base. Merlin Mk3, the decision was to collapse the whole of the Merlin fleet forward to Culdrose to get the efficiency of operating a single fleet at Culdrose. There are significant numbers of both Royal Navy and Royal Air Force CMR people in the depth organisation at Culdrose. Chinook was actually never part of Recommendation 40, because we had started down a route in terms of a partner support solution between Bowing and DARA to deliver the depth support. At that time, when we had started down that route, it had not included the second-line maintenance, but at the moment there are 57 people working in the depth organisation of Chinook at DARA Fleetlands. The CMR requirement for Chinook is 531. We believe we can drive that down through leaning out the deployed footbrake to around 400, and they can all be accommodated in the forward environment because Chinook operates with three squadrons. It is not a very large deployment fleet - it is an aircraft that is used a lot, but it is not a large deployment fleet - and so there is a consistent approach between what we do on the fast jets and the heavy jets within the Royal Air Force and the rotary wing. Q56 John Smith: I wonder if it would be helpful, Chairman, if the Committee could actually obtain the formula on which the calculation is based for the CMR for the different types of platforms? I think that might help us to get to the bottom of the CMR requirement. I think it would be very useful. Air Vice Marshal Thornton: My only concern - and it is based on the size of the deployed footprint - is the classification of that information. If we were to give you the number of aircraft we deploy and to how many locations simultaneously together with the number of people we might deploy, I am not sure what classification that information would be. I think we would need to look at that, but the principle is open and clear and we are not trying to hide anything in that principle. Mr Ingram: May I add, if there is a reason for not doing it and it is because it falls into a classification category that we thought inadvisable, then will explain that as well. Q57 Chairman: Thank you very much, but it may be possible, as Dai Havard has just suggested, to do it by way of example, because you have said that the calculation is done in exactly the same way on the different platforms so if you could do it by way of an example in an area that is perhaps less sensitive. Air Vice Marshal Thornton: I am sure we can do a generic model for you to follow and understand. Q58 John Smith: A final quick question, Chairman on the CMR. Are there any examples of front-line capability being undermined in operations, say, in Iraq or, more recently, in Afghanistan as a result of civilian technicians undertaking depth support as they have been doing up until recently, and in some cases they are still doing it? Are there any examples? Air Vice Marshal Thornton: We have maintained our crisis manpower requirement. We have not fallen below that crisis manpower requirement, so we do not have a dependency in terms of going to war on the civilian technicians that you are talking about. Q59 John Smith: I am not making myself clear. The provision of this depth support from DARA, as it has been carried out recently for the fast jets, bears no examples of that having undermined front-line capability? Air Vice Marshal Thornton: No, and DARA has provided support in the past exceptionally well. John Smith: I am sorry; I am trying to be too clever. Chairman: Let us move on to the Harriers which have now moved to Cottesmore. David Crausby. Q60 Mr Crausby: The MoD claims that RAF Cottesmore is more effective, more efficient, when compared to DARA, yet the trade unions claim that since the new arrangement for maintaining Harriers at RAF Cottesmore, RAF Cottesmore has experienced significant problems. Is that the case? Air Vice Marshal Thornton: No, it is not the case. One of the allegations from the unions is, unfortunately, not trying to compare apples with apples, particularly in terms of what we are doing at the moment with the Harrier JUMP line (the joint upgrading maintenance programme) and where we are combining scheduled maintenance, be it either a minor, minor star or a major, at the same time as upgrading those aircraft from GR7 standard to GR9 standard. We started that programme about a year ago. The first two aircraft have rolled off the pulse-line, and that is a mechanism by which we will meet the GR9 in service date in September of next year. Before that we were operating, just in terms of minor and minor star maintenance, a full side for two years, and that reduced the turn-round time from what was, if I believe correctly, about 140 days down to an average of 86 against a target of 80. Therefore, that has significantly reduced the number of aircraft in maintenance at any one time down from 21 to 14 for that particular part of the programme, but for the JUMP programme we had clear plans as to how we were going to do it conventionally, using both industry and DARA and continuing to do minor and minor star maintenance at Cottesmore, and, by moving to a single joint upgrade and maintenance line at Cottesmore, we have taken 11 less aircraft from the front-line and we have reduced the cost by over 28 per cent against what were fixed price quotations for the old way of doing business. So, no, I do not accept that it is anything other than efficient and effective use of our resources. Q61 Mr Crausby: Has any kind of person been undertaken into the new arrangements at RAF that could be made available to us? Air Vice Marshal Thornton: We have just undertaken what we call a stock-take of the JUMP line a year downstream before we go to the next phase of the contract to let the contract for the remaining aircraft to be modified from GR7 to GR9 and also to take the lessons from that into the Tornado combined maintenance and upgrade programme. I can share with you the main finding of the executive summary of that report which came out with three simple bullets that the GR7 to GR9 programme was on track to meet its ISD, that the aircraft would be maintained in an air-worthy and a safe condition and that engineering standards were being maintained. There are lessons that we need to take forward into the future and into the Tornado, as you would expect, but those were the three highlights, headline bullets. So, I have conducted an audit, but at a senior level with the operation commander, and I am comfortable that it is working. Mr Ingram: Can I give assurances here that these are the types of questions that the DGMO and other parts of the organisation were asking which I was asking the Minister: "Is this working? Is it proving as effective as predicted? If there are shortfalls, what are they, how are they managed and what are the implications of all of this?", and the stock-take we can make available to you, but I think it is important that the message is out there that this a process of constant examination and probably also a process of constant improvement, and that, to go back again to my first answer, you see the need for change, you identify what that change is: "Is it going to deliver on all the criteria that you are seeking to deliver on?" If the answer to that is, "Yes", then you move forward. Then you constantly examine to see if there an even better way of doing this, creating better efficiencies, taking out cost overheads accordingly. That is the way this process will happen, and what we have probably designed for the Tornado process will change as we reach the point of maturity in 2008, because what is happening in the Harrier processes will identify even better ways of doing this, and that is happening in industry. If industry is not doing this in terms of producing goods for sale, the price goes up and they do not continue in business. It certainly happened in the aerospace sector, and they are having to look at all times at new and better ways of delivering because of competition and over capacity, and if we did not apply those principles, we would be failing the tax-payer in best delivery or value for money criteria. Q62 Chairman: I think what the trade unions argue is that could they have been able to deliver those efficiencies? For example, they claim that RAF Cottesmore has been so effective because they are using double-shift working. Do your figures - 140 days to 86 days - take into account that you have input more people and more shifts? Air Vice Marshal Thornton: No, it does not include double-shift working. Let me assure you that, even though a serviceman is available for duty seven days a week, we do not tend to work them seven days a week, 24 hours a day for very long. That is not the way we do it. Servicemen and civilians are working the same sorts of hours, as you would have expected. Let me get this straight. Q63 Chairman: But is it two shifts as opposed to one shift? Air Vice Marshal Thornton: That is not the way that we have made the improvements. We have always worked in most depth organisations some form of a night-shift to carry certain work through, but certainly not equalised shifts in that respect, and I have no doubt that DARA could have done the same work. The pulse line technology has now been introduced in the rotary wing world at Fleetlands. I have no doubt that DARA could have adopted it and could have made the same efficiencies, but we would still have had to employ servicemen back at DARA St Athan. What that would have meant is that it would have been more difficult for us to create the war fighter out of that serviceman, because what we want is a war fighter first, a specialist second, somebody that can go on expeditionary operations. No matter where a serviceman is employed, he needs to maintain and develop his military skills. It is easier to do that on a main operating base where he is surrounded by the front-line squadrons and the military ethos than it would have been at DARA St Athan, but if that had been the investment appraisal's conclusion, then we would have put in place the mechanism to give them that expeditionary training. Mr Ingram: Let me just confirm that. Make no mistake, if Recommendation 40 had concluded that that was the best solution that is what would have been applied. It so happened that it came to a different conclusion and, therefore, what we now have is what has been applied. We cannot - and hopefully the Committee appreciate this - ignore the CMR part of this equation and the way in which we collapse four means of doing maintenance support into two. This was a new way of doing things and therefore it had implications, not just in civilian terms but also in RAF terms. Over 2,000 RAF posts have gone out of the process as well, 2,240, and so this is a significant change in the way in which we are delivering front-line support. Q64 Mr Jones: I do not disagree with what the Vice-Marshal is saying, but if that is the case now why was that not the case when the decision was taken to originally to step DARA up? Air Vice Marshal Thornton: Would you explain that? Q65 Mr Jones: You are making the point, which I am not disputing, that you need these people. You are saying that they are fighting soldiers or personnel first and technicians second. If that is the case now, which I do not dispute, what has changed since DARA was set up? Has the role of these people been suddenly focused on---- Air Vice Marshal Thornton: No, I am sorry, DARA was set up as a training fund, and, as you heard from the previous chief executive, he removed the military from that organisation. We no longer needed military in that organisation because our crisis manpower requirement did not drive us down that route. There was a sufficient volume of work to have a civilian workforce in DARA and a military workforce doing the second-line maintenance, because what we were doing was inefficient. We created an extra volume of work because of the inefficiencies. Equally, there has been a renewed emphasis, or a heightened emphasis on the expeditionary operation since the Strategic Defence Review which has re-put the focus on the nature of warfare today. We do not fight from a main operating base any more. Q66 Mr Jones: If you have been so efficient, we are going to need you in other parts of government, I think. Could we have actual figures of what has actually happened in terms of personnel, because I find it difficult to understand, if what you are saying is you not disagree with it, that the recent decision in terms of DARA was clearly wrong then? Mr Evans: I am sorry to interrupt, Chairman. I ought to explain, I have been involved with DARA not just in my current job but in my previous job where, very much with Steve Hill, I was supporting part of the process, including the Ministerial Advisory Board to which Steve referred. When we set DARA up as a trading fund it was very much, as Steve said, to deliver continuous improvement and efficiency, to make DARA competitive, yes, and to open it up to commercial business, but that was in 1991. He took you back to the process where we had two agencies before hand, NARO and the maintenance group. They were brought together in 1999 and then they were formed into the trading fund in 2001. Then the processes going towards the Red Dragon decision were in process, as we have heard. The idea of Red Dragon came forward in 2001 and the case for it was processed throughout 2002. During 2002 the work that we have referred to, the initial Mackenzie work on DLO, was first of all mooted and then started to happen, and so the discussions of the Ministerial Advisory Board on Red Dragon were very much focused on what the future workload for the facility would be, and I was advising from the DLO perspective on that and we had to express quite considerable caution at the time that some of the workload projections looking further out from five years onwards were speculative, and those workload assumptions were crawled over very carefully. The key point is that right throughout 2002 we did not have any product from the end to end process, because that effectively started only in early 2003. Q67 Mr Jones: So the decision to take forward the Red Dragon project was done on speculative figures? Mr Evans: No, it was not. It was done on a very good business case. What I said was that the speculation was about the future work load and, in particular, the commercial part of the workload going forward. We were concerned very much with the in-house MoD work load, in particular the Tornado, and we made very clear when we put the Red Dragon case to the Minister that we could give him assurances on the pay-back period for Red Dragon, which, as Steve said, was a very good pay-back period - we were then assessing it at a three-year pay-back: that building would deliver its costs savings and do what it should do within three years - and we negotiated a break clause from the Red Dragon building at a five-year point to accommodate the fact that there were those uncertainties. We hoped not to exercise that break clause, but that break clause is part of the agreement. The end to end was commissioned only in early 2003 and reported in July 2003, and then after July we then went through the very rigorous process of investment appraisal, which also included, as the first phase of it, looking at the viability of Red Dragon in the light of end to end. Chairman: We will come back to the Red Dragon later at the end of this session, but we have a lot of questions to ask first. John Smith: I am a bit concerned, Chairman. There was a long explanation given there, and again I am worried about the Committee confusing it. Let us be clear, that both chief executives have given evidence to this is Committee and have made it absolutely clear that the business case for the construction of Red Dragon was predicated on the retention of the fast jet work. I do not want that to slip under the net. Secondly, the ability to repay in three years the cost of building Red Dragon was based on the fact that the efficiency savings by DARA were so great. The profit rate in 2003/2004 was 38 million and the profit rate in 2004/2005 was nearly 30 million? Q68 Chairman: We run the risk of getting into a problem. Mr Ingram: That is a statement, not a question. John Smith: There is a statement there. Chairman: You will have the opportunity of answering the points that John Smith has made in his statement, which was a statement and not a question. John Smith: I apologise. Q69 Chairman: Air Vice Marshal, you said just now something which actually worried me, which was that you need to have a war fighter first and a technician second. If I were flying an aeroplane I would have a quite strong view that I would prefer your priorities to be the other way round. Air Vice Marshal Thornton: Those are the Chief of the Air Staff's and the Commander in Chief Strike Command's priorities. What it really means is that you cannot put somebody into an operational theatre who is not able to look after themselves. It is no good sending a technician to Iraq who then needs people to protect him or who cannot look after himself if there is a chemical attack or something like that. That is what we mean by war fighter first, specialist second, so do not go away thinking that the technical skills are something that are just an aside. The mantra is people wear uniform because they are in the military. They are in the military because we are involved in operations and operations bring with them a certain level of danger and we want people to be able to cope in the most arduous of operational circumstances. That is what we mean by war fighter first, specialist second. It does not mean that we would compromise their technical skills, whatever branch they are in, at all. Q70 Chairman: That question is the entire subject of this inquiry, as to whether that compromise is taking place. Air Vice Marshal Thornton: We need people in uniform to go and look after aircraft on operations. That is the whole reason why we have aircraft technicians and mechanics in the Air Force; that is why there is a CMR requirement, so that these people can go off on operations and conduct their tasks in a safe and efficient manner but in an operational environment. Q71 Chairman: We will come back to David Crausby. You may not be aware of this, but we are still on the Harriers! Mr Ingram: Chairman, I am just concerned that with that conclusion perhaps your comment was that somehow there had been a dilution of capacity in the front-line to maintain the aircraft because they are also asked to look after themselves. I think what the Air Vice Marshal is saying is that is not the case, that that capacity has to be there. There is no point putting a war fighter who cannot then maintain an aircraft to go from war fight, but they have to able to look after themselves in those very hazardous and dangerous environments in which we are placing them. Not to do so, not to have that capacity to have the war fighter mentality and skills, would put our people at risk, and we cannot do that given the new nature of expeditionary operations. Q72 Mr Crausby: I made the mistake of agreeing to let Kevan Jones in, which took us somewhere else entirely. We were talking about efficiencies, and one of the big issues from the point of view of the efficiencies is the extension of flying time between maintenance, and that is obvious. Our concern as a committee is how is it possible to extend flying time between maintenance so dramatically without compromising pilot safety? Air Vice Marshal Thornton: We have a process of maintenance policy reviews which we conduct on a periodic basis. In simple terms, when a new aircraft enters service we tend to have quite a short period between the maintenance cycles because we do not have enough experience on that aircraft to make decisions. The more experience that we have got, the more hours that have been consumed on the aircraft, then we can take a judgment on what the right maintenance policy should be. The maintenance policy that you are talking about on Harrier, the extension there was a two-year piece of work with the Aircraft Design Authority, with all the original equipment, manufacturing, through reliability centered maintenance, reviewing all the evidence from previous maintenance arisings, and we then take a look at what is the right periodicity, and the conclusion of that study was a 44% extension of the maintenance periodistic. Let me give you, I hope, an assurance. I am the senior engineering officer in the Air Force. I think I am probably the senior aero-systems engineer in the Ministry of Defence. I have delegated responsibility from the Secretary of State through the police service chiefs and through the chief of defence logistics for the maintenance of our in-service aircraft. I am a professional engineer, I have been in the service for 30 years, and I would do nothing that compromises the safety or air-worthiness of our aircraft. People that work for me are equally qualified. They have got delegations passed down to them. It is not something that we have done just to save money. Q73 Mr Crausby: We would not expect anything else, but a 44% reduction is quite dramatic. Is it normal, in these circumstances, to move by that much so quickly and suddenly? Air Vice Marshal Thornton: I do not know in the previous review what the movement was. What I can say is it is evidence-based and it is underwritten by the design authority, the Aircraft Design Authority. Q74 Mr Crausby: Is it because it was previously wrong or because it was artificially low? Air Vice Marshal Thornton: No, it is because you get more experience, you realise or evidence comes to the fore that says this is not failing. We have taken this component off at this particular point or we have done this inspection and no problems have been found, and you look at it again in the next cycle and still nothing has been found. It is experience from many, many hours of flying an aircraft. On Tornado we must have a million hours at least of flying experience across the three partner nations now. Q75 Chairman: On Harrier? How old are the Harriers? Air Vice Marshal Thornton: They came in during the seventies; so it depends what sort of mark it is. The Harriers are with us until 2018, 2019, Tornado is with is until 2020, 2025, so there is a lot of life left. If anybody understands this, we are at the bottom of the bath tub curve in terms of experience and now benefiting from that experience from the evidence that is there about the maintainability, the reliability of these aircraft, but we are doing it on evidence and with the full support of the design authority. My role is to deliver safe and airworthy aircraft to the front-line. I will not compromise that. Q76 John Smith: I certainly accept that assurance from the Air Vice Marshal, but just to point out that when we are comparing the relative efficiency and costs savings of DARA providing the work, as it did do, and Cottesmore, clearly reductions in the maintenance cycles are a crucial consideration? Air Vice Marshal Thornton: As I said before, I have no doubt in my mind that the excellent work at DARA St Athan could have implemented a lot of what we have done at Cottesmore with bringing in the same sorts of efficiencies, but we would still have needed to employ servicemen to do the work. Q77 Mr Crausby: Can I ask a practical question on Cottesmore. First of all, you just claimed that RAF Cottesmore is now employing more civilians than RAF personnel. One of the real gripes in all of this is that it is quite wrong to shift it from one group of civilian employees to another group of civilian employees. We might be able to accept some of the strategic arguments that you have made, but not to just completely make efficiencies in one place to provide further jobs in others. Is that true and how many agency staff are being employed at RAF Cottesmore and how much does that cost? Air Vice Marshal Thornton: Again, we have got to set this in the context of what we are doing at Cottesmore, which is carrying out the GR7 to GR9 upgrades which would traditionally have been carried out by BAE Systems Warton, in fact the 11 aircraft were carried out there, with a workforce of between 150 and 200 people. It is now carried out on the Joint Upgrade Maintenance Programme with a workforce that is combined of servicemen - I think it is 111 servicemen, but I will perhaps need to check the figures - people from BAE Systems that are design authority people that were previously in employment perhaps at the assistants Chadderton or Sansbury but have moved forward to the front-line, the Design Authority Service that we always have to rely upon both now and in the future, and, if my memory serves me correctly, I think there are 65 agency staff at Cottesmore on the Harrier JUMP programme. We have brought some more agency staff in, together with servicemen, to do the stand-alone minors, the surging of the line that we are doing at the moment, to prepare aircraft to go out on Op Eric to Afghanistan. Q78 Chairman: On one final question on cost, because nothing comes free in these investment things. How much has RAF Cottesmore cost from the point of view of investment and is that the end of it? Will it require further investment? Air Vice Marshal Thornton: I do not have to hand the figures. I have got them somewhere, but I do not have the Cottesmore investment figures. We can give you them. Mr Ingram: The investment figures had to be met, because all of that, again, was wrapped up in the investment appraisal. These were things that were put on one side of the balance sheet, so to speak. Again, it goes back to this point, if the upfront investment costs had been whatever they were, heavy, at Cottesmore, then they may have switched the benefit elsewhere to St Athan, let us say, but to repeat the point, the service personnel at Sealand would have had to have followed that work no matter where. Q79 Chairman: Air Vice Marshal, do you have anything that you want to add to that? Air Vice Marshal Thornton: No, I cannot give you the precise figures for the infrastructure. Q80 Mr Crausby: I think the important part of my question is: is that the end of the investment in RAF Cottesmore? Air Vice Marshal Thornton: We are not fully through the investment at Cottesmore. The hangar has been refurbished, and anybody who has seen the pictures showing the difference between the old hangar and the way it now looks, with quite some simple investment, the final phase is the building of a paint facility for the Harriers at Cottesmore. Mr Ingram: Can I assist you, because if the implication (and I understand the reasoning behind the question) is that there is some hidden cost that has not surfaced yet - I am not necessarily saying that you are saying that, but that could well be a conclusion that was reached - and then all of a sudden, later on in the process, there is a large tranche of money that has to be found. There is nothing of that under the table, and I will tell you, if there was, who suffers? It is the front-line command, because if they have got to find the money from within the budget something else has to go. Mr Crausby: I am not making that comment, I just think that needs to be cleared up and you need to give me the assurances that that is not the case. Q81 Robert Key: Could I ask Air Vice Marshal to clarify something that is troubling me here? We have not heard any mention of turbulence in the Royal Air Force. It is not the case that you are talking like for like when you are talking civilian craftsmen and front-line RAF craftsmen, because if you have a nice stable family life at St Athan that is one thing, but if you are in the RAF and you are facing turbulence with your family being moved every two to three years, that is one reason why there is such a problem of retention in the RAF. Is that not part of the equation you are considering? Air Vice Marshal Thornton: It is part of the equation, and I think what we are doing in terms of collapsing the depth organisations to the main operating bases eases that turbulence. Had we collapsed it back to DARA St Athan, people would perhaps do a two-year tour of St Athan and then have to move to the front-line to a front-line squadron, because our policy is to move people between depth and the forward environment, and so they would have had to disrupt their family and do that family move. What you can do now is to go from the depth at Cottesmore to the front-line squadrons at Cottesmore and back again, so you have reduced that turbulence, and so I think there are positive benefits to the individuals in the terms of being able to get experience across the broad front of the Air Force environment without necessarily moving the family. Mr Ingram: I just want to give a supplement to that. It is one of the drivers we are all overdoing. What is the impact upon our service personnel? Does it stop at harmony? No. Or does it improve it? What we seek to do all the time is to improve it by giving stability. It is what we are doing here with the defence air fleet review so that people will know what their long-term basing will be. It is what we are doing with in the future Army structure and the future infantry structure in terms of ending the Army support. All of that is about trying to create a stable environment round which the families can cluster and settle. There is a period of change in the interim which you have to go through, but I think in the short-term, medium term, and I question the long-term, we will get to that point. Q82 Mr Borrow: Picking up the point that we have been discussing about Harriers, I assume what you are saying in terms of the benefits of moving the depth maintenance to the front-line RAF bases (RAF Marham). It is not just a cost thing, it is also a practical efficiency in terms of the efficiency of men and women at the front-line by having them based at RAF Marham and at St Athan? Air Vice Marshal Thornton: That is true. It is far easier for me to demonstrate a military ethos and spirit within the depth organisation having them working at RAF Marham than it would be having them working remote from the front-line, and so there is efficiency there clearly. Q83 Mr Borrow: On the 'pulse line maintenance' are there any lessons that have been learned at RAF Marham from the experience at RAF Cottesmore? Air Vice Marshal Thornton: We are constantly comparing notes, for want of a better description, between Marham and Cottesmore. The two depth support managers that I have in each location are in dialogue at least weekly, and there is no doubt (and the Minister did say this) that we have a continuous improvement culture. We will take the best practice from Cottesmore, we will implement it at Marham. There will probably be a reverse best practice going from Marham back into Cottesmore. We are in a cycle of constantly trying to improve. We did not get it 100% right first time - you never do - there are things that you can fine-tune. The basic principles are so fast on both of them. Mr Ingram: More than that, it also helps us in an understanding of Typhoon support and GCE support when that comes in as well. This principle we have laid down will help us to get the best solution for future support for future aircraft. Q84 Mr Borrow: I would like some comments in term of how the 'pulse line maintenance' will deal with the surge of work which I know you have got at the moment, but I would also like some comments on a comment that Mr Hill made earlier this morning when he commented that the spares and the back-up is always available at the front-line but not at DARA - he was always waiting for his spares - and doing the 'pulse line maintenance' is great, but it only works if the spares and everything else are there at the time, and it causes more problems if that is not the case and a different method will be needed? Air Vice Marshal Thornton: I am sorry; I smiled there. I will deal with the second part of the question first. What we believe has happened in the past is that we have had to prioritise. Certainly the front-line squadrons will always get the number one priority: the operational side of the Air Force will always get the priority. What has happened in the past is we have prioritised spares going into DARA over the second-line depth organisation, and we have done that for a very just reason, and that is that there is a weighting charge for an aircraft that is sat in DARA - so there were financial penalties if we did not make spares available - so where there was a spare available it was prioritised towards DARA rather than the second-line, the minors and the minor stars. Where the pulse line gives you a tremendous advantage - and there are two advantages - working very closely with industry in our partnering arrangements, they have responsibility for managing the supply chain. We have a far more joined up supply chain - it is only trying to support one location as opposed to disparate locations - because, if you can imagine, in the past on Tornado we were trying to provide spares to depth organisations at BAE Systems, depth organisations at DARA St Athan, depth organisations at four different Tornado bases, whereas now that is concentrated into one location. The other benefit of a pulse line is that you have a predictability over the spares arising. An aircraft moves down the line: for the Harrier it is every 16 days. You know you are going to need component X every 16 days. You can work with your supply base and give them a predictability of spares arisings that you cannot when you have got lots of aircraft all coming, not in a planned progression to the same point, it is more of an ad hoc basis - so is there is a lull for quite some time and then there is a crisis of demand - and so there is far more predictability with the pulse line, so I think there are significant advantages in that respect. I am sorry, I have forgotten the first part of your question. Q85 Mr Borrow: The lessons to be learned from Cottesmore. Air Vice Marshal Thornton: We have done that one. In fact, I am just reminded, one of the things we did, we took the depth support manager from Cottesmore and we moved him into Marham to establish the process at Marham. Q86 Chairman: Air Vice Marshal, in view of what you have just said, the aircraft moving down the line every 16 days, does the organisation of the availability of spares depend on the physical location of where the aircraft is, because surely that is simply a matter of getting that organisation right? Air Vice Marshal Thornton: No, what I am saying is that if you can imagine, say, the final assembly point of that pulse line, one aircraft gets into final assembly every 16 days, so your supply organisation out there that is trying to look at what is the spares demand knows that I need one of these components every 16 days to meet the output of that line. The way we used to do it, to be quite honest, was far more of a crisis management. We would not order anything for six months and then we would order 100 and expect them to be delivered the next day, type of approach. That is an exaggeration and do not quote me on that, please, but it was more of an ad hoc relationship with the supply chain. Q87 Chairman: The fact that it was done in that rather peculiar way before is not of itself an argument for 'pulse line maintenance'? Air Vice Marshal Thornton: No, the argument for 'pulse line maintenance' is that it is more efficient. Q88 Chairman: More efficient than that, yes? Air Vice Marshal Thornton: Let me put it this way, and this perhaps is a continuous improvement, we have not found yet a more efficient way of delivering aircraft maintenance other than the pulse line. The pulse line approach is employed throughout the world in various environments and it has worked, and we proved that it works on the Harrier line at Cottesmore with the number of aircraft floor-loaded being significantly reduced and turn-round time being significantly reduced and the cost, equally, being reduced. Q89 Mr Borrow: How do you ensure that the lean maintenance that has now been put in place, which begs the question why has it taken so long to look at the maintenance, but, having introduced it, how do you maintain it and ensure that it keeps delivering? Air Vice Marshal Thornton: That is the continuous improvement culture. One of the lessons we learned very quickly in terms of adopting lean was not to do it on a top-down approach, to let the people on the shop floor develop and design the processes - they are the ones that own them at the end of the day - and what we have created is a mindset amongst our people that they are constantly looking for ways of doing the job better, and that is a tremendous step forward. Q90 Mr Borrow: Could I touch again on the question in terms of personnel? Is there a risk that as the RAF goes on in the future you will have to struggle to maintain sufficient trained RAF personnel to maintain this function? Air Vice Marshal Thornton: Which function, the maintenance of aircraft? Q91 Mr Borrow: Yes. Mr Ingram: You have got to be able to recruit to meet the requirement, yes. Air Vice Marshal Thornton: In fact, our recruiting targets have been depressed this year and the next couple of years whilst we go through a redundancy programme, as you would expect, because that minimises the number of people that you need to make redundant. I do not think there is any evidence at the moment that says we will not meet our recruitment targets. We are fishing in a pool with many other organisations and recruiting is a challenge to everybody, but I do not think there is evidence that we will not meet the targets. Q92 Mr Borrow: To what extent have you got flexibility by using a mixture of RAF and civilian engineers should you run into difficulties? Air Vice Marshal Thornton: Clearly there are agency staff whom we can employ should we run into difficulties. There is good employment for ex-servicemen, and, indeed, DARA St Athan has a significant number of ex-servicemen employed in the depth organisation. I believe the depth organisations, first of all on an operating basis, will be an attractive place of work for people as they retire from the service. Q93 Linda Gilroy: I want to ask a question about the relationship with the contractor in a minute, but just to follow through on the questions that David has been asking on leaning and pulse line management, can you clarify for me whether the investment appraisal of Marham versus St Athan took into account the possibility of that leaning and pulse line management taking place there? Also, when we visited we saw what appeared to be a state of the art paint shop and also machine shop that delivered parts made to order. Is that also included in the investment appraisal of Marham versus St Athan? Mr Evans: In terms of the investment appraisal (and it does come down to the CMR again), it is not so much a function of, if you like, how the logistic business is done - the basis on which the IA was conducted was to look at the differential costs between the rolling forward and the rolling back options and what we called the hybrid option, which was one which seemed one of the most likely outcomes that we can come to, and the key drivers for the investment appraisal and the reason why it ended up the way it did was that essentially housing the CMR at St Athan, doing the infrastructure there, including the married quarters and all the other investments that would be necessary, was significantly more than it was for concentrating forward at main operating bases, in the case of the Tornado aircraft in particular. So that was the driver. The key number, in other words, is the CMR number. The leaning number is something that is a factor that will go into that, but it is this CMR number that is the critical bit. Q94 Linda Gilroy: I understand that, but in working that out were the costs of the potential for leaning and pulsing and paint shop and the machine shop weighed in with that? Air Vice Marshal Thornton: We assumed that either location could deliver the output in the same way and make the same efficiencies - so that was not a discriminator - and the investment appraisal did take into account infrastructure costs, including a paint bay. Q95 Linda Gilroy: So the answer is "Yes" basically. Air Vice Marshal Thornton: Yes. Q96 Linda Gilroy: You have described how continuous improvement and working with partner support solutions with the prime contractor can, in your view, deliver lean principles and pulse line maintenance over time and the costs and efficiency savings that go with it, but can you perhaps explain to the Committee how that works through in the arrangement with the contractor and the contractor relationship? I understand that there is a gain sharing arrangement. Could you explain to the Committee what that involves? Air Vice Marshal Thornton: Certainly. The previous way of delivering our support business would be that we would integrate all the outputs from the various support base, we would bear the risk, we would effectively incentivise industry such that the more unreliable a piece of equipment was the more they benefited from that. Moving to an out of base contract where industry, the design authority, has the responsibility for delivering available and capable platforms to the front-line and is incentivised to do so through improving their profit against reduced costs and meeting the performance targets, that is the gain share mechanism, and they have better ability to use their design authority knowledge to improve the performance of the aircraft, reliability of the aircraft through life. They have a better leverage over the supply chain. Q97 Linda Gilroy: Can I ask you how frequently the partnered solution contracts with BAE Systems and Rolls Royce will be opened up and looked at again? Air Vice Marshal Thornton: Yes, we would probably start from a five-year fixed period, but the intent is to move on what to what we call a "rolling contractual basis". Providing industry performs in year one, you add another year to the contractual period. That gives industry always the long-term business that they seek, it allows us not to approach the cliff edge in terms of the next block of pricing negotiations and so there are considerable benefits in that rolling contractual approach. Q98 Linda Gilroy: I think I understand that, but can you explain to me how over time is there a danger that things could become so lean and so efficient that BAE Systems, Rolls Royce and their shareholders might lose interest because what is left for them to take a gain share, in the way you have described, is so lean? Air Vice Marshal Thornton: I would expect over time that it becomes more difficult to get to gain share. I do not think, by any stretch of the imagination, we are in the most effective position yet, as you would not be surprised to hear me say. What this does give is industry a long-term business portfolio. It gives them long-term survival ability, which is vital to me in terms of supporting today's aircraft through to their out of service dates. Mr Ingram: The last bit of the question has a general application across what we are seeking to do with the new defence industrial strategy, which has not yet been launched; but this new arrangement with industry, the way in which I am advised it used to operate tended to be a bit adversarial - two sides trying to knock the stuffing out of each other - which was not effective and uncertainty in terms of planning and planning for the long-term was not there. That is not good for industry. It is not good for us, because again the implication, some would say, is that we are walking away from this. What the defence industrial strategy would seek to do is put that type of philosophy in place where it is more open, but more transparency, more honesty between the partners so we have a better understanding of each other. They know how much we have got to spend but as we want. Probably not about every penny, because there are still negotiations that have to take place on all of that, but trying to give them best predictability of what our demand is going to be will then assist industry to meet that. If they say, "We are not interested", then we will have to look at another solution, but that always has to be the case in terms of however it is being approached with industry. Industry manufacture these platforms - they create them in the first place - and, therefore, it must be of interest to them to be part of the partner solution in the long-term maintenance of it. It is finding the balance to be struck to our benefit in terms of the MoD, to everyone's benefit as tax-payers and also to the benefit of industry and the shareholders. It is a very complex equation and there will not be a perfect answer to it. There never has been. We are trying our best to get the best approximation to that, and that is what we are trying to deliver in terms of defence in this whole strategy. Q99 Linda Gilroy: I certainly understand the description of the benefits. I think this inquiry is concerned with front-line capability and front-line capability on a sustained basis. I think we were very impressed with the enthusiasm that we saw at RAF Marham for implementing lean management and how fast you were able to take the proceeds of that. I think the concern I am expressing is: do you have a plan B? If you reach the end of being able to so lean and make that process efficient, that the profit that is in it for the prime contractors, the partners, become such lean pickings that their shareholders look at other opportunities that are available and say, "We are going to go elsewhere", perhaps rather sooner down the line that you might otherwise expect? Mr Ingram: We do not plan for failure. Q100 Linda Gilroy: I am sure you do not. Mr Ingram: But what you have to do is to define with industry. This where the transparency and the open book approach comes. If they are hitting that crisis point, they should tell us well in advance, because it is in their interests so to do, to make us aware of those dilemmas they may be facing. We then have to test that: is this an attempt to squeeze more out of us? That is part of the process. The plan A to Z is to ensure that we continue to get the support which we require and to deliver that output which is necessary in delivering front-line capability. Q101 Linda Gilroy: Can I follow that point through with a last question. I think that is exactly the point that I was driving at, that you then get into the hands of what is effectively a monopoly supplier who can put to you that they can only do it at a greater cost than you have been taking from the leaning process. If I can finally say, it might be worth looking at the experience that there is in utility regulation as to setting the sort of partnership approach, the gain sharing approach you have described, what happens over time with that in terms of prices for consumers, you being the consumers? Mr Ingram: I do not know if your recommendations are going to conclude there should be a review of whatever it is, an "Of" or something like that. I hope not. Q102 Linda Gilroy: Ofmod! Mr Ingram: I do not think that would be the best way forward. If I was to tell you that in terms of over land systems BAE Systems have 95% of volume, that is as near in reality the support that you can get. What we are having to do is work on new relationships with them in terms of the restructuring that is going on with the sister organisation, Apple(?), and I made an arrangement that rationalised all of that to get the best structure, best conditions to work in partnership with new industry needs so we can get the long-term support mechanisms in place and that principle. I do not think the monopolistic equation is critical where you have the best partnering and open group and transparent relationship, remembering that there are people employed in all parts of the country by those companies as well, and so it is in our interest as a government not to put crisis into the system but to put stability into the system, and that is really what we are seeking to do in all of this. The monopolistic approach is already there. Are we now going to be asked to break up the support to the supply chain in other areas? Q103 Mr Havard: I have been interested in what you say, Minister, about how some of this will feed back into the defence industrial strategy which is going to have to deploy our policy, which seems like a good idea. Can I come back to the question about how all this is being done. I visited Marham the other day. It seems to me the trade unionists are saying that at DARA, for example, people were going to pace, you know, and at a skill level that they question whether or not the RAF personnel could do. If they cannot do that, then at certain levels you have to introduce contractors, agency staff, and so on. What level of contracting and agency staff is actually being employed or planned to be employed in all these locations? Air Vice Marshal Thornton: If I may, at Marham the plan is, in addition to the military people that we have got there, to move about 60 full-time BAE systems staff over, as I say, people that we have employed in the past, to move to them to where the actual work is being undertaken as BAE Systems undergoes its own rationalisation process, and a maximum of about 45 agency staff. Q104 Mr Havard: When I visited there I got the impression that this was going to fluctuate. There is this question that Linda was exploring about sustainability and there would be a sustained number of contract personnel doing it, because a number of the rationale explanations we have had is that you have to have RAF personnel doing this. RAF personnel are not going to be doing all of it all the time. There is a component of contractors who are doing it all the time? Air Vice Marshal Thornton: Yes, and for the maintenance programme 45 agency staff is the figure that we are working to. It is slightly below that at the moment. It may have to peak for surges, but that is the way that DARA have traditionally peaked and that is the way we will do it in the future. If there is a capability insertion programme, we may need to bring in more agency staff to do that, but in terms of maintaining the GR4 at today's standard, it is a mixture of some 243 servicemen and 45 agency staff actually working on that hangar floor. Mr Ingram: I think there may be a misunderstanding here, that somehow or other we designed a solution and then we have modified it to bring in agency and in this case BAE Systems direct personnel. That was never the case. Q105 Mr Havard: You planned them in, did you? Mr Ingram: No, if you hear the answer, it was designed on a partnering approach with the design authority. There would always be non-uniform personnel, and the figures were given in the investment appraisal, and, indeed, were the agency staff figures. I think, indeed, Marham was 48, and you have heard the figure that we are now working to. It may be below that. Agency staff of all sorts are probably currently engaged at DARA St Athan, and so that has been part of the process anyway. It is a balance between the CMR, the requirement to have those skilled war fighters who can go off on expeditionary roads, and we need that number and that is the number which are then the defined requirement for RAF, and, no matter where the work was to be done, that would have to be the case, and that is why we set up the investment appraisal. I must say that I was a bit concerned that people were not hearing the message that we were coming to, that 1150 was the total number of personnel across the two platform types and that if they went to DARA St Athan that would be the displacement number of civilian personnel. Really what we are doing is taking a big tranche of people out of the system, both RAF personnel and civilian personnel, and delivering the same outputs at a significantly reduced cost to the MoD overall and to the RAF as a front-line service no less. To do otherwise would have been failing. Q106 Mr Havard: That is part of the point. The argument seemed to be that this work needed to be done by RAF personnel, but it is not all being done by RAF personnel? Air Vice Marshal Thornton: It was never the intention that it could all be done by RAF personnel, and that was in all the investment appraisals, and the Recommendation 40 investment appraisal that you have got recognises the figure of 48 civilians to work on the Tornado GR4 maintenance, and we are in line with that figure. Mr Evans: We did a lot of sensitivity analysis in the investment appraisal if those assumptions had not been fulfilled, as it looks as though they are being, which still showed that there was a considerable advantage in favour of rolling forward. Mr Havard: Essentially what you have done is you have introduced, I do not know how much, but a simpler cost to contractors who advised you on introducing the Toyota processes, because when I went into Marham I said to them, "This looks familiar to me. This looks like Toyota to me", and as an old trade union official, I have seen it before, I have seen the Canban systems and all of that sort of stuff, so the continuous improvement thing is not new in that sense. It is now being employed in a different way and in a different place - I understand that - but there are also dislocation costs; there are also questions about now you maintain skill levels within that. You talk about the need to be war fighters - which I do not accept, by the way. They could not be war fighters in Wales. Most war fighters have to come to Wales to be war fighters, but that is a different subject. Chairman: Can we make that into a question please? Q107 Mr Havard: The question is: from what I saw the RAF personnel were going to be working at certain times for very short periods on all of the parts of the pulse, but the major part of their activity was at the front end and the back end, which is stripping it down and putting it back together again. They are not factory workers. As you said, they are war fighters. They do not join to be factory workers. Where does this leave you in terms of retention, recruitment, and are we going to see holes appear and they will have to be filled by extra contractors? Air Vice Marshal Thornton: I think, as we have said, servicemen have always been employed in depth organisations throughout the history of the Armed Forces. This is not new. Today we have over two and a half thousand servicemen being employed in depth organisations in the second-line hangars and bays round the Air Force, so there is no new argument here. What we have to do is to make sure that when we operate the pulse line that we do move people around the pulse line, we do develop their skills appropriately; and that is a management task for those operating maintenance facilities on the stations. I do not think there is anything new. Some people prefer the cut and thrust of a front-line squadron, some people prefer the greater stability you get from a depth organisation. We want people to be able to work in both, and we are developing a personnel policy that determines how long people should spend in each organisation. It will be dependant upon particular aircraft type and the demand, to be quite honest. Q108 Mr Havard: Could I ask one last question. On the question of sustainability, which is what I am really driving at, you have got a plan. What is the sustainability of it? Also what is the transition here? There are predicted efficiencies coming, is what is said to us by the MoD. You have a plan to make all these changes in a particular period of time. There is a risk in that. There has to be some assessment of the risk. What reassessment, reappraisal, of that risk is happening on a continuous improvement basis that might examine whether or not pace of the change that you have already predicted will prove to be true or not true? Air Vice Marshal Thornton: As I mentioned before, we have just done an audit of the Harrier. Q109 Mr Havard: You did it? Air Vice Marshal Thornton: An independent person from my organisation together with.... Q110 Mr Havard: An independent person from your organisation did it, who was under your control? Mr Ingram: Was the implication that the people who carry out this work in the RAF, because they are in uniform, do not use objectivity in their analysis? Is that the accusation? Q111 Mr Havard: It is not an accusation, it is a question. Mr Ingram: That was the implication, and I think it is wrong to say that. It is wrong to imply that. Q112 Mr Havard: Who did it? Air Vice Marshal Thornton: It was led by two RAF group captains, one who works in my organisation but not part of any of the project teams that manage the aircraft. Q113 Mr Havard: So there is a Chinese wall between him and the organisation, is there? Air Vice Marshal Thornton: Yes, indeed, and another operational RAF group captain representing the operational commander of the AOC Support Group. Q114 Mr Havard: They have no confidence in it. Well, you do? Air Vice Marshal Thornton: I do, yes. Q115 Chairman: Can we get back to the sustainability issue. Mr Ingram: This gets to some of the criticisms that are pushed around it as if somewhere or other this has been driven by an RAF only agenda. The implication is that I should not take advice from the RAF in coming to my conclusions, and that would be wholly wrong. These are the experts, these are the people who have to put the machinery in place to fly the machines, they have to be satisfied, and, as I have said elsewhere, the ultimate arbiter of this is a pilot. If the pilot considers that those aircraft have not been properly maintained, are unsafe to fly, he has a view in this as well. Everyone within that virtuous circle has to be sure that the quality of the people is of the highest ranking, and when we put someone in to do an audit we put quality people in, we do not put them in to say, "Give us the conclusion we want." Give us the facts as you find them. If those facts had turned over stones that were problematic, we then have to find solutions, and that applies wherever and however we are structured, and that could have applied within the DARA structure as well. At all times we have to examine those aspects. Has it been done properly? Has it been done well? A very onerous responsibility rests on the Air Vice Marshal and others to ensure that the quality that we are seeking is constantly being maintained. Any implication that they are applying a different set of performance indicators in this and that they are doing it just because they want to see people in uniform is absolute nonsense. We would not have the high quality RAF today that we have got without the people who are delivering both at a management senior level and on the short angle as well. Q116 Chairman: I heard no such implication made, but the question was asked about sustainability, and then we will come to John Smith. Is this new system sustainable? Air Vice Marshal Thornton: Yes, the new system is sustainable. We will always require a certain number of RAF people to be employed in it. We have taken work from three locations from industry, and if you look at the Tornado GR1 to GR4 upgrade programme, that employed on the hangar floor 257 BAE Systems employees when that programme went through. We have taken work from DARA St Athan that was a civilian employee regime, and we have co-located it in one location. There was always going to be a mix. This is not about the RAF will do all the work. The RAF will use the minimum number of people that it needs to meet its crisis manpower requirement and no more, because we are more expensive and we should not employ any more than we need to do. Q117 John Smith: Staying with sustainability, Chairman, and coming back to my colleague's point, I am still concerned as to how you do incentivise a monopoly supplier over a long period of time. The thinking behind the creation of DARA only four years ago, one of the key functions of DARA was indeed, to provide a competitive alternative to industry to prevent us getting into this position where in five years time the RAF front-line may be dependent on a sole supplier for supporting depth support and providing components. How has government policy changed so dramatically in such a short period of time from wishing to have a competitive alternative in industry to being confident that you can maintain an efficient contractual relationship, not with a partner, which I accept is a way forward, but a partner who is a monopoly supplier? Mr Ingram: Because the facts changed, and that was what came out of the end to end study, another way of doing this, all of that approach, and I lived through all that. Is there going to be a roll forward, a roll back? Is there going to be a hybrid? Is there going to be a hybrid minus? What was the best mix? Yes, there was pressure to say everything should go onto a main operating basis, but not if the bricks were stacked up differently. That is why we have Fleetlands in operation now that we are part of the uniformed personnel, saying, "This is going to be a problem for us because we are now going to have to move onto a civilian base." Well, so be it, because the logic worked the other way in terms of fixed-wing support, but what do you think the solution we have come to with Sealand is about? We have concentrated on fixed-wing only. DARA has a number of business units within there, and Sealand is being maintained, 600 personnel, as we define a support approach because we need that type of mechanism: high quality, high grade, highly effective, and it is going to as good as you would get. That is being maintained. This is not about DARA being completely transferred over to uniformed personnel. That is not what is happening. Fleetlands, Almondbank and Sealand are in the main civilian bases. Where they end up is another matter - whether they end up as part of an MoD structure or in some other construct - and then we will have to decide, as we test the market in that. What is best for the taxpayer is one consideration, but the prime issue is can we maintain the same level of support to beat the operational needs? That will be the overriding consideration in all of this; but the facts did change and the end to end study showed the way in which we were doing it before was not as efficient and effective as we could do it, and look at the figures we have taken out of the system and not even getting the same amount but getting an improved output. This has to be evidence-based and the evidence stacks up in favour of what we have done. At all times we have to examine, and it will not rest on me because, as you have heard, the Tornados are going to be there until 2025. I do not know how many ministers are going to be in place by that time I just hope the same rigor will be then applied to ensure that everything that has been done is still meeting the requirement. If we are not doing that then we are failing somewhere, and that is exactly what has been explained as we entered this process from early days. We have gone into a stock-take approach and the Air Vice Marshal and I have had constant discussions about this. "Prove this? Convince me?" That is a check and balance that has to take place and that is going on, and if we do not have that rigorous approach (that question has been asked anyway within the RAF), there then has to be challenge at all times, and that is how we move forward with certainty in this. If there were big risks and big uncertainties, then a different set of facts would have been in play and a different solution would have been applied, but it may have been the existing one. There may be a status quo. Chairman: We are now going to move on to the final group of questions on the Red Dragon project and the future of DARA. Q118 Robert Key: Can I ask some easy questions about what happens next. Am I right that the Red Dragon project was funded by a commercial operating lease payable by DARA annually from December 2004 to the Welsh Development Agency? Mr Evans: It is actually payable to the banks who funded the facility, is the strict answer to your question. Q119 Robert Key: So will DARA continue to be responsible for the rent? Mr Evans: There is an agreement between DARA and the banks that provide us with the finance for that construction. Clearly DARA is part of the Ministry of Defence. That is a Ministry of Defence obligation, as the Ministry of Defence has accepted other complications to do with the restructuring of DARA, including the redundancy funding. If you are saying, "Are those bills going to be paid?", the answer is definitely, "Yes", and the MoD will be ultimately the payer. Q120 Robert Key: Will the cost continue to be the same for 125 years whatever happens to the super hangar and site? Mr Evans: No, the super hangar is effectively for 15 years. We have a payment mechanism stretching over that 15-year period, assuming that continues in that mode, and at that point the building is paid for. It is essentially a PFI arrangement that we have entered into. It is essentially DARA fronting it up, but it comes back. If DARA did not exist any longer, which, as the Minister has said, is not the position at the moment, it would revert back to the MoD to meet that obligation. Q121 Robert Key: So effectively the Ministry of Defence has a relationship with the banks? Mr Evans: Yes, through DARA. Q122 Robert Key: Why then did the Welsh Development Agency get involved at all? Mr Evans: As the Minister has said, and the Minister will probably want to come in on this, the Welsh Development Agency, as people round this room know very well, was and remains extremely interested in developing the St Athan site, but I think what we have to bear in mind here is that the land deal that goes with Red Dragon is not just about the super hangar, it is about how the Ministry of Defence as a whole can make the best use of what you already know is a huge piece of real estate with lots of very old buildings on it. What we saw in the Red Dragon deal was a great opportunity to rationalise that to bring in land command units, which is also part of the package, to take costs down, to rationalise and, as it happens, to build this facility which at the core of the business case was about the DARA use of that facility, but the Welsh Development Agency could see considerable attractions in using that facility to build on their aspirations for an area of space park. That was the core of why we set this process in motion, and, as I have said in my earlier contribution to this, at all stages of this leading up to the approval of the business case, we were looking at all the factors surrounding those issues, not least, and quite importantly, the future to workload that DARA assessed that they were going to get which we were then trying to compare - going back to what Mr Hill was talking about - the customer/supplier relationship between DARA and the Ministry of Defence, how all that played in, such that we could advise the Minister on what was the most sensible decision to take. Q123 Robert Key: Minister, I bet you could have spent that £100 million better on different priorities rather than propping up a regional agency, could you not? Mr Ingram: That is not what happened. The way in which this was approached was: can we make this succeed on the best information available at that point in time? The answer to that was, "Yes", and we were doing it in partnership, of course, with the Welsh Development Agency and the Welsh Agency. The colour of the debate, the discussion that was going on at the time, was that if we made this a central hub, a centre of excellence for the MoD, there would be people queuing up to come on to that location. There is any amount of interest that has been shown from other players, but that has not quite happened. I must say, my experience in terms of other roles I have played tells me that people can talk big but very rarely deliver in terms of relocation on new locational effort by companies that are looking to invest in development terms, so I was very cynical about all of that. My view was, at the time, should I proceed or not proceed with Red Dragon, did it stack up financially and what is the benefit to the MoD out of all of this? My conclusion was even though there were now beginning to emerge some concerns about future workloads, about some of part of the viability, and we then went into tough negotiations with Welsh Development Agency on the break clauses in terms of that project, if I had made a decision not to proceed with Red Dragon, then I have got to say that that location would have been in a very powerless state now. What we now have is a world-class facility which is marketable, which we will do everything we possibly can and which we have already done, in terms of helping to attract ATC Lasham to the location. If people want the facility, it will be there. It is a very worthwhile facility for people who are looking at location or relocation, so it is a great asset which can then be used in that way; but I would not have done it simply as a sop; I would not have done it on the basis of simply throwing money away. That is not the way in which I approach it or my officials approach it. Did we get a pay back from an investment? Yes, we have. We have driven out the cost as a consequence of that, and the previous chief executive was a very strong advocate and proponent of it, and all the other advice I received said that was also beneficial and desirable. What happened, of course, was that the volumes they were considering changed because of other decisions we took subsequently, and, of course, also we have heard about the fast jet maintenance site before the Harrier, and so these were not in the reckoning at that point in time. On the best information it was a correct decision. Do I think it was the best decision now? The answer is yes, because it will still get the pay back required from it. I have always asked myself the question: Did I do right? Yes, I did. Subsequently, have I done right? Yes, I have, because now we can give, hopefully, a future in that location, and that becomes the regional agency's responsibility to seek to attract more on to that location, and they have a hugely marketable facility to do so. Q124 Robert Key: Minister, I do not doubt that the Treasury would not have let you do it if they thought that this was not a good financial deal for the Government. What you are saying is that this is a very good example of joined up government with the Ministry of Defence bailing out the Welsh Development Agency, to the enormous advantage of the people of Wales, at the price of a financial burden which will be round the necks of the Ministry of Defence for a very long time? Mr Ingram: I am not saying that at all. Mr Key, you are a very experienced person, and you know that any such approach has to go through the Chief Financial Secretary, and all of that case was set out with all of the possible witnesses, if that is the right description, but some of those details that we were looking at in terms of volume and changes, the Treasury did accept it because it did stack up as an appropriate deal. It was not seen as a subsidy. If the implication is we were doing something for some political purpose, then the solution would have been, "Do not change anything; just keep all the jobs at DARA St Athan." I remind you of the history of this as well. Just before the election, not that that should matter, I announced a thousand RAF personnel coming out of the support system for the fast jets from Scotland, a thousand posts, in April, just before the election, because not to have done so would have meant the MoD was carrying costs it should not have been carrying, and so it was about best spending and not frittering and throwing money away. Chairman: On that, Minister, I think we had better finish. Thank you very much indeed to you and your team and to everybody who has given evidence to us on this inquiry, and also to everyone who has come to watch, many of them with a deep interest in this matter. We are most grateful. |