Letter from the Secretary of State for
Defence to the Chairman
UK MARITIME INDUSTRIAL
STRATEGY
As the first anniversary of publication of the
Defence Industrial Strategy approaches, I wanted to update you
on the situation regarding the future of the UK maritime sector,
particularly in respect of industrial consolidation.
The progress that has been made toward industrial
consolidation in the maritime sector has been disappointing. The
lack of substantive progress is a direct reflection, I believe,
not only of the complexity of the task but also because industry
is enjoying a period of high workload from MoD's current shipbuilding
and submarine programmes and does not feel a strong sense of urgency
to implement the necessary changes. Industry needs to be realistic
about MoD's future orders because beyond the very healthy programme
prospects of the next five to 10 years, and after the peak of
activity on the new aircraft carriers, the market will get smaller.
I am determined to press home the need for managed reform with
industry in order to improve efficiency and productivity and avoid
a very difficult situation in 10 years time.
Maritime industrial facilities in the UK in
both the submarine and surface ship sectors remain fragmented.
What we are seeking from industry are innovative proposals that
deliver performance improvement benefits to the MoD and the tax-payer,
from an industry with a well-motivated leadership and with an
incentive framework which drives a dramatic improvement in the
efficiency of the business. Efficiency improvements would also
greatly improve the prospects for export-led work on a commercial
basis.
Industry has recently begun to show signs that
it is coming to terms with the need to collaborate, and we are
now seeing some promising movement on a multilateral basis. However,
we are clear that financial engineering and mergers and acquisition
activity will not achieve this on its own. The challenge is to
ensure that consolidation results in improvement in performance.
We will encourage and support proposals which add value, truly
transform the business and deliver the substantial performance
improvement the sector needs.
Fundamental to the success of this Maritime
Industrial Strategy is the shipyards' ability to work together.
The progress which has been made by the Future Aircraft Carrier
Alliance has shown how industry can do this, and I see this as
a "road test" for the behaviours we are seeking within
a wider shipbuilding and ship support collaboration. Fundamental
also, is the way in which MoD operates and provides leadership
as the customer. With this in mind, I am reforming the way in
which the MoD operates, how it is led and how it transacts with
industry. From April 2007, MoD's new Defence Equipment & Support
organisation will take the best practices from the DPA and DLO
to create a single entity responsible for procuring, maintaining
and sustaining military equipment capability. The MoD is also
improving its financial planning, in particular by ensuring that
new equipment and its in-service support costs are planned more
coherently. The recently appointed new Commercial Director will
lead in shaping the Department's relationship with industry and
our future strategic commercial arrangements.
I am keen that these issues are clearly understood
by all those with an interest in the UK maritime industry. My
aim is to communicate clear and consistent messages to all; the
management of the companies concerned, the Trades Unions; those
within the MoD and the Armed Services; across Government; and
in Parliament. I would be happy to explain further should you
wish, and to meet to discuss if you would find that helpful.
16 November 2006
| 
