Examination of Witnesses (Question 60-79)
MR RON
GRANT, MR
JIM MORRISON
AND MR
JOE OATLEY
7 NOVEMBER 2006
Q60 Chairman: So you do the weapons and
the launch system on the Astute programme, amongst others.
Mr Oatley: Yes, Astute amongst
others, Trafalgar, Vanguard, Upholder.
Mr Morrison: My name is Jim Morrison.
I am the Unit Managing Director at Alstom Power Steam Turbine
Retrofits UK. We design, manufacture and supply steam turbines
for the nuclear submarine programme. Steam turbines for submarines
is not our core business. We have been pursuing a strategy lately
of being able to continue support for the manufacture of the forthcoming
steam turbines for the forthcoming submarines, pursuing a strategy
of being able to hold on to, what I call, our "know-why",
that we are a position where we are not actively trying to replace
the essential skills or know-why within our organisation.
Q61 Chairman: Did you say you were
not actively?
Mr Morrison: Not at the moment.
Our strategy at the moment is to be able to simply hold on to,
and retain, the key skills and the processes and the methodologies
to be able to continue the support of the existing Astute programme.
Mr Grant: I am Ron Grant. I am
Managing Director of MacTaggart Scott & Company Limited. We
are a privately owned, limited engineering company on the outskirts
of Edinburgh. We employ around 250-260 people and whilst we have
been in existence for quite a long time, we are very much conscious
of the need to stay abreast of the changing market. The volume
of our business which is associated with defence is probably around
95%, but since around the mid-1980s we actively set out to grow
our export side of the business and we currently export something
like 60% of our output, so defence is a major component of our
business, albeit one, I would say, wholly dependent on having
the domestic market. In fact we have found in our travels around
the world, seeking to sell our wares which are essentially bespoke
equipment, that we very much need the visibility of a domestic
shop window in order to be allowed to be part of the export market
and it could be said that one can be part of a domestic market
without necessarily being part of the export business, but you
certainly cannot be part of the export business without having
a visibility in a domestic market. The nature of our equipment
covers both surface ship and submarine equipment. On submarine
equipment, which we have been involved with since our inception
at the turn of the century, it is non-hull-penetrating masts,
which are high-strength, low-weight, non-pressure-hull-penetrating,
capable of carrying a variety of payloads from the optronics to
communications heads, through infrared, radar, snort induction
and diesel exhaust, and in fact we manufacture the complete suite
of non-hull-penetrating masts which are currently on Astute and
we have also trialled those into other submarines. We have an
early derivative of that presently in the Australian submarines
and there has been interest in that design of mast in the USA
as well which we are actively trying, subject obviously to the
usual controls of export IPR and intelligence, so masts is the
key element of our business. Quiet, stealthy hydraulic motors
and pumps and power packs, these are also very much a key component
of our business which we have supplied around the world.
Q62 Chairman: When you said "the
turn of the century", you meant the previous century?
Mr Grant: Sorry, 1898 we were
in fact established.
Q63 Mr Borrow: The Committee would
be interested to try and get a handle on what specialist skills
your companies have got, whether you did work on the Vanguard
programme as well as the Astute programme and what stresses and
strains of the gap between those programmes there were for your
companies. The large companies we have heard about this morning,
but in terms of your companies with specialist skills, to what
extent were you involved with the Vanguard programme, to what
extent are you involved now with the Astute and how did you manage
the gap between those two programmes? I think we would be interested
in trying to get a grip on the mechanics of that.
Mr Oatley: Our involvement on
Vanguard was the same as it is on Astute, to provide the weapons-handling
and launch system for all the conventional weapons on that submarine.
The key skills that we have break down into what I would broadly
call "design, manufacture and in-service support" because
we operate in all three areas. Within design, our engineering
skills are systems engineering, structural design, shock and stress,
mechanical engineering, control systems, quite similar in a way
to a lot of BAE's skillset, within construction it is specialist
welding, specialist assembly and fitting, testing and within the
support arena we have some very experienced fitters, people who
can remove, refurbish and reinstall the equipment, so those are
the kind of specialist skills that we have and we need. Obviously
there was a very large gap between Vanguard and Astute. We were
probably more fortunate, whether by design or hard work, I am
not sure, because we won a contract from Australia to provide
a system on the Collins-class submarine which filled some of the
gap between Vanguard and Astute and there were also a number of
key upgrade programmes within the support element through that
period, a key one of which was the fitting of the Tomahawk missile,
and that kept a number of our key design resources engaged through
that period. Therefore, whilst we undoubtedly had a dip, we were
able to keep all of the design team together through that period
with those programmes.
Mr Morrison: We had the same scope
of supply for Astute as we did for the Vanguard. With respect
to our skills, essentially the skills that you require are the
same as the skills for building steam turbines for power plants.
However, the specifications are substantially different for submarines
than they are for normal power plants, these being the materials
because of the safety concerns, the long life, the inaccessibility
to the plant, the different configurations, different operating
speeds where normal power plants run at an operating frequency,
whereas submarines cruise and they change speeds, the noise, the
vibration characteristics, the methodologies that we employ and
the justification of safety cases to the MoD. These are substantially
different from what we do on normal steam turbines, so essentially
it is the same set of skills, but the specifications are very,
very different. With respect to how our numbers have evolved,
when I took up my position in Rugby three years ago, we had a
dedicated naval department of essentially 27 to 30 people. We
currently do not have a naval department anymore. We have integrated
those people into our core activities essentially because the
department was not sustainable through the order intake. The reason
for integrating them into other departments is that we are acutely
aware of how important our product is for the future of submarine
build and this was essentially to try to keep the essential skills
that we require to produce the future boats, so we have retained
the skills, but we have essentially dispersed them into our mainstream
activities, and what we do is we cluster them to be able to produce
future boat sets. That maybe gives you an idea of the way that
our business has evolved through the submarine programme.
Q64 Linda Gilroy: Can you try and
describe to me, because I am not quite clear about this, the extent
to which those skills, as you were describing, needed for safety
justification, very high skills, are used in the sort of broader
work that you have just described for us? Is the full skill range
used in the presumably civil work that you are doing in that department
or are there aspects of what they would do on nuclear—
Mr Morrison: No, outwith the naval
arena, they are only using a subset of the knowledge that they
have for the production of steam turbines for power plants.
Q65 Linda Gilroy: So how do you prevent
the degrading of their skills that would be used for naval nuclear
steam-raising plants?
Mr Morrison: We are essentially
going down a path to try to outsource certain components. The
package that we produce is a steam turbine and condenser generating
set. The steam turbines is really the core business for my wider
operation and those we are retaining in-house. The condenser sets,
we no longer produce those for the commercial world and we have
effectively sub-contracted that to other areas of business in
the UK. Effectively we are looking at what we can produce and
then coming up with a strategy to be able to put our package together.
Mr Grant: The key skill sets which
MacTaggart Scott has to retain are its familiarity of design for
the environment and the interaction of materials operating in
that environment. Whilst we supplied equipment in much the same
suite as I mentioned earlier on into the Vanguard class, I have
to say that Astute very nearly put us out of business simply by
virtue of the delay between Vanguard and Astute and the difficulty
in actually keeping a design team together, focused, affording
the R&D which we were keen obviously to bring to bear in order
to be a player in the Astute programme. The mast technology which
I mentioned just now was a complete departure for us in terms
of materials and technology because it is essentially GRP as opposed
to a metal mast and it has now gone through subsequent evolutions
of research and development looking at use of carbon fibres to
further enhance strength, reduce weight and obviously give the
submarine designer the flexibility to put the fin where he wants
to in the submarine as opposed to the obligatory location at the
centre of gravity, so retention of those skill sets was vital
to us. We went through a three-year period of actually declaring
a loss by in effect having a design team treading water involved
with the research and development which was, to our small company,
at a very high level and not affordable. We subsequently learned
that we needed to grow our export defence activity in order to
afford our investment into research and development and that is
another key factor in the inter-dependence of participation in
the two markets.
Q66 Mr Crausby: In the event that
Her Majesty's Government decided not to procure a replacement
for the Vanguard submarine, what effect would that have on your
business and to what extent would you be able to maintain the
core skills that would enable you to participate in any future
nuclear submarine programme?
Mr Grant: We would have great
difficulty in retaining those skills and, to a large extent, that
is down to who we are and where we are. We are actually in an
area where the manufacturing industry has declined quite substantially.
Our investment in graduate sponsorship and in training is quite
considerable. In order to bring the new blood into the industry
and obviously to give us the young ideas for tomorrow, I think
if we found a major dislocation in UK submarine procurement, then
that gap would have a significant effect on retention of our more
skilled personnel and our ability to maintain current levels of
training and R&D.
Q67 Mr Crausby: To what extent would
you be able to transfer those skills to, say, other work, to surface
ships, for instance, and retain them in that way?
Mr Grant: We are involved in surface
ship work, yes, but that still requires some special skill sets
of its own. We do not necessarily have designers who are multi-skilled
in both surface ship activity and in submarine because the skill
sets are different.
Q68 Chairman: Mr Morrison, what are
your answers to these questions?
Mr Morrison: What effect would
it have on my business? Naval business represents approximately
3% of our sales, so in the bigger scheme forward for my company,
it would not have a dramatic impact. With respect to us being
able to hold on to our skills that we would require to continue
the future Astute boats, that is obviously dependent on when future
orders come through and also, to a large extent, how our core
business continues to be successful.
Q69 Chairman: I have the impression
that you have rather written off defence as a real money-maker
for your company because other things seem to be going better.
Would that be unfair?
Mr Morrison: No. What I would
not like you to come to the conclusion of is that we are not committed
to supplying future boat sets for the future.
Q70 Chairman: No, that was not the
conclusion.
Mr Morrison: I would like to make
that perfectly clear, that we are doing everything we can to be
able to sustain that skill base.
Q71 Chairman: But you sound as if
you are doing it out of public duty rather than in order to make
money.
Mr Morrison: That would be an
accurate assessment.
Q72 Chairman: That is a funny way
for a business to behave, is it not?
Mr Morrison: Well, as I say, it
is not a loss-making business for us. We have restructured the
naval organisation and we have in fact removed it as an independent
department and we have integrated it into our core activities,
so we have tried to lessen the impact of our reliance on naval
orders while still retaining the capability, but our future clearly
lies in the power business.
Q73 Mr Hamilton: If I have interpreted
it correctly, essentially you have a responsibility to the workforce
and the company—
Mr Morrison: Yes.
Q74 Mr Hamilton:— and, therefore,
what you are doing is diversifying because you do not get the
contracts as often. There is not a process on which they can depend
in the future. That sounds exactly what we should be talking about
in relation to all companies, not only in engineering, about diversifying
in a way and looking at the export market because they cannot
depend on the market in the UK. That seems quite logical to me.
Mr Morrison: Prior to us receiving
an order this year for boat four, the last order that we received
was in late 1998.
Q75 Chairman: David Hamilton has,
I think, correctly rebuked me. Mr Oatley?
Mr Oatley: In terms of if there
were to be no Vanguard replacement, the effect on us, I guess,
would depend on what happened in terms of Astute replacement and
the timing of that. We currently have a large design team working
on a new system for an export boat in Spain, so we have continuity
through that. If there were to be a long period before there was
an Astute replacement, I think it would have a catastrophic effect
on our ability to design a new system. That could be mitigated
by ongoing design work in support of the existing fleet for upgrades
and the like, but, as I say, it would depend largely upon the
timing of the next design cycle.
Q76 Mr Crausby: Do you have a view
on the eight-year gap that Mr Ludlam mentioned in comparison to
the 16 years between Vanguard and Astute? How did that affect
you, the 16-year gap between Vanguard and Astute?
Mr Oatley: I think the eight-year
gap is about right and if you look back prior to the large gap
between Vanguard and Astute, eight/nine years is about what occurred.
As I said in an earlier response to, I think, David's question,
we were fortunate in that long gap between Vanguard and Astute
in that we secured an export contract out of Australia to provide
a system to the Australian Collins-class submarine. We also had
a significant upgrade programme to install Tomahawk missiles into
the existing fleets and those two contracts kept our design resource,
at least at a minimal level, busy through that period, so if it
had not been for the export order, I think we would have been
seriously damaged by that gap.
Q77 Willie Rennie: As you have evolved
such stress of diversification into other markets and exports
as well, what is the kind of anchor that keeps you in this country
if that depends on MoD work which becomes less significant?
Mr Oatley: I think from my point
of view the UK is still our core business. There is no doubt that
providing the weapons-handling and launch system to the UK fleet
is our core business and the reason we have been able to win export
orders is because that is our core business, and because we have
developed a leading product for the UK Navy, we have been able
to sell that overseas, so it is still our core and it will remain
so. The other key thing that keeps us here is the in-service support
element of that, and I would think this applies across most of
the supply chain, and it is very important that we have both the
design and supply element and the in-service support and it would
be very difficult for us to continue if we did not have all of
those elements as a business. It is our core still in the UK,
but it needs to be across the whole realm of supply and support.
Without that, I think it would not be economic.
Mr Grant: We are a private limited
company and, without wishing to sound too melodramatic about it,
we are very proud to be a British company, arguably even prouder
to be a Scottish company at times, but perhaps I am not best equipped
to be commenting on that particular aspect of it! We are a major
employer in the area and the reason why we can be successful is
because we have a workforce which basically does not have walls
between departments and there is good interaction between design,
manufacturing and support staff, and there has to be in an organisation
such as that which we are trying to do. Frankly, the concept of
moving our business off British soil just does not—
Q78 Mr Crausby: It is not on the
agenda?
Mr Grant: It is not on the agenda,
never has been.
Mr Morrison: We are part of the
global organisation. However, the specific product that we produce
in Rugby is steam turbine retrofits and in fact it was ourselves
that essentially created a world market for steam turbine retrofits,
so we are at the very, very hub of Alstom activities and we have
the key skills and competencies for this market and we are very
strongly placed within the Alstom network to retain our position
in Rugby.
Q79 Mr Crausby: What kind of industries
are really in competition for the skill base that you have got?
Where do workers go when they leave your company?
Mr Oatley: For us, the biggest
competition is the aerospace market and if you look at our design
engineers and the questions earlier about how exciting and attractive
the submarine market is for engineers, and it is, it is very much
seen as a high-end engineering, exciting, interesting place to
be. The other high-end, interesting, exciting place to be as an
engineer is typically the aerospace market and, particularly with
us being located in Bristol, we have strong competition particularly
from Airbus for our design resource, so that is where we predominantly
lose people to.
Mr Morrison: We have actually
got a very, very high retention rate, so it is not a real issue
for us and, if we do lose people, it is generally to other players
in the industry.
Mr Grant: On the manufacturing
side, we do have a problem retaining staff in whom maybe we have
invested in training up to the latest numerical control technology
in machine tools, the latest concepts of ERP, and generally on
the manufacturing side they will move into a sub-contract machining
activity which is essentially a make-to-print, as opposed to a
bespoke design, activity. Oddly enough, and perhaps it is a feature
of young people seeing the grass as being greener, we do actually
get a fair proportion of them back. On the design side, the majority
of our design staff tend to move south into aerospace or into
offshore oil and gas. That is the major problem for us.
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