Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Question 60-79)



  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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