Examination of Witnesses (Questions 20
- 39)
TUESDAY 27 MARCH 2007
AIRBUS UK
Q20 Roger Berry: Is there a plan
B if you do not find an industrial partner?
Mr Gray: There is a very, very
clear intent to secure an industrial partner. I believe there
will be a strong level of interest. I believe the UK is an attractive
place. I believe Filton offers very, very significant strategic
advantages so I do not envisage any problems in that respect.
Q21 Roger Berry: Can I ask you about
BAE Systems' sale of their 20% share of Airbus. Do you think BAE
Systems sold out on the future of UK civil aerospace?
Mr Gray: BAE Systems had a strategy
which was progressively to move out of civil aerospace. I think
we should not underestimate the role, however, that BAE Systems
did play in the formation of Airbus as a single company. They
played a strong role in securing the launch of earlier programmes.
They were an arm's length shareholder. Over the last five years
we have seen significant investments coming into Filton and Broughton
through EADS's commitment to Airbus. I believe that the commitment
from EADS into the UK has been reaffirmed in recent weeks through
the Power8 announcement. I think it probably led to a period of
uncertainty amongst our employees, but I am convinced that with
the right levels of partnership between Airbus, the supply chain,
academia and government, with the right levels of investment in
technology moving forward, then in the long-term Airbus can prosper
very, very significantly in the UK without BAE Systems.
Q22 Roger Berry: And can prosper
as well, and the sale of that 20% in your view does not damage
UK interests now?
Mr Gray: That is my belief.
Chairman: Before I bring in Mr Hoyle
can I push you one more time on this question of partners. Jane
Austen writes a lot about young women desperate to find partners
and they are very confident that they will find one. Some of them
do and some of them do not, and their whole future happiness depends
on finding partners and they are all confident that they will
find the right one. Your future happiness at Filton depends on
finding this partner and you have expressed confidence and I know
you cannot give us the names, but we know who they are and there
are not very many out there. Are you rather looking for a shotgun
wedding, or forcing them to get married to you whether they want
to or not?
Rob Marris: Jane Austen never had a shotgun
wedding.
Q23 Mr Hoyle: That is a different
novel!
Mr Gray: She was fairly local
to the Bristol regions so she perhaps knows the attractiveness
of the area. In terms of commitment to Filton, I did say earlier
there is an absolute recognition that from a design point of view,
an engineering point of view, the work and activities that happen
at Filton are core and central to Airbus. What we are talking
about is a partner to invest in new composite manufacturing facilities.
I believe it is an attractive proposition and there is interest
in doing it. The interest from my perspective has been looked
at in terms of a long-term sustainable industrial perspective
and I think that is a very healthy sign for us moving forward.
The kind of things that will make it even more attractive to anybody
who wants to be involved is a recognition that there is support
from around UK plc in terms of the investment in the new technologies
moving forward as well so that this decision is not just about
the next programme, but it is about long-term sustainable manufacturing
moving forward.
Q24 Chairman: We can book the church
and invite the guests then, can we! You are confident?
Mr Gray: I am confident.
Q25 Mr Hoyle: Just to push you a
little bit further on that question, you seem to be answering
very well, there would be a suggestion that we could end up with
two companies producing composite technology unless BAE is one
of your partners.
Mr Gray: BAE Systems are a supplier
to Airbus, I think it would probably be recognised in your own
particular constituency that BAE Systems already have quite a
significant composite capability themselves, albeit on defence
programmes, smaller component parts. There is very significant
composite capability in my view in the UK and it is good to have
competitors. I think the most important thing for us on the Airbus
A350 announcement is that there is a recognition from Airbus of
the importance of investing in composite manufacturing facilities,
that is something that might not have happened. It is something
that we have secured with everybody's help, we have particularly
appreciated the support from people around this table in helping
to secure that decision. It might not have happened, it is a victory,
it is something that we have collectively secured for UK plc.
Q26 Mr Hoyle: Do you think the board
would allow a partnership with BAE in composite technology?
Mr Gray: I would not envisage
that being an outcome. I do acknowledge that BAE Systems are a
supplier to Airbus and they do have some composite capability.
Q27 Mr Hoyle: If they come as a partnership
they are ruled out.
Mr Gray: I cannot answer further
on that.
Q28 Mr Hoyle: I think we have got
the answer. I think there is more in the answer with what is not
said than what has been said. I think a lot of us who are interested
in aerospace feel it was very short-sighted of BAE to cash in
the chips, the 20% stake, because it is usually feast or famine,
when you are doing well on civil, you are usually doing bad on
military and there was a cross-over of work which took place in
the past. Do you think that is a letdown for the UK?
Mr Gray: I think what is important
for the UK is that we see a continued commitment to civil aerospace,
large commercial aeroplanes, ownership is less the issue. The
key thing is there is a commitment from the UK to be part of the
large commercial aerospace landscape and the statements EADS and
Airbus have made in recent weeks allow that to happen.
Q29 Mr Hoyle: It would not allow
for technology transfer between the two companies which have now
become rivals?
Mr Gray: I cannot comment on those
particular relationships.
Q30 Mr Binley: I want to probe you
on the Power 8 Programme. As a businessman, if I looked at that
Power8 Programme, which talks as it does about smart buying, lean
manufacturing, reducing overheads, streamlining, I would see a
sizeably inefficient company that needed to catch up with the
modern age very, very quickly. Can I ask how inefficient you were
as a company and whether that inefficiency was spread throughout
the organisation or was it specific to certain parts of it?
Mr Gray: I think you suggest quite
rightly that Airbus needs to respond to the pressures of the marketplace.
Inevitably, we have been on a journey. This company, Airbus, is
a relatively new company. Although Airbus as a product has been
around some 30 years, Airbus as a single company has only been
around some five to six years, and a key priority in those first
five to six years has been the integration of the business. In
terms of lean, I think there are some real benchmark examples
of lean manufacturing through the Airbus system. What Power8 will
do is use best practice from around the system and share that
around other parts of the Airbus system. Like all big corporations,
there are certain parts of the business that are benchmarked and
there are other parts that do need to catch up. In a truly integrated
business one of the key things we have identified is sharing of
that best practice is absolutely paramount. In terms of UK performance,
I think we should acknowledge an absolutely excellent job from
our employees and from our supply chain in terms of the contributions
we have made—the A380 wing being a prime example—superb
engineering, manufacturing efforts from everybody. I think you
are meeting with SBAC later this morning and they may talk about
their Supply Chain Effectiveness Programme. I think the UK has
a superb opportunity to start shaping how other parts of Airbus
may work moving forward in respect of lean. On the other hand,
there are other parts of Airbus that can probably bring some best
practice into the UK as well. Sharing practice around the Airbus
system to get a truly integrated business is of paramount importance.
Q31 Mr Binley: I am grateful for
that because it was not an easy question for you to answer. Can
I ask about the job reductions, and can I ask how you determine
where to cut the 1,600 jobs agreed under the Power8 package of
reforms in the UK?
Mr Gray: Again, coming back to
the previous question about being more effective, being more cost
effective, I believe there is a reasonably equitable split of
those jobs. In fact, what Airbus has announced is 10,000 jobs
over the next four years. Those jobs are predominantly looking
at support functions in overheads, they are not blue-collar jobs.
The 10,000 number has been spread roughly 50% permanent, 50% sub-contract
staff. The way that has split out has to be precisely defined
but, from a UK point of view, we have envisaged 1,600 jobs will
be lost in the UK. Again, we envisage the same kinds of ratios:
about half of those will be achieved through our sub-contract
workforce, the other half will be achieved through hopefully voluntary
means. The precise split of that number has still to be defined,
but it will be equitable across the whole of the Airbus business.
Q32 Mr Binley: You have got about
135,000 jobs dependent on Airbus in the UK, does that mean you
are only looking to impact upon a very, very small number of those
jobs? If that is the case, how can you achieve, quite frankly,
your Power8 Programme?
Mr Gray: In terms of job numbers,
just to be clear, Airbus UK has around about 13,000 people, including
permanent staff and temporary sub-contract labour. That 13,000
generates, as you have said, 135,000 jobs, direct, indirect and
induced. In terms of competitiveness, then clearly the supply
chain itself will have its own competitiveness programme. In terms
of the outsourcing policy of Airbus, which is to put more work
outside into the supply chain, I see no reason at all why a competitive
UK supply chain should not be winning more work from other parts
of the Airbus system and not necessarily just restricted to work
coming from Airbus UK. In terms of the overheads reduction itself,
the 1,600 jobs, as I said, those are support jobs, they are not
blue-collar jobs and that is our own contribution to our own effectiveness
programmes, the supply chain will be looking at their own competitiveness.
Q33 Mr Binley: You would probably
expect to see around 130,000 jobs still dependent upon Airbus
in the UK?
Mr Gray: I would, yes.
Q34 Mr Binley: Can I now go on to
my final question and it is about the four new centres of excellence.
I would like to understand a little more about how they might
operate, and what they mean for jobs in the longer term in the
UK, because I get the feel of a management and overseeing role
rather than a specifically doing role. I get the feel that you
might become more enabling than doing. Is that an unfair view?
Mr Gray: Yes, it is a very unfair
view. The important thing to acknowledge is that Airbus has pioneered
a centre of excellence approach over many, many years, and the
Wing Centre of Excellence has been here in the UK. As I said earlier,
we have secured that Wing Centre of Excellence and it will continue
to remain here in the UK. What has happened, however, is that
the previous model which Airbus adopted had about eight different
centres of excellence, and although they were not specifically
designed to be national centres of excellence, that is probably
how they operated. The centres of excellence were not as efficient
in terms of operating across national boundaries. What we are
moving towards is a truly integrated business, and the Wing Centre
of Excellence has extended its boundaries to include the management
control parts of the wing which happen elsewhere in the Airbus
system. There is no inference at all that it is moving to more
of a management role, it is a reinforcement of an overall wing
leadership position in the Airbus system. The core parts of the
Wing Centre of Excellence which happen here in the UK will very
much remain here in the UK providing we remain committed to being
effective and providing we remain committed to securing the appropriate
technologies as we move forward.
Q35 Chairman: Can we now move to
some questions about the role of Government with regards to Airbus.
I would like to start with a general question about the undertakings
which were negotiated with EADS and the Government after BAE sold
its stake. We know they are commercially confidential details
and we understand that. The spirit of them was that decisions
about future work-sharing and so on, would be taken on strictly
economic commercial grounds, not on political grounds, that was
their central theme, as I understand it.
Mr Gray: There is commercial confidentiality
surrounding those issues. What did happen in the middle of last
year—and again I would not belittle it, it was a very significant
step taken by EADS. EADS committed the UK Government to the transfer
of the undertakings with respect to the centre of excellence for
wings being here in the UK on existing programmes. That was a
very significant statement and that was an area of some concern
here in the UK at the time of the announcement of BAE's sale of
its share in Airbus. Around about the middle of last year EADS
committed to the transfer of those undertakings.
Q36 Chairman: We are here today and
are relatively optimistic about what we thought might have been
the case some months ago, as long as you find that partner at
Filton, it is really quite a new story for the aerospace position
in the UK and for Airbus in particular, but how have we got here?
Have those undertakings been undermined by the UK Government,
rightly or wrongly, using political pressure to help secure this
outcome? There was a lot of speculation, for example, about threats
to withdraw military contracts from the EADS unless a satisfactory
outcome was arrived at.
Mr Gray: I cannot comment too
much on some of the wider issues. I would make an observation,
however. In recent months I have seen a remarkable level of joined-up
thinking in respect of how we secure sustainable wing manufacturing
here in the UK. I have seen that cross-government, cross-party,
with the supply chain and with the wider stakeholder community.
There has been a real recognition of the importance of Airbus
here in the UK. Again, I would say, in terms of how we move that
forward I think looking forward that level of commitment needs
to continue and the way Airbus and EADS will look to move forward
depends as much about how we continue that level of joined-up
thinking and in particular, with respect to how we protect new
technologies and invest in new technologies for the next generation
of programmes.
Q37 Chairman: The implication of
your answer, if I understood it correctly, is that the UK Government
has used carrots to help secure this successful outcome but not
sticks?
Mr Gray: I think there was an
extremely joined-up level of thinking.
Q38 Chairman: The sticks were joined
up to the carrots! I am not quite sure what that nod meant, Mr
Gray, I will not push you too far on it, but you clearly think
the undertakings still have value?
Mr Gray: I do.
Chairman: We will move on to the Government
funding issue, as much as I would like to probe you a bit further
on that.
Q39 Rob Marris: You said this morning,
Mr Gray, that the prospects of Airbus moving forward were very
good. You said it had a rosy future. You said: "The Wing
Centre of Excellence will continue to remain here in the UK",
that was one of the quotes from you. You talked about EADS making
significant investments at Filton and Broughton, and regarding
partners you said there is interest. As I understand it, you announced
the A350 XWB last December and it is due to go into service some
time in 2013. Do I take it from what you said this morning that
Airbus, certainly in the UK, does not need any financial support
from the Government?
Mr Gray: No, what I have said
is in terms of looking forward, there are two different aspects.
There is the competitiveness which we, as industry, are responsible
for, and there is competitiveness in a more macro sense in terms
of government, industry and academia working in partnership, and
that is hugely important for us all as we move forward. I have
not made specific comment on particular mechanisms of how that
support may come about. What I would want to place very, very
strong emphasis on is investment in new technologies. I believe
that from a UK competitiveness point of view moving forward, an
absolutely fundamental aspect is related to investment in new
technology. That is an area where government, industry, the supply
chain and academia do need to work very closely together.
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