Examination of Witnesses (Questions 62
- 79)
TUESDAY 27 MARCH 2007
SBAC
Q62 Chairman: Gentlemen, welcome
to this part of the evidence session on our inquiry into Airbus.
We are very grateful to you for the evidence that you provided,
it has been very helpful written evidence to us as is the case
with Airbus itself and many other witnesses too. Can I begin by
asking you, as I always do when we have more than one witness,
to introduce yourselves for the record.
Mr Everitt: My name is Paul Everitt.
I am Director of Civil Air Transport and Communications at the
Society of British Aerospace Companies.
Mr Leather: My name is Andy Leather.
I am the Director of Aerospace Innovation and Growth Team Programmes
for the Society of British Aerospace Companies.
Mr Janke: I am Chairman of West
of England Aerospace Forum, John Janke. We are a regional trade
association for the South West and are affiliated to the SBAC.
Q63 Chairman: Can I begin where I
left off with Airbus. Obviously the A380 programme has had its
problems and that must have had implications for suppliers of
the programme. What have those implications been?
Mr Everitt: Clearly SBAC have
been monitoring quite closely the difficulties or the delays around
A380 and we have been in regular contact with our members and
also our regional partners that are operating across the country.
Whilst it is true there has been quite a lot of concern as you
would expect from companies, obviously uncertain as to exactly
what their production schedules might be going forward, in some
cases work that they anticipated they would be doing during the
course of this year which is clearly not now happening. The feedback
that we have got is that whilst people are concerned, overall
they are managing the situation quite well. I think it is important
to recognise that the aerospace business is a growth business
as Iain was mentioning a little earlier on. Demand in terms of
both orders and production are at record highs so most companies
operating in the UK are very busy. I think also it is important
that perhaps unlike some of our colleagues in mainland France,
Germany and Spain, the UK aerospace industry has a better balanced
portfolio. Many companies are working for Airbus and Boeing, they
are also supplying the civil and the defence market, so I think
that has cushioned the impact of the delays around the A380. I
do know you want to keep the questioning short, but perhaps John
can give a view from a smaller company perspective.
Mr Janke: Yes, the South West
and the regional trade associations are doing a lot of work to
sound out our members and, as Paul has said, initially there are
no signs of any significant issues coming up but it is early days.
There are some suppliers and I cite companies that supply engineering
services, for example, into Airbus who have got quite an interesting
juggling act now to play between what they are doing on finishing
the A380 work and preparing to pick up on the A350 services. The
important thing for all of us at the moment is that you have got,
as has been alluded to, the A380 recovery programme, the A320
single-aisle ramp-up programme with unprecedented production levels,
there is the A400M which we must not forget which is going to
be flying soon and coming into service, and there is the A350
programme which is a new programme. If you overlay all of that
with Power8 and the restructuring of the industry base in Airbus
UK, it is going to be a busy time for everybody. The important
thing for the supply chain is that we need visibility and good
communications with Airbus on a regular basis which I think we
are getting on the implementation of the A350 programme so that
these resources can be applied to that programme. I think these
are the main areas that we are going to be focusing on and to
some extent the issues around A380 are now behind us, and we need
to be looking at how we manage the resources in the future.
Q64 Chairman: I suppose if I was
looking for a phrase to characterise Mr Gray's evidence I would
say quietly confident. Do you share that sense of confidence that
he expressed?
Mr Everitt: In terms of the A380?
Q65 Chairman: Across the range of
Airbus's activities.
Mr Everitt: Yes, accepted there
are some significant challenges and I think we would say that
in terms of where we are currently, existing programmes are going
well, I think everyone is quite confident that once the A380 is
flying commercially customers will be attracted very quickly to
it. I think the challenges lie always in the future programmes
and particularly I think we feel that the next major programme,
that is to say the single aisle replacement, is going to be very
significant. Just to give some context, Iain talked about a potential
market of 22,000 aircraft over the course of the next 20 years;
15,000 of those are single aisle, so clearly getting a key part
of that programme for the UK is going to be incredibly important.
Q66 Mr Binley: I think Mr Gray quite
bravely recognised the degree of inefficiency within Airbus which
was one of the reasons for the Power8 restructuring. Can I ask
whether that impacted in any detrimental sense on the people that
you represent?
Mr Everitt: Power8 is only just
beginning.
Q67 Mr Binley: No, the inefficiencies,
did they impact in any detrimental sense on the people you represent?
Mr Everitt: I think people probably
came to work and understand the way Airbus operates. Andy is particularly
leading on the industry's work on supply chain improvement activities
and he may be better placed to answer.
Mr Leather: People knew how Airbus
worked, so worked within the inefficiencies which existed and,
in some respects, would welcome the opportunity to partake of
Power8 with Airbus to help improve Airbus as a company because
it would help their business also, so I think they would welcome
that.
Q68 Mr Wright: You mentioned the
Power8, what influence did you have as organisations on the outcome
of the Power8 restructuring?
Mr Everitt: Obviously we have
a very close and regular dialogue with Airbus. I think it would
probably be going beyond our remit as a national trade association
to say that we can have a key role in their commercial aspects.
Where we have worked closely with Airbus is on Power8 and our
own productivity improvement activities. We launched an initiative
a year ago called "21st Century Supply Chains" which
is quite a new and innovative approach which I think has helped
Airbus understand the willingness and desire of the supply chain
to work more collaboratively with it to deliver the kinds of results
that Airbus needs to be competitive, but also what we as an industry
here in the UK need to do to be competitive with the markets that
are developing in, you mentioned China, we might talk about India
and other places as well.
Q69 Mr Wright: You are happy with
the way the restructuring was carried out in terms of your input
into that?
Mr Everitt: Yes.
Mr Janke: The important thing
for us is that there are now at least two major initiatives running,
there is the 21st Century Supply Chains which Paul has referred
to, which is a national UK initiative, and there is Power8 in
Airbus, and there are other prime aircraft companies around who
have their own programmes as well. They are all basically targeted
at the same objectives, but what we have got to make sure now
is the activities both in Airbus and nationally are well co-ordinated.
We do not want to see a lot of duplication and confusion coming
in and we need to work very closely, which is why these links
with Airbus and through the regional trade associations nationally
as well are important. From a communication point of view with
Airbus, in the South West, for example, Airbus sits on the Council
of the West of England Aerospace Forum, so there is a good relationship
there and a good link. We think we can build on those to make
sure that the delivery of both their needs and the national competitive
challenges of the Supply Chain 21 can be achieved.
Q70 Mr Wright: In terms of the Power8,
the announcement came out that Airbus would seek to rationalise
a number of first tier suppliers it dealt with, how would you
expect these changes to impact on the supply chain in the whole
of the UK?
Mr Everitt: In the first instance,
I do not think there is going to be some huge change. As we have
already talked about, demand is very high, so clearly the pressure
is on to deliver. As we move into new programmes then that relationship
will begin to change and to a degree there is both risk and opportunity
in that. As was mentioned earlier on, perhaps the UK industry
is slightly different and possibly slightly ahead of the curve
in terms of some of our European competitors in that a lot of
the work was already outside of Airbus and was already being supplied
into it, both in terms of the wing, but also a number of companies
that are supplying direct into Airbus or other parts of Airbus.
The change, when we see perhaps larger packages of work being
assigned to risk-sharing partners, means that there might be opportunities
for UK companies to step into that area and take a lead in those
activities. Equally, some of the systems integration work and
the complexities of managing supply chains which are inevitably
international is quite an important skill and one that the UK
industry has and is able to utilise. The challenge, particularly
as you move down the supply chain, is that it is a change from
the traditional customer. For instance, if we are looking at the
example which we gave about Boeing and their huge amount of work
that has gone to Japan, certainly a supplier will need to understand
who is now the key customer and where they might be based and
how that supply chain maybe now has changed, rather than a traditional
relationship only with Airbus. The level of complexity is going
to increase but also the internationalisation is going to increase,
so companies are going to have to be quite adept and aware and,
perhaps, bring in slightly new sets of skills.
Q71 Mr Wright: Do you anticipate
further job losses over and above the anticipated 1,600 job losses
which Airbus has announced?
Mr Everitt: We have no reason
to believe there will be.
Q72 Chairman: That is within your
own members' companies.
Mr Everitt: Yes. As I said, we
are in a set of circumstances. The latest survey we had in 2005
indicated that the number of jobs in the industry was going up,
so whilst clearly there will be some rationalisation, overall
it is a growth industry and there are lots of opportunities.
Q73 Mr Wright: Is part of that opportunity
the fact that Airbus has now decided to increase the amount of
outsourced work, and do you see that can end up with the UK having
more than the 20% of the work which it currently has a share of?
Mr Janke: Absolutely.
Mr Leather: As Paul said, it is
huge opportunity. We are world leaders in risk-sharing partnership
agreements. We have lots of examples of where we have made those
work very profitably, so from that perspective, there is a huge
opportunity. Provided that we remain competitive, provided that
we do perform, then I think there is a huge opportunity.
Mr Janke: It is a huge opportunity,
no doubt, but it does mean that the UK supply chain has got to
be incredibly competitive and we have got to invest in resources
in the supply chain to ensure that it can take advantage of those
opportunities. It is not just investment in competitiveness, it
is investment, as Iain Gray was saying, in new technologies, but
particularly the A350. It is what the supplier brings in innovation
and new technology to that programme as well as being a highly
competitive supplier. One of the things we would want to see Airbus
fully recognise is that it is not always just first cost in acquisition,
it is how the risk gets best shared, where are the best sources
for a particular product; and also things go wrong, as we have
seen, and it is how do you manage those negative situations when
you are trying to deal with suppliers perhaps halfway around the
world. We would like to see the total cost of acquisition taken
into account and I think given that, then UK suppliers in particular
have a very, very strong position to play from.
Q74 Mr Wright: You see this as a
golden opportunity then?
Mr Janke: We do, yes
Q75 Mr Binley: Mr Janke, I am delighted
that you talked about risk because it seems to me you are in a
supply chain which is pretty risky anywhere, quite frankly, and
very competitive. Are you happy that the demarcation of share
of risk will be fairly done? Are you happy that you are not going
to take too much of the share of the risk as suppliers that lie
outside of your ability to manage?
Mr Janke: Clearly there is going
to be a flow-down of risk and also a requirement for more investment
as you go down the supply chain, that is a natural flow-down which
is going to happen, I guess. The ability of the first tier suppliers,
the big companies, is one issue and they are very well used to
working in this sort of environment as we have already said. Once
you start digging down into the third, fourth and fifth layers
in the supply chains, these are very often quite small companies
and they need a lot of work and a lot of support, not just in
the short-term but in the long-term to ensure that they are capable
of handling that, managing their own little supply chains as well.
The training issue and skills issue and sustaining that over a
long period of time are important for the supply chain.
Q76 Chairman: Certainly when this
Committee went to Brazil last year and saw Embraer's approach
to outsourcing risk, Airbus they are really only beginners in
the process of outsourcing risk.
Mr Everitt: I think that is very
true and similarly you could relate it to programmes from Boeing
as well, it is the direction in which the industry has moved and
which Airbus is now moving towards.
Roger Berry: I am not sure I would recommend
the Embraer example!
Chairman: They are doing very well out
of it!
Q77 Roger Berry: That is not the
purpose of the exercise. We have heard of the importance to Airbus
of finding an additional partner for the Filton site. Where is
SBAC in this? Are you assisting? Are you collaborating?
Mr Everitt: Again, I think you
recognise, as a trade association we are not an active participant
in commercial negotiations. We see our role, certainly during
this phase and more generally, as promoting the capabilities which
the UK has, its level of expertise and the broader benefits for
the aerospace industry operating here in the UK. Clearly, once
a partner has been identified, then we can help work with that
company or those companies to integrate them more into the mainstream
of the aerospace sector and provide the support that we would
to all of the sectors.
Q78 Roger Berry: Let me try to put
a question which might be slightly easier for you to answer, I
appreciate your position, obviously. Are you confident that there
is a UK player with sufficient composite expertise to fulfil this
task?
Mr Everitt: There is certainly
a significant number of companies operating in the UK that do
have very significant and world-class composite skills in technology.
Obviously I cannot comment as to whether they do or do not want
to become involved in a partnership, but we have some world leaders
in composite technology.
Mr Janke: The important thing
for the supply chain is that decision is taken quickly and we
all understand what industrial structure is going to be there
to work with. Again, I think this was a point which Iain Gray
referred to, there has to be a stable arrangement and a long-term
one as well because of the nature of our industry. That will be
a key criterion for us in the Airbus decision on what type of
company or organisation will be involved.
Q79 Chairman: We want to make sure
that there is a suitor there, I am not sure: is the suitor the
target or the target of the suit, I am not quite sure which way
around it is. We are all being very coy about what companies are
likely to be prospective partners, and I think probably it is
not a very satisfactory situation. We think we know who they are,
but without committing any of these suitors to getting married,
could you suggest some of the possible names of people who might
be suitable partners?
Mr Everitt: With the proviso,
obviously, that I name no elements of any commercial discussions
or negotiations. There are clearly some names which have been
discussed across industry, obviously one of the key ones of those
would undoubtedly be GKN. Bombardier would be another name if
you were looking at those companies with very significant composite
experience in technology, I believe Spirit and indeed Alenia have
also been mentioned or discussed. I am sure there are probably
at least a half a dozen which I have not picked out but, certainly,
those ones are being discussed by those in the industry who would
like to know what is going on but do not.
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