Evidence submitted by SBAC Scotland
EXECUTIVE SUMMARY
1. SBAC Scotland believes that defence construction contracts, including the contract for the new aircraft carriers offer Scotland a "once in a generation" opportunity to secure and develop its skills base, allow more companies to benefit from and contribute to a world competitive sector and demonstrate that Scotland's hi-tech, knowledge intensive manufacturing sector has a bright future.
2. SBAC Scotland believes that the Scottish aerospace, defence and naval sector is one of Scotland's nationally important sectors and deserves recognition and support as such. The sector contributed £2.28 billionn in sales for 2006 alone, employs more than 16,000 people across the whole of Scotland and integrates a significant number of Scottish SMEs within its supply chain.
3. The current success of the sector, including the future aircraft carrier project, offers an unrivalled opportunity to retain, retrain and recruit more people and to continue to develop the sector, the skills within it and the efficiency and effectiveness of the supply chain. The sector is united in its ambition and determination and seeks similar commitment from stakeholders, with such a partnership we believe we can ensure current opportunities provide not short term but long term benefits.
ABOUT SBAC SCOTLAND
4. SBAC Scotland welcomes both the Scottish Affairs Committee inquiry and our opportunity to contribute.
5. SBAC Scotland is the trade association for the aerospace, defence and naval sector in Scotland. Established in 2005, the organisation works with stakeholders such as Scottish Enterprise, the Scottish Government and the Scottish Parliament to ensure the continued success of these vital industries in Scotland.
6. SBAC Scotland is given its strategic direction by the SBAC Scotland Council. Council is led by senior executives from global companies with a Scottish presence, including Thales, Selex Galileo, Raytheon, BAE Systems Regional Aircraft, BAE Systems Insyte, Rolls-Royce, Goodrich, Teledyne and Inter-Tec, Spirit Aerosystems and of particular relevance to this inquiry BAE Systems Surface Fleet Solutions and Babcock.
7. SBAC Scotland's goal is continued growth and success for the Scottish sector. We believe the Scottish sector is already a significant contributor to both the Scottish and UK economies and as the announcement of the aircraft carriers highlights, a sector with enormous potential for growth.
THE SCOTTISH AEROSPACE, DEFENCE AND NAVAL SECTOR, ITS ECONOMIC CONTRIBUTION AND THE DISTRIBUTION OF THE SECTOR WITHIN SCOTLAND
8. SBAC Scotland completes an annual survey of the Scottish aerospace, defence and naval sector, the 2006 results were released in December 2007. The 2007 survey found that there continued to be approximately 170 companies in Scotland involved in aerospace, defence and naval sectors in 2006. Together they employed more than 16,000 people earning 34% above the Scottish average wage. This is an increase on 2005 when the sector employed 15,000 people earning 33% above the Scottish average wage. In 2006 total sales for the sector were £2.28 billion. This is an encouraging increase on 2005 total sales for the sector of £2.1 billion. Total orders in 2006 were £2.31 billion. This represents a significant increase on 2005 orders of £1.834 billion. Scotland continues to invest significantly for the future with over 500 apprentices or 3% of the workforce. In 2005 there were also over 500 apprentices, but this represented 4% of the workforce due to the fewer total employees in 2005. £84 million was invested in R&D or 4% of sales. This is slightly down on 2005 when £91 million was invested in R&D or 5% of sales.
9. The figure below shows the Scottish aerospace, defence and naval sector sales by segment 2006 (£m). The SBAC Scotland survey has shown that there are many Scottish companies that are active across the three segments with there being significant similarities in customers, technology, skills etc making this natural business development.
10. SBAC Scotland has records for a significant proportion of the sector in Scotland and these records provide the following regional breakdown.
|
Region |
No of companies |
No of Employees |
No declared |
% declared |
Turnover (£) |
No declared |
% declared |
| |
|
Min |
Max |
|
|
Min |
Max |
|
|
|
North East |
27 |
582 |
1,680 |
16 |
59.26 |
1,756,000 |
32,000,000 |
9 |
33.33 |
|
South of Scotland |
29 |
2,190 |
3,356 |
22 |
75.86 |
46,500,205 |
53,000,000 |
16 |
55.17 |
|
West of Scotland |
12 |
535 |
1,500 |
12 |
100.00 |
21,250,000 |
25,100,000 |
6 |
50.00 |
|
Highlands and Islands |
5 |
176 |
555 |
5 |
100.00 |
6,000,000 |
10,000,000 |
2 |
40.00 |
|
Lothian |
22 |
1,477 |
2,485 |
18 |
81.82 |
37,550,000 |
47,100,000 |
12 |
54.55 |
|
Glasgow |
21 |
1,200 |
2,725 |
21 |
100.00 |
21,000,000 |
25,000,000 |
5 |
23.81 |
|
Central |
30 |
877 |
2,900 |
18 |
60.00 |
44,250,000 |
61,000,000 |
13 |
43.33 |
|
Mid Scotland and Fife |
24 |
868 |
1,686 |
14 |
58.33 |
38,000,000 |
50,000,000 |
10 |
41.67 |
11. These figures offer a "best current estimate", however they should be treated with some caution as they significantly under estimate both employee numbers and turnover as both these figures are based only on those companies who have voluntarily declared this data. Nevertheless we believe they are of use as indicative figures which support SBAC Scotland's view that the sector while having regional strengths is a national one.
12. SBAC Scotland has found that while there are understandable clusters of businesses within our sector in some areas of Scotland the geographical spread of the sector is much more widespread than has hitherto been recognised.
THE SCOTTISH AEROSPACE, DEFENCE AND NAVAL SECTOR AND THE SUPPLY CHAIN
13. The aerospace, defence and naval sector in Scotland continues to grow, it is important for continued success that the Scottish supply chain develops, contributes and benefits from this growth more than is currently the case. Scotland has benefited from its good quality prime contractors but perhaps has reduced penetration on sub-primes. Nevertheless Scottish SME's have a track record of innovation in process and product, employ collectively significant numbers of people and have enormous potential for growth. For complex warships when one totals all the cost of the weapons equipment, propulsion systems and other material it is typically two thirds of the of the cost of the overall products and about 80% of this goes to other UK businesses in the supply chain. Scotland's economy has under performed in business start ups and in developing SME's into larger companies. SBAC Scotland believes that the aerospace, defence and naval sector has the growth, the global opportunities, the technologies and the networks to encourage Scotland's SME's to be more successful, benefiting both our larger companies and our economy.
14. The following graph shows that at the moment the trend is unfortunately for the UK supply chain to secure fewer opportunities from aerospace, and anecdotal evidence suggests the same pattern for the defence supply chain. It is in our interests to reverse this trend.
Percentage ot total U.K. prime aerospace procurement by origin
Source: UKRP Supply Chain Study, SBAC survey of primes on supplies; SBAC analysis
15. We at SBAC Scotland and our members believe that we have a real opportunity in Scotland to make significant strides in this area with the announcement of the future aircraft carrier, sector growth and the creation of SBAC Scotland to act as a catalyst for improvement.
THE SCOTTISH AEROSPACE, DEFENCE AND NAVAL SECTOR AND SKILLS
16. If our sector and Scotland is to secure the successful future we know is available to it we must ensure that we can continue to source, recruit and retain world class staff—Educated, Motivated and Innovative. Our sector already has a good track record of investment in its people. BAE Systems Surface Fleet Solutions has invested £15 million in learning and development over the past three years. Nevertheless, without maintaining our lead in this area, we will not remain globally successful. Retaining key skills within the UK is crucial, the DIS makes the importance of this explicit for example in regard to shipbuilding and physical integration: "We need to build onshore to the extent that it sustains the ability to design and physically integrate complex warships. Furthermore, since warships are rarely prototyped, we need to ensure that we retain the ability to learn and adjust designs whilst the first of class is being built. Steel may be cut when the design is relatively incomplete compared to other military platforms; feedback during the production process is critical to ensuring that the platform meets the requirement as intended".
17. We believe skills development is fundamental to the future success of our sector and our members have identified the following real concerns:
— Many school leavers and students do not meet the sector's requirements or expectations.
— There is too low a number of UK science & engineering graduates who are able and willing to work in Scottish industry.
— There are too few qualified teachers in science subjects.
— There is a shortage of appropriate and key skills which is harming productivity.
— Training and skill development funding lacks clarity and cohesion.
— Wider society's perception of the sector, the careers it offers and its opportunities is hindering recruitment.
— Sectoral links with the education sector are under-developed.
— Skills demand signals from sector currently poor.
18. For example within aerospace specifically research has shown 33% companies within the sector to have "Hard to fill vacancies" and 33% reporting "Skills gaps", this compares to 21% in England. The main impacts of hard-to-fill vacancies on employers were loss of business orders, restrictions to business development and increased running costs.
19. The following graph provides a stark challenge to us all when considered within context; for example with the current figures for engineering graduates in India, 200,000 in 2005 which is about three times as many as the United States and twice as many as all of Europe. The decline in Scottish engineering and technology entrants is a concern.
Figure: Percentage change in number of first degree entrants to physical science, by domicile, 1996-97 to 2004-05 (non Scottish refers to entrants from all countries other than Scotland)
Total Number of Entrants in 2004-05 were: Total physical sciences 7,865; Engineering & Technology 3,195; Computer Science 2,185; Other 1,030; Mathematical science 725; Chemistry 375; Physics 360.
20. The Scottish aerospace, defence and naval sector has shown itself to be a hugely important employer of people in Scotland. Highly skilled, highly motivated and internationally competitive people have been the foundation of the sectors success. Nevertheless the sector cannot afford to rely on its track record and the competition for these skills and these people from other companies within the sector and other sectors only intensifies. SBAC Scotland believes the current contracts such as the future aircraft carrier offer the sector and Scottish companies with an excellent opportunity to market the exciting career offered by the sector, offering both the UK and Scotland an ideal opportunity to secure for future generations both our technological and manufacturing excellence.
CONCLUSION
21. SBAC Scotland and our member companies believe that the time is now right to realise the potential of the Scottish aerospace, defence and naval sector. The announcement of the aircraft carrier contracts is just one catalyst which could allow a step change in the sectors success. As our survey has shown the sector is currently successful and growing but the aircraft carrier announcement has focussed minds on the potential for employment, profitability and technology growth and investment within the sector. If realised this potential will benefit Scottish and UK economies in the short, medium and long term as Scotland further strengthens its high technology, high skilled and highly competitive manufacturing base within the aerospace, defence and naval sector placing it in an ideal position to win further business in this global market.
22. SBAC Scotland looks forward to further engagement with the committee in the coming year and would be delighted to facilitate a meeting between the committee and our SBAC Scotland Council comprising key companies within the Scottish sector if this would be of use.
SBAC Scotland
January 2008
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