Examination of Witnesses (Quesitons 1-19)
MR DAVID LOCKWOOD, MR KEN MUNRO AND MR NIGEL STEWART
29 JANUARY 2008
Q1 Chairman: Good morning and welcome to our witnesses for our session on employment and skills for defence in Scotland. Would you like to introduce yourselves?
Mr Stewart: Nigel Stewart, I am the Commercial and New Business Director for Surface Fleet Solutions part of BAE Systems in Glasgow.
Mr Munro: I am Ken Munro, HR Director at Babcock Marine in Rosyth.
Mr Lockwood: I am David Lockwood, Managing Director of Thales Optronics in Glasgow.
Q2 Chairman: Before we start on the detailed questions, would you like to make any opening remarks?
Mr Stewart: Only perhaps just to put in context BAE Systems business within Scotland. BAE Systems is one of the largest manufacturers within Scotland and it is the largest defence contractor. We have three key sites in Scotland, the Glasgow site being the largest one at Surface Fleet Solutions. We employ approximately 3,300 people in the Glasgow facility and it predominantly is involved in the design, manufacture, build and integration of complex war ships.
Mr Munro: Babcock Marine is effectively three centred with two of its major sites in Scotland, the one at Rosyth and one in Faslane are effectively the prime supporter to the Royal Navy keeping its ships and submarines at sea. We employ about 1250 currently at Rosyth and round about 1400 in Faslane.
Mr Lockwood: Thales Electronics has been in Glasgow for well over a hundred years. We do optical systems for a variety of land, naval and airborne platforms. We are centred in Glasgow; we have two sites in England; we are part of a global business with equivalent sister companies in places like France, Canada and so on.
Q3 Chairman: We are well aware that aircraft carrier contracts are crucial to the future of the ship building industry on the River Clyde, but to what extent is the survival of the Scottish building industry dependent upon these orders?
Mr Stewart: The aircraft carriers are critical to the ship building industry in Scotland and the UK. It was very positive news when the secretary of state confirmed that the orders would be placed in his July statement.
Q4 Chairman: You are comfortable that the orders are in and the work will start on time?
Mr Stewart: Yes, we have no reason to see where there would be any delay to the specifics of the programme. I think in Parliament as well last week the Minister for the Armed Forces is still confirming the ISD dates of 2014 and 2016. They are the key issues actually, the end dates for the programme, to make sure we can sustain the design and manufacturing workload. At the moment we have no reason to see that there will be delays to those dates.
Q5 Chairman: The MoD are your major clients?
Mr Stewart: Yes.
Q6 Chairman: Apart from the MoD who are your other main clients?
Mr Stewart: Within BAE we are at the moment looking at a number of significant export prospects. Over the last decade we have had customers in Malaysia, we have had customers in Brunei and we are in detailed negotiations with the Malaysian for an additional order at the moment.
Q7 Chairman: Surely you cannot be dependent on just the MoD orders when we are complaining about the ship building industry in the past. We were told that if we secure the government orders for roll on roll off ferries, Type 45 aircraft carriers, it will help us to go abroad for more potential orders. Do you think that is helpful?
Mr Stewart: Yes, it is very helpful.
Q8 Chairman: You are happy with the outcome?
Mr Stewart: At the moment BAE Systems and VT in Portsmouth are looking to put a joint venture together to consolidate the UK's design and build for warships and very much of that is to look at consolidation and what the aircraft carrier brings is sustainment at a good solid workload in the forward order book for the short to medium term and that is really important for export. It is much easier to compete in an export market when you have a definitive forward order book. It helps with the pricing so it is very important and one of the key objectives of the joint venture is to grow our position in the export market.
Q9 Mr Davidson: Can I ask you where your organisations would be without Royal Navy in particular but Ministry of Defence orders in general in Scotland?
Mr Stewart: I think if you are a national contractor you need to have a strong order book from the UK customer before we go out to the export side, so it is critical. The UK Government orders and support are critical to us as a warship building business.
Q10 Mr Davidson: Can I just be clear that without Royal Navy orders the Clyde yards would be dead. Is that correct?
Mr Stewart: Currently all the orders going through the Clyde yard are all Royal Navy orders. If there were absolutely no orders in the future who can speculate where we might be on the export side, but that is currently factual for where we are today.
Q11 Mr Davidson: If you did not have the Royal Navy orders at the moment where would you be?
Mr Stewart: There would not be a ship building business.
Q12 Mr Davidson: Mr Munro, what would your position be if you did not have Royal Navy orders in particular and MoD orders in general?
Mr Munro: Could I firstly just clarify the other two questions because I think they are pertinent. As I mentioned Babcock is mainly a support service, a support provider to the Royal Navy in particular and maintains its ships and submarines in a capacity ready for use. We are not ship builders, nonetheless the infrastructure at the site quite clearly is the most competent infrastructure to allow us to integrate the CVF at the site. Our customer base is increasingly in modular construction, Terminal Five BAA was our main customer and we are currently doing some other modularisation for other parts of British airports. We are also doing the modular construction within hospital building, but there is no doubt that the position we have got ourselves into now. Most people will be familiar, over the past number of years, with the reorganisation at Rosyth as the Navy was in decline and reducing the number of warships, so certainly the CVF programme undoubtedly puts a halt to that decline. We have right-sized the workforce now. The CVF will allow us to carry on and to some extent expand the workforce as we go through that contract and come out the end of it in a much better shape to continue to support the Royal Navy and hopefully by that time have a quite considerable size of business in modularisation. Nonetheless without CVF that continued expansion would not go on and without any naval work at all there would be considerably fewer employees at the site.
Q13 Mr Davidson: Can I ask Mr Lockwood the same point?
Mr Lockwood: There is very limited equipment of our type on surface ships; we are very heavily involved in submarines so we have been the sole supplier to the Royal Navy for periscopes and now electronic masts (modern periscopes that do not penetrate the hull) for ever. That forms a backbone of support and new delivery work and has been the basis for exporting to Scandinavia. We have support work in Canada and Australia and we have sold electronic masts to Japan, so it is an important thread of our business.
Q14 Mr Davidson: While you have some export business am I right in thinking that if you did not have Royal Navy and MoD business you would be dead?
Mr Lockwood: We would not be dead without Royal Navy business; we would certainly have an interesting cost challenge in that part of the business.
Q15 Mr Wallace: Mr Lockwood, you are obviously referring to the Astute Class and that is currently made at Barrow.
Mr Lockwood: Yes.
Q16 Mr Wallace: Are there any yards in the UK that could also do CVF? For example, should the Royal Navy decide to commission elsewhere in the United Kingdom could that be done?
Mr Lockwood: Since it is a BAE yard I will have to pass that to Nigel.
Q17 Mr Wallace: Nigel, do we have any yards with the capacity now that if the Navy chose to commission its ships it does not have to go to Govan it could go to another yard in the United Kingdom.
Mr Stewart: If you are looking specifically at the aircraft carriers, the aircraft carrier is being built in modules all around the UK. There are modules being built in Portsmouth, there are modules being built in Barrow, there are modules being built on the Clyde and there are modules being built in Rosyth. Actually the commissioning is not at the Clyde yards; the final integration is at the Babcock facility in Rosyth.
Q18 Mr Wallace: The point is, should there be an English Navy? There is the capacity in the industrial base in England to commission entirely from England.
Mr Munro: The Rosyth facility is the only current facility available in the UK that is capable of assembling. The commissioning of it is separate but the facility is suitable for assembling and integration of the carrier.
Q19 Mr Wallace: What is the workforce doing now at the moment in Govan? Working on a Type 45 or what?
Mr Stewart: Type 45 is 90% of the workload going through and towards the end of this year we have hit the capacity of the Type 45 programme—we have six ships in actual build; we cut steel on the last ship in February—which is why the aircraft carrier fits in very neatly for manufacture next year.
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