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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1091-iHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFOREBUSINESS, INNOVATION AND SKILLS COMMITTEE
motor sport and aerospace industries
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This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935
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Oral Evidence
Taken before the Business, Innovation and Skills Committee
on
Members present
Peter Luff, in the Chair
Mr Adrian Bailey
Roger Berry
Mr Brian Binley
Mr Lindsay Hoyle
Miss Julie Kirkbride
Mr Mark Oaten
Lembit Öpik
Mr Anthony Wright
________________
Memoranda submitted by Airbus, BAE Systems, Royal Aeronautical Society, and Aerospace, Defence & Security Group Ltd
Examination of Witnesses
Witnesses: Dr Gareth Williams - Head of Business Development, Research & Technology, Airbus; Mr Bob Keen - Head of Government Relations, BAE Systems; Mr Keith Mans - Chief Executive, Royal Aeronautical Society; and Mr Ian Godden - Chairman, Aerospace, Defence & Security Group Ltd (A D S), gave evidence.
Q1 Chairman: Gentlemen, welcome to this first oral evidence session of the Committee's inquiry into the aerospace and motor sport industries but Formula 1 in particular, looking at the protection and development of high-end engineering skills in the UK, two hugely successful industries. I get really frustrated when people tell me that manufacturing is dead in the UK when my brief reminds me that we have the world's largest aerospace industry outside of the USA dealing with a phenomenally successful sector generating a large number of high end value manufacturing jobs and we set up this inquiry in the spirit of optimism about the prospects for your sector as one of the genuinely world-leading sectors in the UK economy. So, congratulations to you all and all you represent and it is in that spirit that we try everything we can do to try to make sure that we can keep there and even improve our very large share of many of these markets. We had a very good visit last week to Bristol to GKN and to Airbus to see the work being done particularly on composite technology and then on to Bristol University to see the academic work supporting that and other developments in the aerospace industries, and that was a very revealing and important niche visit and we are grateful to all our hosts last week for that. We are grateful now today for you coming before us and may I, as I always do, begin by asking you to introduce yourselves for the record from the left.
Dr Williams: Good morning. My
name is Gareth Williams; I am the Head of Business Development for Research and
Technology at Airbus. I am currently
based in
Q2 Chairman:
Will
we meet you next week in
Dr Williams: I believe that you will in the evening.
Q3 Chairman: We look forward to that.
Mr Keen: I am Bob Keen and I have the Head of Government Relations for BAE Systems.
Mr Mans: My name is Keith Mans and I am the retiring Chief Executive of the Royal Aeronautical Society.
Q4 Chairman: When you say you are the retiring Chief Executive, you have never been particularly retiring! Keith, you are known to all of us in the room and these are your last few days in post I believe.
Mr Mans: That is right.
Q5 Chairman: Your successor is somewhere in the room, I think.
Mr Mans: He is just behind me.
Q6 Chairman: No doubt we will meet him in due course as well, but thank you for your work for this sector over the last few years.
Mr Godden: I am Ian Godden, Chairman of ADS, the trade organisation that represents aerospace defence and security for 850 companies that I represent.
Q7 Chairman: The brand new ADS.
Mr Godden: The brand new ADS, a merger between the old SBAC, Society of British Aerospace Companies, and the DMA, the Defence Manufacturers Association.
Q8 Chairman: Not to be confused with EADS.
Mr Godden: Not to be confused with EADS.
Q9 Chairman: A very important distinction! We are going to ask quite a lot of questions about varying subjects today and I want to start with some of the economic background questions and paint a picture of not the underlying fundamental strengths of the sector but the challenges that are being faced at present in the current recession. I wonder whether one of you would like to paint a picture for me of how the recession has actually impacted on the aerospace sector over the last year or so.
Mr Godden: I think it is a cyclical
industry and we have experienced a cycle effectively peaking in order book
terms in 2007 and in production terms in 2008, and an expectation, albeit uncertainty,
of a couple of years of continued decline, the period of 2010 definitely being
a difficult year for the industry, and 2011 an expected trough beyond which the
normal growth, which is quite substantial, two times GDP around the world, so 5-6%
long-term growth, would be expected to return to the industry. The net effect has been particularly bad in
business jets which the
Q10 Chairman: To what extent do the long lead times for commercial airliners in particular make it easier for the industry to plan its way through a recession? Is that a factor?
Dr Williams: I guess one of the contributing elements that that brings is that it tends to dampen out the immediacy of any economic changes. The implication therefore is that there tends to be adjustment in the current order book whilst there is a backlog of orders, which fortunately Airbus is in the happy position to have at the moment. As a consequence, whilst there are some cancellations, typically there will be deferrals or movements of orders and there is, through prudent management of that order book, an ability to bring some orders forward and dampen the immediate effect on short-term production. Nevertheless, as Ian indicated, in the longer term, we see the economic impact on the airlines affecting their profitability, as a consequence their ability to invest in the future, and there will be some longer term impact within the commercial sector.
Q11 Chairman:
I am
just looking at Airbus for a second. We
were tantalised with the dates when we were down in
Dr Williams: Before the end of the year.
Q12 Chairman: Still the same answer! We will ask you again next week! More specifically, looking at Airbus, and this is relevant to another inquiry we are doing on exporting out of recession as to this inquiry, I want to ask you a few questions about credit arrangements and ECGD in particular and I think you are prepared for this. You suggested in your very powerful evidence, for which I am very grateful, that ECGD is not working closely enough with its European counterparts and that makes it more difficult for your customers to secure credit to place orders with you. What are the current arrangements for co-operation and what changes would you like to see?
Dr Williams: Whilst it is not an area of expertise
for me, the briefing that I have and would convey to you is that it is not so
much that the arrangements are not working effectively, it is intrinsically
that there are three agencies through which an arrangement must be made - the
Export Credit Agency in the UK, France and Germany - and the contrast or the
comparison that is being made is with the US case where there is a single
agency to deal with. We certainly
recognise that in the recent months and probably the latter half of this year
there has been close co-operation between the export credit agencies in
Mr Godden: Can I just add that I think it is the complication and therefore the delay or the pace at which decisions are made rather than the extent of the decisions and I noticed certainly in the last year when the industry did make the appeal to both governments, the EU and the various banks, it took a bit longer than the Americans to respond to that but they did respond.
Mr Keen: I wonder if I can make a couple of points from the defence aerospace point of view. First, in relation to the impact of the recession, the general picture is the same. The long-term nature of the business means that the impact in the short term has been less than it has in other industries but clearly, against the background of the public deficit which the UK is facing, there is bound to be increasing pressure on the defence budget which will in turn affect MoD procurements and indeed investment in research and technology in the long term. So, whilst the short-term effects have been relatively small, the longer term impact could be more significant. As far as ECGD is concerned, I think that our perspective is slightly different in that our principal preoccupation with ECGD is making sure that the UK is operating on a level footing with its European and other competitors and therefore, from our perspective, we are concerned to ensure that the sort of offerings that are available to our European competitors are also available to UK exporters, particularly at a time when I think exports will become more important - your inquiry into exporting out of recession is a very important one - both from our point of view because of the additional pressures that I have spoken about on the UK domestic market but also because, in exporting, being able to offer competitive and attractive financing packages to our overseas customers is going to be increasingly important.
Mr Mans: May I add one very quick comment and that is that I think it is
important for all governments in the
Roger Berry: Is the logic of what you are saying about export credit agencies that there should be a single EU export credit agency?
Q13 Chairman: Certainly for the aerospace sector.
Mr Godden: It is an interesting question. I think it is the pace. If the answer to that is that that increases the pace at which things are done, then the answer, from an industry point of view, would be "yes", I guess, but there is a fear that that does not necessarily follow what you have just said.
Roger Berry: I appreciate that it is a controversial question. I am not highly surprised that there was a long silence afterwards as you looked around the room and wondered what kind of response you would get from various people, but the logic of what you are saying requires me to ask that question.
Chairman: We will not tell The Daily Telegraph what you say, I promise.
Q14 Roger Berry: Yes, we will!
Mr Mans: Let me try to offer a suggestion.
I would argue probably there is a stronger case in terms of commercial
aerospace particularly when this country is so linked up with other countries
in
Mr Keen: I absolutely agree with that. The logic of my argument, which is for a level playing field across European competitors, is that there is a levelling out of the offerings which each of the export credit agencies make and indeed the OECD consensus rules, which do not apply in defence actually but which apply more generally to export credit offerings, do have the aspiration of making sure that those offerings are the same. I am not directly answering your question ---
Roger Berry: I have noticed!
Q15 Chairman:
I
have a more technical question that I was going to ask about one aspect of the
way the system works but I am not going to ask that question and my suggestion
is that perhaps our clerks could talk to all four of you and you might like to
give a little written note - and Airbus has already done quite a lot already on
this - as to how you see this issue for our other inquiry rather than being
bogged down today when we are looking at the future rather more. I think that would be helpful. So, we will park that for the time being and
would like you to give considered responses to the quite important issues for
that inquiry. I think that would be
sensible. Actually, looking at Dr Williams and the rest of you as well, is
there a difference in the cost of trade credit between the
Dr Williams: I am afraid that I do not have sufficient knowledge to answer that question. Perhaps I could offer to provide some additional information.
Mr Keen: A final word on defence. As far as the
Q16 Lembit Öpik: My question is to Airbus: to what extent are we being insulated against the recession because the A-380 and we can predict the A-350 are actually technologically superior to the main competitors, the outstanding but now venerable 747 which is probably close to its final version and the problems that we all know that Boeing is having with the streamliner?
Dr Williams: I think certainly there is a large insulation effect and a benefit from technology in the A320 because that, as a family of aircraft, has been highly successful. You will be aware that it has paid back its repayable launch loan many times over now and in fact it is the mainstay of Airbus in terms of production rates. The current production rate for that aircraft is at rate 34, as it is called, which, although it does not sound a lot, is actually large volumes in aerospace terms and we are pleased to hear today that Air New Zealand, I think, have placed an order for another 14 aircraft, so that is another two weeks' solid production added to the order book and is very good news. The linkage between technology and the security of the future order book I think is there, but I would choose to focus more on the A320 as providing the bulk of that security today. I think we would anticipate providing the A380, which is recognised as a superb product, in the next economic cycle, should we reach that point.
Q17 Lembit Öpik: ADS is obviously a very exciting development because it seems to be trying to create a single narrative for civil aviation, space, defence and security. To what extent do you think it will be possible to create a cohesive strategic narrative? The reason why I ask the question is because I think that the biggest single weakness of the entire sector is that it operates in silos and sometimes it fights itself, whereas, if it worked together, then that would be an enormous force multiply both in terms of its political impact but also its commercial opportunities.
Mr Godden: I think that it is very
positive for two reasons. One is the
historical reason that, in the defence alone, the land, air and sea defence has
been differentiated and siloed in the past.
The industry itself has consolidated that, so many of the major players
do not differentiate between land, air and sea anymore, and that was part of
the history, let us say, that we had to deal with. The second is that there are obviously strong
links between civil aircraft and military aircraft and that is something we
would encourage and we see it on things like the A400M and the importance of
composite wings for the future and the UK technology on composite wings versus
the very ambitious Spanish and German and equivalent companies keen to
establish a position there. So, it is
important to keep the link between the civil and the military as well. Thirdly, the area of defence and
security. There is clearly a blurring
both in people's minds and in technology terms between those two sectors. Some say that defence is playing away from
home and that security is playing at home.
That distinction in British terms I think has been unhelpful. For all those reasons, it has been logical to
put together but I think that there is a second reason which is perhaps more
important in the long run in that there is a recognition, as the Chairman
mentioned at the beginning, that manufacturing high value service and the
nature of engineering and design and innovation is very similar in those four
sectors - civil aviation, space, security and defence - and that, as a major
contributor to government policy currently and, as far as I can see, the whole
of society wanting Britain to be an innovative nation. So, those four logically fit together. My last point is that supply chain sometimes
does not recognise the difference. I think
that the major platform and systems integrators and equivalents see the
differences there but, when you look at the supply chain, there are 9,000 companies
or thereabouts in the
Chairman: I am going to cut off there rather rudely because Mark Oaten is going to look at supply chains and I think it is a nice introduction to Mark's questions.
Q18 Mr Oaten: Let us pick up on those 9,000 companies. Ian particularly but all of you guys will be in a pretty good position to get an assessment of what impact the recession has had on those who are working in the supply chain. Are there some particularly difficult horror stories that some of those suppliers are going through at the moment?
Mr Godden: There have been isolated incidents of significant problems particularly on the civil side over the last year or so and there is an expectation that some aspect of the supply chain will be affected by the downturn in the civil side. If I look at it in holistic terms, a small minority of companies have struggled and I contrast that with the automotive sector, where obviously suppliers have been really badly hit and I contrast that with certain sectors like the business jet market which has been significantly bad. Overall, because of the comments earlier about the lagged effects and the smoothing effects of long-term programmes, the supply chain, although squeezed, has not been damaged in the same way, but my belief, on the civil side next year and on defence probably two or three years from now, is going to be squeezed quite significantly.
Q19 Mr Oaten: We have not seen the pain yet.
Mr Godden: I do not think that we have seen the full pain yet; I think that is coming next year or the year after.
Q20 Mr Oaten: Are these members of your Association?
Mr Godden: They are.
Q21 Mr Oaten: Have you seen a drop in Association members?
Mr Godden: Ironically, we have not but we are looking at 2010 and 2011 as the test rather than 2008 and 2009.
Q22 Mr Oaten: But you would presumably have some pretty accurate figures on how many of your members are actually going bust?
Mr Godden: We have identified so far six or seven companies that we have passed on to BIS as being in real trouble. There are a number of companies who are exiting markets but not going bust and there are a number of companies that we think may be in trouble in the future. We have not detected huge numbers of companies going bust. The individual companies themselves, it may be best to describe their supply chain because they have kept a close watch on their suppliers obviously because it is very significant particularly in the context of all the new models that have been coming in that the supply chain does not break down at this critical point of the industry.
Q23 Mr Oaten: Have you had examples where you have suddenly discovered that a supplier has let you down because they have hit difficulties?
Dr Williams: I am not aware of cases where
we have suddenly found an example. I
think there is a point to being alert to it as a risk and monitoring that risk
closely which is something that we have taken very seriously as an
organisation. Perhaps a point I should
make is that it is not just in respect of the
Q24 Mr Oaten: A similar picture, Bob?
Mr Keen: A similar picture. In the
Q25 Mr Oaten: You are both monitoring but are you specifically doing anything to help?
Mr Keen: Perhaps if I may go on, we have a watch list of about 80 companies that we are keeping a special eye on that we are engaging with on a weekly basis. Beyond that, we have about half a dozen companies that we have more significant concerns about and, in those circumstances, in essence, what we are trying to do is work with them to identify how we can help them through with cash-flow issues, advance payments and that sort of stuff, how we can help through smoothing workloads over a particular programme or a number of programmes and doing senior coaching and mentoring, if you like, to try and help them through their particular issues. So, we have a very pro-active process in BAE Systems.
Q26 Mr Oaten: And a similar picture within Airbus?
Dr Williams: Yes, similar within Airbus though I think we differentiate in two ways. The first is that where there is the need for a recovery action and specific intervention to help a company, that will be taken almost in the normal course of events as you would expect as a prime organisation. Secondly and in conjunction with BAE Systems and other companies, we have taken specific measures to assist the supply chain and notably smaller companies in the supply chain adopt newer manufacturing practices and newer industrial practices to help them avoid ever getting into those circumstances in the first place, whether that has been through the provision of training and education for people through the Lean Learner Academy, which is the well-known example within the north-west area, or whether it is by the provision of specific mentoring to senior managers. There is a programme of activity there essentially to prevent the occurrence of the problem rather than just treat the problem when it occurs.
Q27 Mr Oaten: If we went to some of the supply chain and asked them if you guys are paying their bills on time, what kind of response do you think we would get? Are you pretty confident that you are paying on time?
Mr Keen: Yes. Certainly from our perspective, I would be pretty confident.
Dr Williams: I would be confident that we are paying much more on time than we were! Hand on heart, in every circumstance, I could not guarantee it, but we have made significant improvements.
Q28 Mr Binley: I have to say that I am particularly concerned. Airbus, for instance, as I understand it, employs about 13,000 people directly but another 140,000 in 400 SMEs. I understand that is your supply chain. You say that you monitor, but do you think that the banks are doing their job with SMEs because there is a real concern there that in fact the problems are not over in any sense at all for that sector and in fact it is going to get worse?
Dr Williams: That is a good question and I am afraid that I do not have a ready answer.
Mr Godden: I listen and hear a lot about what the SMEs say about what is happening and may be coming back to that question plus also following on from Mark's question. I think that there is a concern. I am actually quite concerned for next year and the year beyond. There are two parts to that. One is that the banks have made it very difficult for the smaller companies to invest for the future. They may have been able to continue doing business and continue with credit terms although the pressure is on from the majors to really batten down the hatches and take on more risk and be keen on pricing particularly since it is a dollar-denominated market, and that pressure is short term there, but I think that what has happened is that the ability to invest has gone away and that worries me a great deal because I see a number of companies that are not getting the funding for the long-term investment that is required for the industry. The second factor is that while that is happening there are other parts of the world that are grabbing the momentum. So, my worry is not necessarily for the short term next even 18 months, but I think that we are seeing a degradation of investment in the supply chain which is making me nervous for the next few years as to how it will survive that continued pressure and I do not think that the banks are giving that natural investment money. They are shying away from it.
Q29 Chairman: This is a lot of reading across from the automotive/automobile sector. We have heard anecdotal evidence I admit that the banks are almost blacklisting the automotive/automobile sector for loans and finance, whereas the aerospace sector is very strong and a growing sector. Is there evidence that SMEs are suffering in their automotive investment that is having an impact on their ability to service the aerospace sector? Do you understand the question? Have I expressed that clearly?
Mr Godden: As we are at the peak of the cycle and as the programmes are in place, I do not think that it is a short-term problem, I really do not. I cannot come to you today with evidence that the SMEs are saying that there is no money available from any bank to do anything; that is not the point ---
Q30 Chairman: The banks say that there is money for good businesses.
Mr Godden: Yes.
Q31 Chairman: And what you are saying is that that is not the evidence from your members.
Mr Godden: There is money for businesses that are continuing to look good in the short term. Secondly, the cost of banking is horrendous. I am on the board of a company which I will not mention and the banking fees and charges and the rates that they are charging for a re-financing are extraordinary. It happens to be in the aerospace and defence amongst other things, but I am actually shocked at the pricing.
Chairman: We must not get too bogged down on this issue, but that little exchange has been very helpful.
Q32 Mr Oaten: I will try and deal with this very quickly but I want to understand the driving force behind the Supply Chain 21 Initiative set up in 2006 which seemed to have these grand ambitions that would speed up the supply chain where companies that sign up will work openly and transparently and they will avoid duplication and waste. Why have only 500 companies out of the supply chain signed up?
Mr Godden: I will take that one because I am responsible for SC21 but obviously, in the end, the companies are responsible for the supply chains but, in terms of this national initiative, first of all I think that we are regarded around the world as having a remarkable national programme that is jealous of the jealousy of the French and the Germans and the Americans to the fact that we have an SC21 programme. So, I can put it in the context of saying that the ability to get a national programme embedded into a set of entrepreneurial SME communities is actually quite a task and I have discovered personally and I think all those on SC21 have discovered that, if you think herding cats is difficult, this is quite--- It is a glass half empty/glass half full would be my comment about SC21.
Q33 Mr Oaten: Hang on; 500 out of 9,000 ...
Mr Godden: You have to consider the tiering of this thing. 500 is probably representing the next 2,000 to 3,000 companies, so it is more like a fifth or a sixth of the next tier, as it were, down the chain and it is right. There are also a number of initiatives going on which are not really part of SC21. So, I think you have to be a little careful when saying that is all. It has taken 18 months to get that momentum. I am confident of the programme, but it is not entirely successful and not entirely unsuccessful; it is half-way through a process.
Q34 Mr Oaten: Is it a factor that, when you are looking at suppliers, you would want to have a supplier that is part of the initiative?
Dr Williams: It is. I was involved in some of the discussions at the start of the programme and one of the drivers behind it was the supply side for improvement ideas/improvement initiatives was full of offerings. You could go to management consultants, you could go to large companies such as Airbus and pick up improvements and ideas and opportunities, so the supply side was full, but the demand side was weak. It was almost taking the horse to water but would it actually want to drink? So, 500 companies that want to participate see that there is an opportunity for improvement and want to take it because they actually want to be there in five, ten or 15 years' time. I would not be quite as defensive as Ian was about it; I am quite pleased with 500. I would prefer that it was 3,000, but it is 500 active and willing participants.
Mr Keen: It is exactly the same story for us. We are committed to it. We actually provide the chairman to the programme.
Q35 Mr Oaten: Does the Government help at all?
Mr Keen: There is some government funding/matched government funding in there which goes through the regional trade associations.
Chairman: Thank you very much. We will turn now to the bigger question of government overall strategy.
Q36 Lembit Öpik: In 2003, the Aerospace Innovation and Growth Team report really set some heavy targets and I have a few quotes from it such as: "The UK will offer a global aerospace industry in the world's most innovative and productive location" and "The UK must sustain a level of focused aerospace applied research and demonstration sufficient to maintain and enhance the UK's position in the global aerospace market" and: "The UK must systematically and continuously deliver productivity improvement at a rate faster than its competitors ..." and so it goes on. Has that vision been achieved? Is that vision still valid?
Mr Mans: I am certain that some of my colleagues will have something to say about this. Generally, I think that it has. I think that it is still a very relevant document and I think that it really does point the way ahead simply because we are effectively a smart supplier of technology to aerospace companies right across the world, but there are threats. The obvious threat is the cost base and whether in fact you can keep that down and indeed compete with people across the world who have lower cost base. Equally, the point that Mr Binley made earlier I think is a very good one. You have to continually invest in new technology. If you stop, that is when things become difficult and, if you do not have the money to do so, then again that is going to affect the ability of us to deliver what the Innovation and Growth Team said was necessary. The final point I would make is, if you are designing a new aircraft, you think that you want brand new technology in it and, yes, you do want a certain amount, but you also want tried and tested technology because you want to de-risk it. You can see the sorts of things that can go wrong if you go a bit further than you perhaps ought to with some of the things that have happened to the 787 programme in particular. So, if you are designing a new aircraft, you will look around where the technology is, but you will also check that it is fit for purpose and that it has been properly demonstrated. That costs money and that means investment and you cannot stop - you have to invest right through recessions - because this is a very long-term industry with long cycles. The benefits are of course that you get the money back over a very long term as well. That was the principle behind the Innovation and Growth Team. As I say, I think that it is being met to some extent, but there are threats out there.
Mr Godden: I would agree with that, that
it has been a very successful programme.
It is five years old though and, as we know from our own planning,
incorporations and equivalent in government planning, five years is a long
time. So, it has been successful in many
respects but it does have some gaps, it is time for a refresh and I think that
the industry realises that and I think even Government departments that have
been involved very heavily with AeIGT recognise that it needs a rethink. I would highlight a couple of areas that I
think have changed which need to be examined or looked at differently. It was a little light in terms of the
services sector for example. A large
part of the industry is services and exportable services, not just services in
the
Q37 Chairman: We will want to ask you about it at great length later on this morning.
Mr Mans: May I come back on one point and that is that something that the Aerospace Innovation and Growth Team did not do is look at space and, as you know, there is now an Innovation and Growth Team for space and I think that will fill one particular gap as we are pretty strong in space in certain areas and again I would hope that the same sort of process will go through that particular growth team as went through aerospace and again I would be interested to see what the results are.
Mr Keen: From BAE Systems and the defence aerospace perspective, I have three comments to make. The general comment certainly is that the AeIGT set out the right vision. We have a general concern about the level to which the initiatives have been funded since then. Secondly, to pick up Ian Godden's point about unmanned from a parochial perspective for a moment, the Defence Industrial Strategy 2005 set out very clearly the dilemma that the UK has in combat aircraft, which is that we have at least another 30 years of combat aircraft in service now going through to the end of their service life, so there is a need to maintain capability and skills to ensure that they are supported and upgraded and that we allow to ourselves, the UK, the opportunity to participate in future programmes beyond that. The DIS made clear expressly that investment in unmanned technologies was essential to bridge that gap and it led to MoD investment in a couple of programmes which have been very important from our perspective and which have really broken new ground over the last two to three years. We are actually back at the crossroads again on unmanned technologies, to echo Keith's point, and there is a need again to refresh the investment in unmanned technologies and that is an issue of real concern to us in BAE Systems. The third point I would make is the general one again that there is still a sense in which we have not yet got the balance right between pure and applied research pulling through technologies which have real promise into real programmes.
Q38 Chairman: Again, we will want to ask you about that later as well.
Dr Williams: I have nothing to add to that.
Q39 Lembit Öpik: The team has actually been enacted since 2003. By inference, certainly from what Ian Godden has said, it sounds to me as though some work may need to be done by that team. What do you feel?
Mr Godden: I feel so and I think that the industry is beginning to feel that. I think it is only relatively recently that that feeling has emerged. So, I think it is premature to say that we have a 100% consensus around that, but I think that it is an emerging view that it is time for a refresh. A re-examination is probably too heavy a word
Q40 Lembit Öpik: Now that you are trying to create this cohesive approach through ADS, you cannot give the details but things such as airspace regulations have always had implications technologically and actually environmentally. For example, the crazy Balham(?) single engine turbine aircraft and IFR operations which have a direct impact for example on the aircraft that you might want to build and operate.
Mr Godden: Yes. Perhaps some of the thinking around the wider aviation issues needs to be brought into that debate. Keith Mans has mentioned space which I think is another one to make sure that the whole agenda gets refreshed from the space perspective as well. So, I think it is probably time to do that for the aviation sector, sustainable aviation, space and a refresh of the basics of the AeIGT.
Chairman: We are at present looking at three aspects of government initiatives. We have just looked at the overarching strategy and we want to move to repayable launch investment and then we will move on to manufacturing package and Richard will ask about the repayable launch investment.
Q41 Roger Berry: Which has been a very significant instrument of government policy. I would like to take this opportunity of asking for your response to the critics of that programme, of whom sadly I still encounter quite a large number, who basically say that the private sector should be able to fund investment of this kind. It is pointed out that this investment has actually produced a really good return for the taxpayer and therefore why do we still need this programme. Which specific market failures exist that justify this programme in your view? That was meant to be a helpful question! I passionately support the programme.
Mr Mans: Let me give a slightly different view. I think in the long term we may well have to move away from this particular way of supporting the aerospace community as a result of the WTO decision. I am not saying completely, but I suspect that one of the issues that is going to arise is whether our support moves from a direct to a more indirect approach which is one that the Americans adopt. It may well help to fill that gap between new technology and pulling it through through technology demonstration and prototyping. Having said that, I still believe that there should be a life-cycle partnership between government and industry in terms of aerospace. I just feel myself - and I am probably not in agreement with some of my colleagues - that simply to repeat what we have done before in terms of fully repayable launch investment, bearing in mind the WTO ruling, may not be the right way forward. I think that we have to be a little more subtle in the way that we move forward.
Mr Godden: You asked about market
failure and my view of market failure is that every single government in the
world has decided that this is not a free market and a commercial
marketplace. That is particularly true
not of the developing nations but the developed nations. So, the market failure is that
Q42 Chairman: And Japan.
Mr Godden: We sit in the
Dr Williams: If I may, I would question, why would you not want to invest in success? I think that Ian has made the point. Clearly, there are difficulties in absorbing the risk in the long-term market that we are dealing with. To come back to a point that Keith made, I want to reinforce for the Committee that Keith mentioned in passing "with the WTO ruling". I do not think that there has yet been a ruling. If I understand it correctly, there has been an interim report on one side of the WTO argument ---
Mr Mans: I think that is right.
Dr Williams: --- for which a second report
may yet be published coming from the EU side and for which there will be no
doubt a prolonged series of discussions thereafter. I would not want the Committee to go away
with a view that the ruling had been made.
Clearly, there is a model there that works today and one of the
arguments that could and should be used, I think, to support that is the
demonstrated performances that it does work.
It satisfies the needs of industry and it satisfies the needs of the
country as a whole through the basis on which it repays. So, I was very pleased to hear Ian's robust
defence of the approach. It is worth
bearing in mind that in the sector in particular with which Airbus deals, the
100-seater plus market, of course there are challenges into that market now
from
Q43 Roger
Berry: I would like to ask about the WTO in a second
but, before that, may I ask for our views about how the UK Government
support of the aerospace industry compares with that of our competitors and I
guess that there is the obvious question about the States since the WTO issue
is on the table. Do you have any further
comments about how
Dr Williams: In the written submission
that has been made by Airbus, we have identified a significant benefit
that our competitor has derived directly from
Mr Godden: First of all, the industry is very appreciative of the support that has been given particularly over the last year or two in the difficult time. So, the first statement is that, with the £340 million that has been negotiated for A-350, the £45 million for the facilities for Rolls-Royce, the £60 million for GKN, the 125cc Bombardier, those are large sums which have demonstrated the commitment of society and the Government to staying in this game as we refer to. So, that is positive. I think that the areas for concern are twofold. One is on the technology and research and technology funding. There is a definite concern that that is not any longer competitive in terms of the commitments of the developed nations. Secondly, I am just back from Mexico myself and we had a tour of 25 sites in Mexico seeing what is given by those governments on the ground for SMEs essentially, or large Ms shall I say, and the packages available there are much more significant than in this country and I mean much more. We can always argue about developing nations but Mexico, for example, and South Korea I would mention also, are clearly funding in the form of training, skills and what I would call local not-so-well-seen amounts of money - Rolls Royce, if they were here, probably would quote Singapore - and so we are in a much more competitive world in terms of those levels of support and a bunch of new ambitious countries that are out to get us and the supply chain in particular. So, whilst we are appreciative, I think that the game is not getting any easier; it is not slimming; the competition with support is actually going on.
Q44 Roger Berry: Finally, as Keith Mans said, we have the WTO - like it or not we have the WTO. Are there any comments that you may have on the implications of his deliberations on the aerospace industry would be helpful, but particularly coming back to Keith's point. If current funding arrangements were ruled to be in breach of WTO obligations, how would it be possible to construct and respond to that?
Mr Mans: I have indicated that I think we have to be rather smarter. I think that the Americans particularly
gained quite a lot of subsidy in one way or another, but it is not as clear to
people exactly where it is. It may be
transferred from military to commercial programmes, it may be through
individual states in the
Q45 Chairman: We want to deal with that later as well.
Mr Mans: I had better stop there.
Q46 Chairman: That is a really important theme.
Mr Mans: And that is an area where I think that we might shift some of the emphasis on to. I am not knocking out launch investment as such, I am just saying that, if in fact we find ourselves in a slightly different position in a year or two's time, we need to be ready now to respond to it.
Q47 Mr Hoyle: Keith, can I take you on from what you have said because you have touched on the part that I think is key, that the Americans can hide either behind the NASA programme or, more importantly, the defence programme because they have the military and the civils all wrapped in together. Do you think there is some regret with British industry separating from military and the civils? Maybe Aerospace would like to answer that. Keith or Bob, what do you think?
Mr Mans: I personally think that it is important for the two parts of the aerospace community to work very closely together. There has in the past been a general spin out of military aviation into commercial products. I think now that it is not as clear as that. There may well be spin into defence products from new technology in the commercial sector and, for that reason alone, I think that it needs to be closer together and we should have something in this country, not dissimilar to DARPA in the United States, to take advantage of new technology where we can.
Mr Keen: I do not really have much to add to what Keith has said. Obviously, from our perspective, other than in a very small sense, we are not involved in the civil sector any more and, in that sense, it would, I guess, be more difficult to adopt the US approach to this area in the sense that we are talking about separate companies as opposed to one company with a spread across both defence and civil aerospace.
Q48 Mr Hoyle: So, it would be fair to say that other countries are better at hide and seek than we are. We are good at seek rather than hide. Is that fair to say?
Mr Godden: I would say yes.
Dr Williams: I think it is worth noting
perhaps as well in that context that
Chairman: Once again, that is something we might want to come on to during our future questioning.
Q49 Mr Binley: I want to talk about the advance manufacturing package which was launched at the end of July about which Lord Mandelson said was designed to "help equip British manufacturers of all sizes and sectors, to take advantage of the advanced technologies and new market opportunities ..." So, we have a clear understanding of what it is supposed to do. Do you believe that the Government's advanced manufacturing package has identified the correct priorities for the aerospace sector?
Dr Williams: The view from Airbus would be that, yes, it has.
Q50 Mr Binley: I am not surprised!
Dr Williams: I think perhaps a consideration is the scale at which that is actually done. With a 20 million budget, there were 400 million-worth of applicants for that budget. There is clearly a pent-up demand to exploit such technologies. The ability or access to do so is perhaps constrained by the way in which the opportunity is presented today. So, in terms of the theme and the topic, by the very over-subscription that we have actually seen, I would suggest that it is hitting the right button. The only question therefore is, at what scale should it be funded?
Mr Binley: Can I go on to probe this a little more because much of the package, £90 million out of £140 million, is going to Rolls Royce. Does giving so much money to one company risk distorting the market? Are there concerns there for you?
Q51 Chairman: The record will note Mr Mans's laugh, I am not sure whether slightly nervously or what.
Mr Godden: Obviously I represent the whole industry and I cannot comment on one company in that sense specifically. I think it goes back to the point that that is at an appropriate - first of all I think that the framework is appropriate - level for the number two worldwide competitor and winner in an aero engine business that has gone from number four to number two - fortunately, in the previous year, the Government chose to rescue that - with a variety of actions. This action for that company is very significant. If you take that money away from them and say, "You've got half of it," I would worry as much as if you say, "Is it good to give it to one company?" My argument would be that is appropriate funding for that worldwide leader. Whether there is enough for other companies in the chain, particularly some of the medium-sized companies, I would come back and argue probably not.
Q52 Mr Binley: That is the point I really wanted to get to, because he did say "of all sizes".
Mr Godden: Yes.
Q53 Mr Binley: So it is not just for the "biggies" quite frankly. It was meant to filter down to a sizeable number of SMEs. That seems not to be happening; we know they are in trouble with the banks. What should we do with this package to make sure that the people you talk about not having that investment money for three, four, five, six, ten years' time are a part of this scheme in a more effective way?
Mr Godden: I would come back on the skills area. Obviously advanced manufacturing is a set of infrastructures and facilities and so on which will have a spin-out effect on the whole supply chain; it is not just for one or two companies. But the whole manufacturing skill base in the country is the area that I worry about most, particularly in the SME community, and that means probably more for training and skills in advanced manufacturing.
Q54 Mr Binley: We are coming to that side, but I am particularly interested at this moment in the SME sector. I am particularly interested that we have money going to that sector to get the sort of development that is going to be vital to us over the next 10/15 years. You have already intimated that the banks are not helping overmuch in that respect. Should we be doing more with this scheme in that respect? Should part of the process be to focus totally on this particular sector and to monitor it to make sure that it is getting what it needs to support British industry?
Mr Mans: This is a very difficult problem. I fully agree with you. The fact is that Rolls-Royce is the last major British-owned company in the civil aviation business, number two in the world. They are very good at getting the support they have. I would worry that if that support was spread more widely you might find it damaged their ability to compete effectively across the world, and that would obviously have a knock-on effect on the supply base. Having said that, you are absolutely right, Mr Binley. It needs to be a partnership. I do not know how much of that £90 million that Rolls-Royce gets migrates down the supply chain. Some of it undoubtedly will. Equally, your point about making certain we have a viable supply chain is a very good one. Personally I would like to see that addressed directly but not at the expense of a major player like Rolls-Royce.
Q55 Mr Binley: That is very helpful. Thank you. Is there any other comment on that?
Mr Keen: I would echo that. You would expect me to probably, as one of
the prime contractors in the
Q56 Mr
Hoyle: Mr Mans, it is very interesting that you
mentioned big investment/number two in the world/major British company. This trickle down to SMEs should come from
the £90 million. How many of those SMEs
will be in the
Mr Mans: No, I do not, Mr Hoyle. I do not think they are turning their back on
the
Mr Hoyle: Thank you for that
answer. I would disagree slightly,
because I would say the future is in R&D.
The R&D has been moved to
Chairman: I think we need to let Rolls-Royce answer this question.
Q57 Mr Hoyle: You were quick to defend them, at the same time without recognising the major investment shifts. I will leave that on the table, Chairman.
Mr Godden: A successful international
company ahead of the game has to invest in multiple places. I disagree with the point about the R&D
being taken to
Chairman: Rolls-Royce will listen to this, I am sure. We have not had written evidence from Rolls-Royce so far, but maybe this will provoke them to give a note on their intentions. We do want to turn to R&D now. We are going to look at some of the overarching strategic points with Adrian Bailey's questions and then Julie Kirkbride will look at the funding issue.
Q58 Mr Bailey: First of all, the National Aerospace Technology Strategy. Do you see the amalgamation of the Aerospace Innovation Networks with the National Advisory Committees as a reflection that the former were a failure? Do you think it has caused a loss of confidence in the National Aerospace Technology Strategy?
Mr Godden: I do not have a personal history, but from what I believe, the AIN model was not working well and there has therefore been a desire to change that and implement a different system. That has come from a recognition that the original concepts around AIN and equivalent were not working and I think that has been recognised by all parties. The changes have been an implementation change. The basic structure of the National Aerospace Technology Strategy needs refreshing, I would argue, from time to time, but the principle of it, the structure of it, et cetera, are fine, and we are now adjusting the mechanisms to make it work better. Therefore the NTCs which have been set up are, with the KTN, making that work more effectively than the original model. I would say that we have adjusted. There have been some mistakes or implementation problems.
Dr Williams: One particular additional strength of the new arrangement is that it allows for the technology roadmaps to be focused into a particular group, so there is a responsibility for ensuring that the technology roadmaps, an integral part of NATS, are maintained in an appropriate manner. Prior to that there was a lack of co‑ordination between the operational mechanism and the aims and objectives laid out within the strategy. The co‑ordination through the national technical committees now provides that linkage and offers the opportunity for ongoing maintenance of the strategy. I would agree that there is a need to refresh. It is an ongoing process and it will be influenced probably on different timescales according to the different technologies that are being addressed, the different technology roadmaps. It may well be that UAVs take a spurt forward at a given point in time. Then clearly that would afford an opportunity to update and refresh the technology roadmap. Has there been a weakness in the past? Yes, I think there has. Is there an improved circumstance now? Yes. Is there still a remaining weakness? I am going to start sounding like a broken record here, unfortunately, but the linkage between the technology roadmaps, the National Technology Strategy and a funding mechanism is one that is currently weak.
Q59 Mr Bailey: Does anybody wish to add to that?
Dr Williams: Perhaps I could conclude with one very positive comment. Through virtue of my duties trans-nationally within Airbus, I get to see the French, German and Spanish equivalent activities. The British NATS activity is definitely seen as a role model to be followed, so I think there is something of a lead there which other nations are seeking to copy and adopt. My concern may be that the funding mechanisms are already in place within those countries to more readily exploit the National Strategy once it is adopted.
Q60 Mr Bailey: You have pre-empted my second question: Will the National Technical Committees be more successful? Although it is early days, you would say that they are working better.
Dr Williams: Yes.
Mr Godden: A lot better.
Q61 Mr Bailey: How does the National Defence Industries Council fit with the Aerospace & Defence Knowledge Transfer Network? For the outsider there does seem to be a plethora of networks and councils. Is there overlap and potential confusion?
Mr Godden: It is a very straightforward industry view that says there should be a much stronger Aerospace & Defence KTN with the full defence capability that goes with that for some of the reasons we mentioned right at the beginning about aerospace defence and security; the technological links; the ability to get the best out of all of that research and technology that has been spent - particularly given that the defence expenditure on R&T has declined by over 24% in three years, the latest drop being a 10% drop. The funding for defence has dramatically declined in R&D. If that is to continue - which of course we hope it will not and we are arguing very strongly that it should not - then the co‑ordination between all the various aspects of technological expenditure in the country need to be brought together more strongly, and the KTN can play a role, albeit a limited role, in itself. It obviously has to go alongside an NDIC commitment to BIS and industrial policy in BIS being well connected to defence industrial policy as well. It would be like the tail wagging the dog if you said the KTN has to heavy lift that whole thing, but it could play a stronger part in that connection. The industry view is fairly clear, but there other constituents that are not sure about that.
Mr Keen: The general point is that a proliferation of organisations must run the risk of fragmenting further the alignment between the strategy and individual decisions. From our point of view again, we are centrally involved in the NDIC research and development group and buy in absolutely to the strategy that has developed there. But there is a danger with a misalignment of funding and networks.
Q62 Mr Bailey: To follow the logic of your comments, how would you like to see it structured?
Mr Godden: The whole technology arena?
Q63 Mr Bailey: Yes.
Mr Godden: I am not sure I can give you a blueprint of the ideal - and in fact that may be a follow-up to this question - but as a starting point you would say that research and technology, the TSB, plays a role in linking strongly to defence and should do more. The KTNs that you referred to should be more linked and perhaps adopted by both departments. Second, there should be more cross-connection, as I have said, between BIS-type initiatives and MoD-type initiatives. Those three things should be structured more closely. It would be beneficial for everyone.
Mr Keen: We do not have a clearly defined prescription but any approach that were developed would have to address the central point that Gareth made earlier, in some way aligning funding with the overall strategic approach so that somehow those two things have to be brought together. We will talk about the Technology Strategy Board maybe later on, but there is a very good example there. For example, there is not a strategic fund for the unmanned sector, yet there is a strategy for developing the sector generally. Bringing those two things together I think would have to be a key characteristic of a more effective framework in this area.
Mr Bailey: Are there any further comments on that?
Chairman: I want to discourage the open forum. I did suggest they should not all agree with each other at length. They agree with each other.
Q64 Mr
Bailey: To move on to another aspect, the development
of projects from 'proof of concept' to an industry exploitable end
product.
Mr Mans: This is really the gap in
what we do in the
Q65 Mr Bailey: Obviously there is a funding issue here but there also appears to be an organisational or structural issue as well.
Mr Mans: Yes.
Q66 Mr Bailey: There would not be any point in putting in the funding if you could not have the other.
Mr Mans: Yes.
Q67 Mr Bailey: What sort of structural changes do you think should be changed?
Mr Godden: As you know, there is a
concept of establishing a UK Aeronautics Research Institute to co‑ordinate
the activities of research particularly in the aeronautics sector. Industry is giving some views on that and it
is being discussed at a policy level within government right now. That, in effect, is the organisational part -
a missing link, you might say, and certainly versus
Q68 Chairman: I am going to be discourteous again, Mr Godden. Tony Wright is going to be asking about this at some length later. We see it as very important. You have lifted the curtain on the solution and I will let Tony Wright put it in more detail later.
Mr Godden: Okay.
Q69 Miss
Kirkbride: This question is to Airbus and British
Aerospace. You have already mentioned
that research and development has been cut in the
Dr Williams: I will remind myself of the numbers. It was a question I had perhaps anticipated with one of the briefing papers, but in fact the R&D activity from Airbus reported in 2008 but covering the period 2007 was £397 million.
Q70 Miss
Kirkbride: Is that the spend across the company or here
in the
Dr Williams: That is the spend here. In 2009, but effectively reporting the year 2008, it had risen to £494 million.
Q71 Miss Kirkbride: Then our briefing note is wrong.
Dr Williams: In our particular instance - and I cannot say for the industry sector as a whole - there has been an increase over that period. But inevitably the R&D activity does move with the phases of different development programmes for different aircraft. One would anticipate a dip and then a further rise again when the A-350 starts up.
Chairman: In defence of the brief, this comes from an old Society for British Aerospace contractors' briefing from last year. Your figures are more up-to-date.
Q72 Miss Kirkbride: Do you have the year before that?
Dr Williams: I do not but I am certain that we could furnish it with you if I can give you a written response at a later date.
Q73 Miss Kirkbride: Basically your R&D is not dictated by the recession but by contracts and forward planning for your aircraft models.
Dr Williams: It would be foolish to say there was no issue of affordability, because quite clearly there is, but the commitment to invest in new product factors in the state of resources, and the state of resources in terms of technology, skills and monetary resources. The recent experience is that there has been an increase in that. I would not expect that to be a continuing increase at that rate, but as different development programmes dictate the need for investment, if the company can afford to make that investment it will make it.
Q74 Miss Kirkbride: Does BAE have the same view?
Mr Keen: The position of BAE Systems is that as between 2007 and 2008 it is true to say that R&D spending overall reduced from £1.2 billion to £1 billion.
Q75 Miss
Kirkbride: In the
Mr Keen: In the
Q76 Miss Kirkbride: Yours, again, is dictated by your projects and the maturity of those projects and there has not been a recessionary effect in that cut from £1.2 billion to £1 billion.
Mr Keen: There are two or three key factors. One is maturity of projects. The second is defence spending on research and technology which has declined, as Ian said, over the last few years and is projected to again this year. Then there is our own company investment in private venture R&T, based on our assessment of key technologies in the market generally.
Q77 Miss Kirkbride: How serious is that cut in the defence element of R&D for the aerospace industry?
Mr Keen: It is an issue of real concern. If we are looking at developing UK national capabilities for future defence requirements, it is self evident that if there is less being spent on research and technology now, we will have less UK capability in future. I come back to my hobby horse of the unmanned piece. If you invest less in research and technology in that space, you will have less capability to pull through in future.
Q78 Miss Kirkbride: It is saying here that there will be a 20% cut.
Mr Keen: In R&T funding, yes. There is a slight classification issue here,
because research and development is not the same as research and
technology. There are some issues of
classification, but certainly the MoD R&T fund is significantly under
pressure and is reducing. If that
continues then inevitably it will eat into
Mr Godden: Can I clarify some of the
numbers. First of all, based on all of
the data from a large sample of companies, there was a drop in the
Q79 Lembit
Öpik: It would be helpful for the
record if you were to explicitly define the difference between R&D and
R&T. I ask the question because it
is probably quite relevant when we go to
Dr Williams: I can give you the definition which Airbus would use: R&T takes you from technology readiness level 1 to 6, a scale which we use to assess the maturity of technologies, and then from 6 to 9 you do R&D, which is translating a generic technology into a specific application of a specific product. The argument is that you put a technology on the shelf at technology readiness level 6, you take it off the shelf and say, "I'm going to apply it to the A999 through stages 7, 8 and 9."
Lembit Öpik: That is very helpful. Thank you.
Q80 Miss Kirkbride: That leads into the next question quite well, which is also to Airbus. Mr Keen mentioned the Technology Strategy Board, but in your evidence you say that you are concerned that funding for the Technology Strategy Board is constrained and claim that recent bid subjects have not been linked to the strategies defined in the National Aerospace Technology Strategy. Can you explain that?
Dr Williams: Coming back to the point we were discussing a little earlier, the linkage between NATS, the technology roadmaps and then the funding mechanisms, whilst there is undoubtedly a driver within the TSB to demonstrate impact on any funding that it proposes, the linkage between the funding bids that we have seen of late and the NATS strategy have not been explicit and clear - at least, not to us. I do not have an example to hand. Perhaps I could furnish you with one or two specific examples to make that point clearer. That linkage between the National Strategy, the technology roadmap and then bidding arrangements is one that we would like to see far clearer than we are currently seeing today
Mr Keen: Perhaps I could give an example from our perspective. It is in the area of unmanned systems again, and it is the ASTRAE programme - the Autonomous Systems Technology Related Airborne Evaluation and Assessment.
Q81 Miss Kirkbride: What does it do?
Mr Keen: It is a programme looking at
how in future we can develop the system for the safe, routine, unrestricted use
of unmanned systems in
Q82 Miss Kirkbride: Key priorities set by the Government?
Mr Keen: Yes.
Q83 Miss Kirkbride: That brings me neatly on to the last question of mine. There is a view that Aerospace has had all the money in the past, that loads of money has been thrown at it, and you are not fashionable any more because we are doing "green" or something else. Do you think that is true?
Mr Godden: Yes. I have noticed in my time here, two years, that our success is a problem. The success of demonstrating our economic impact, the success of getting funding, the success of having a National Aerospace Technology Strategy has created a bit of a benchmark for other industries which have come on very strongly to the TSB and other government bodies with similar sorts of approaches. I have seen it happen in front of my eyes. It goes along the following lines: "They've got more than their fair share" - whatever that means - "and therefore we need to divert a bit to demonstrate that we are not giving more than a fair share to aerospace." This is a bit like the Rolls-Royce argument we were talking about earlier. It is absolutely the right thing to do to fund at this level. It has been thought out. It has a long-term strategy to it and it has short-term programmes against it, and we are in heavier competition with other sectors and we are not as favourable because of two things: the green agenda and the slightly anti-defence culture that still sits somewhere in certain corridors. I answer the question bluntly: yes.
Mr Mans: Government should be backing winners, not picking winners. Aerospace is a winner. It has been backed in the past. That means that it is a much lower risk if you back it in the future, so we maintain our position in the world, rather than cast around for something that might possibly be a winner. Bureaucrats are not very good at that.
Q84 Miss Kirkbride: Do either of the other two companies want to be so political as to comment on this question?
Dr Williams: I wanted to come back on the environmental question that you raised. Aerospace contributes 2% of CO2 emissions and yet if you read the newspapers or listen to the radio you would think it produced 98% and not 2%. However, if you looked at the research and technology into improving that performance, certainly Airbus's efforts towards achieving the ACARE goals of 50% reduction in CO2 and 80% reduction in NOX and 50% reduction in noise, you could be forgiven for thinking in fact that all the research and technology effort to improve the environment was only happening in the aerospace sector.
Q85 Chairman: We are going to end with sustainable aviation. There is a good positive message again, so you can raise it again.
Dr Williams: I will try and work myself up again for later on.
Chairman: Save yourself for then. We have at least three world-leading industries. Formula 1 is one of them, but on a slightly smaller scale; Aerospace and pharmaceuticals are the other two. If we do not back them, I do not know what we are going to do with our young men and women in the future, but that is pre-judging our report.
Q86 Mr
Wright: Turning to the question of interaction between
the universities and the industry itself, which is directed at Airbus, in part
of your evidence you said, "Under the current funding arrangements, there is no
mechanism to create any kind of link between the NATS and the publicly-funded
research at
Dr Williams: We mentioned briefly the Aerospace Research Institute and we have cast around for different mechanisms for establishing such a relationship. Whilst it is probably fair to say that it still is at an early stage of formulation, having a mechanism in place which could translate NATS into a form which can then be used to guide funding decisions into university bodies is an option that we currently see as attractive. The mechanisms for that are still being explored, to be quite frank with you. There is an industry discussion going on and there are currently marginally differing views. Everybody understands the nature of the problem but has a different view as to how that can be best resolved, so I cannot present to you here today the blueprint for how we should do it for the future. One of the drivers that we would be seeking to ensure that such a body worked towards is ensuring the relevance and impact of the application of that research funding, perhaps better balancing the distribution of research available for research funding between fundamental research and applied research. We heard about the dead zone that was mentioned earlier on. It is probably a classic in the applied research arena, where you can hit that trough. Certainly it would need effort to overcome those dead zones where they do occur, and part of the motivation in the discussion in industry is not to seek to ask for more money but to ask how the existing money can be better applied and directed, so that in fact strategic needs, as expressed by the industry and bought into by the Government - and this through the discussions that have been held - can be clearly understood by all decision makers who may be distributing research funds and then applied in practice by those decision makers. That is a rather roundabout way of answering your question. I do not think I have a definitive blueprint for you today, but certainly it is an area where there is very active discussion to seek better means of distributing existing research funds.
Mr Keen: In the meantime, certainly as far as BAE Systems is concerned, it is strategic partnerships with key universities. We have five strategic partnerships, including one with Cranfield on aeronautical engineering, and clearly those strategic partnerships enable us as a company to direct research on to those areas which we consider are of strategic significance and which, broadly speaking, would be within the NAT Strategy. It is not as though there is not a mechanism for doing it but there is not a formal mechanism for translating the NATS into directed funding to the universities.
Q87 Mr Wright: I am pleased that the discussions are proceeding. How far down the line are we with the discussions becoming a reality? With the French and the Germans already having their institute, it is vitally important that we participate in this. The danger is that we could be left behind in decisions that could be taken on a European-wide basis because we are outside of the organisation that deals with this particular area. Is it going to become a reality?
Dr Williams: I certainly hope it
will. It is fair to say that discussions
are slightly behind where we would have anticipated they might have been at
this time, but the dilemma that you pose is one that I face practically on a
regular basis in my role at Airbus, where it is quite clear that the 100%
funding that DLR and ONERA obtain for certain of their research work does place
them in a very strong position for undertaking future work and, therefore, does
pose a risk to certain of the activity currently undertaken in the UK. I
would not want to overstate that from a company basis, but strategically for
the country that is an issue to be addressed, and, perhaps ironically, it is an
issue that is recognised in
Mr Godden: In terms of the expectations timeframe, we are talking weeks and months maximum to have proposals. Whether that is something that happens before an election/after an election I have to pass back to you to say, but in terms of proposals we will have it in the very short term. It is being looked at literally in a matter of weeks and months ahead.
Q88 Mr
Wright: The information that we gleaned from
our visit to
Dr Williams: Perhaps I could declare an interest, Chairman, because I am Deputy Chair of Council at Cranfield University, so my comments may be somewhat biased, but it is ironic in the 40th year of that university gaining its charter, as it was originally set up as a specialist aerospace institute, that the Higher Education Funding Council for England has removed its special institute status and removed the body of funding as a consequence of that. There are some ironic contradictions in the way that policy is playing out at the moment.
Q89 Chairman: I have heard concerns in the way HEFCE is not sponsoring centres of research excellence. It is spreading the pot around perhaps a bit too thinly sometimes.
Dr Williams: My understanding of the circumstances at the moment - and they are not complete - is that the special institution status applied as a designation to things like dance schools and music schools, and Cranfield as a technological institution got caught up in the process or rationalisation almost by happenstance, but, nevertheless, it does have an impact on the funding regime.
Mr Godden: There is even more reason in
the
Dr Williams: One further point to add in
terms of the strategic significance of that co‑ordination is around
infrastructure. Rolls-Royce, in
particular, were very pleased to secure the noise facilities that are necessary
for the development of their engine.
Whilst that is a prime example, perhaps, and an obvious example today,
there are others which would benefit from co‑ordination through such a
central Aerospace Research Institute.
There are significant facilities.
Large wind tunnels may be an example and icing wind tunnels may be
another recent example. The
Q90 Lembit Öpik: I was looking at your biography, Dr Williams. You have spent the majority of your aviation career in or very close to research and development.
Dr Williams: I have dotted in and out of it.
Q91 Lembit
Öpik: Nevertheless, you are very
qualified to answer the core question.
If you were in charge of the budget for a day, how would you construct
this single research facility? Would it
be geographically in one place, like
Dr Williams: First of all, if I was in charge for a day I would spend it quickly. Separate to that point, it is a misconception to think it will be a single physical location, simply because some of these elements of infrastructure are physically distributed around the country. What is more important is to secure knowledge of where they are, what they are, how they are maintained and how they are exploited, and then, in parallel with that, focus the available research funding into probably fewer institutions in a more focused way. It will be unpopular I am sure. There may be even an elitist view on it which says "You back all winners" as was mentioned earlier on. If there is precious little research funding available, which clearly in the economic circumstances there would be, if you look at the majority of the primes in the UK you will find they go to probably five, maybe six, universities for 80% of their business. That does beg the question, therefore: How much of the research funding is going to - and this is going to sound disparaging, but it is not meant in that way - the tail, the distribution, and could that tail funding be more appropriately applied to get a better result for the companies and the country?
Q92 Lembit Öpik: People are out there, you are saying. It is a matter of focus and financial strategy.
Dr Williams: I believe it is, yes. If you looked at our preferred suppliers from universities, I would be very surprised if it was very different from BAE Systems. I would be very surprised if it was very different from Rolls-Royce.
Mr Mans: It is important to look at it
from the customers' perspective (that is, the companies across
Q93 Chairman:
The
National Composites Centre competition that is going on at present
Mr Wright referred to in his questions. My perception - and it could be
wrong - is that the Government seems to have stumbled into this competition by
accident as a result of the money in the Strategic Investment Fund. It seems to be of huge strategic significance
to the whole aerospace sector.
Composites is the big game in town, is it not, for the
Dr Williams: Is it significant, yes, quite clearly. I have to say I am not clear as to the background of how it has evolved quite how it has.
Q94 Chairman:
When
were in
Dr Williams: It seems to me somewhat
perverse that there has been a strategic investment into, for example,
Mr Godden: Unless I am hidden from something that I do not know from certain of our members, I think the industry is surprised. I would echo the fact that I do not think industry has had a clear picture on this. It is absolutely essential and I am not sure that we have a clear view about what is really happening.
Q95 Chairman: That was certainly the view we picked up, talking to a wide range of people involved in the sector last week.
Mr Godden: On behalf of the membership, unless some of my members have been extremely quiet about this subject, I think I can echo that.
Q96 Chairman: The impression we formed is that those who are bidding for it do not fully understand what they are being invited to bid for. It is that level of confusion.
Mr Godden: The process.
Q97 Chairman: Yes, the process is completely skewed.
Mr Godden: They do not understand where we have got to and how we have got to here and what happens next.
Q98 Chairman: For something of such important to the sector, it does seem a rather strange way to proceed. Thank you. Mr Mans, you talked about DARPA.
Mr Mans: I mentioned it.
Q99 Chairman: We visited DARPA 18 months ago. We were hugely impressed. We cannot do DARPA here because the British system would never let you do it. Can the Technology Strategy Board plug those gaps? Is that the nearest thing we can get to DARPA? Is it good enough in the British context? I understand there are constraints we work under here in terms of accountability and so on.
Mr Mans: I would think that we can make moves in that direction. I genuinely believe that the technology should not be fragmented; it should be used across the board. As I say spin-in/spin-out in terms of commercial and defence technology. One area where it would work a lot better is what Bob said about unmanned aircraft. They do not just have military uses: in the future they are being used in the civil sector as well. That seems to have rather got lost in the discussions about funding, particularly the Australian programme.
Mr Keen: To be fair to the MoD, the science community in the MoD does see the value of more emission-led funding and it is trying to put in place certain mechanisms. We have mentioned one in our evidence called Capability Visions. It is not DARPA analogue but it is intended to do the same sort of thing in terms of driving capabilities through from technology into the frontline.
Q100 Chairman: My colleagues are being very patient, but we must make more progress. We have two last areas of questioning. The very, very important issue of skills and then sustainability are the two last areas. How good is the Sector Skills Council for Science, Engineering and Manufacturing Technologies for your purposes? Is it working?
Mr Keen: As an organisation we operate under the SEMTA sector. That is the basis on which we deliver our apprenticeships. We have about 1,000 of them at any one time. We think that is a pretty effective mechanism for delivering skills. I do not think I would suggest today that there should be any fundamental appraisal.
Q101 Chairman: That is fine. As long as that is a view shared, I do not want to press that one. I think it is SEMTA itself which developed the workforce planning tool in the rather unfortunate metaphor "the workforce planning tool pilot" - which is not a person but a trial. Have you been involved with the workforce planning tool pilots?
Mr Keen: We have not, but others may have.
Mr Godden: We have been involved with ----
Q102 Chairman: Who is we in this context?
Mr Godden: The industry, through ADF and through DIUS (as it was) and now back in BIS. Our objective was two-fold: one to get a demand-led view of skills.
Q103 Chairman: When you say "demand-led" who is making the demand?
Mr Godden: The creation of the demand from the industry.
Q104 Chairman: Students must also demand the right training as well.
Mr Godden: Yes. That aspect we are working on. The second is trying to encourage, along with others, working with the Sector Skills Council on workforce planning. It is a supportive role, really - from our point of view, the Sector Skills Council working with ENSAM, which is now part of SEMTA, to formulate specific sector issues that we are addressing.
Q105 Chairman: We know a frequent concern of industry is a shortage of skills across the piece: basic skills, level 2 skills and level 4 and 5 skills. We understand that. Unite have suggested a statutory training levy to ensure the industry continues to train and develop it workforce. What is your view on a statutory training levy? You must have a view on a statutory training levy, I would have thought. Do you have a view?
Mr Godden: No. I would say that maybe you need to ask us that question questioned we need to come back to you, because I have not prepared one and I do not think we have one.
Q106 Chairman: If you would give us a note on what you think of Unite's proposal that would be helpful. Looking at the broader picture of level 4 skills and above and this question of STEM graduates, I think there has been an increase recently in take-up in numerical terms if not proportionately across the university sector. What is your view of the availability of suitably trained graduates for your sector?
Mr Keen: Broadly speaking, we can
satisfy our requirements as things stand. There are some specific pockets of
skills that we find difficult, but generally speaking it is okay at the moment.
Our concern is for the longer term. With
increasing demand for STEM skills across the piece, we would find it more
difficult over time to deliver what we need from the
Mr Mans: We need to be much more proactive in ensuring that we get both genders, women as well as men, coming through that system. Second, what they do must be relevant in terms of both manufacturing/technical knowledge and indeed in respect of the service sectors as well. As one of my colleagues mentioned earlier, a lot of what the industry does now once a product is in service is there is quite an income stream coming back to a company like Rolls-Royce, for instance, and therefore it is a range of skills that people need across both genders.
Mr Godden: On the specific question of a growing dependency in the industry on overseas graduates -----
Q107 Chairman: I want to come on to that, but on the locally grown graduate population, is it enough for the industry's needs? Do we want to encourage more young men and women to take an interest in the sector?
Mr Godden: Definitely.
Mr Mans: The answer is yes.
Q108 Chairman: Do we need to do more?
Mr Godden: Yes.
Mr Mans: Yes.
Dr Williams: I think retention is a bigger issue. A colleague of mine reminds me that if 50% of medical students failed to go on to be doctors there would be an outcry, so why is there not an outcry when 50% or thereabouts of engineering students fail to go on to be engineers? It may be that we do not need more students but we need a stronger pull through for the people who have studied those subjects to pursue that as a career within industry.
Q109 Chairman: Whose "fault" is it that they do not make that jump? Is it the City for paying too many salaries? Is it the careers advisers for not telling them about the existing careers? Is it your fault for not explaining to them the opportunities you are offering to them?
Dr Williams: Undoubtedly there will be a responsibility of that in places. The aerospace sector and certainly Airbus is very active in attracting graduates and quite successful in doing so. However, there is clearly a fundamental issue there. It may not be getting the input into the education system that is the problem; it is making sure the output goes to where you anticipated it would.
Q110 Chairman: Or is it the "fault" of politicians and the media for talking down manufacturing and the aerospace sector as well?
Mr Godden: Recently that has changed, but I think that is a problem. In the Eighties there was a decline in manufacturing; in the Nineties we were all in consumer boom, we were in financial services and our future was going to be on that. The industry did not respond to that at that point but now is. You could argue we are being a bit late versus when we should have been doing it, which was maybe five or ten years ago, but we are doing it very significantly now.
Q111 Chairman:
Let
us look at postgraduates. There is a
conflict of evidence here. Some of you
are saying there is a worrying dependence on overseas postgraduates and others
are saying - we heard it in
Mr Mans: It is a two-edged sword. I do not think it is a conflict, in a
sense. On the one hand, yes, there are
advantages in having foreign postgraduate students over here. On the other hand, a lot of the knowledge
they gain is portable and therefore it gets taken out again. That is a
disadvantage. It is a very difficult
issue this. On the one hand, clearly
universities want to attract as many foreign students as possible. There is a high percentage of postgraduates
in the
Dr Williams: I remember, as anecdotal
evidence, on my last visit to
Mr Keen: That is clearly an issue as
far as the
Q112 Miss Kirkbride: Dr Williams, in relation to the French and German students that you have talked about, we all assume that engineering has a higher status in those countries and that is perhaps why they chose those careers. Why do they come to British universities to do that? Is it just because they are leaning English??
Dr Williams: Not at all. There is a proficiency in English which is a
prerequisite to their enrolling. There
is a different style of education in the
Chairman: We are running a bit later than I hoped and we have one last area of questioning which I know Mr Mans is particularly anxious to discuss and Dr Williams as well.
Q113 Lembit Öpik: How are we doing in terms of sustainable aviation versus our competitors? The floor is yours, Dr Williams.
Dr Williams: I will try to make it short,
given the prompt by the Chairman.
Perhaps a word of encouragement.
In the European framework at any rate the
Q114 Lembit
Öpik: What sort of
improvements? If you were to list the
hall of eco fame so far as derives from the
Dr Williams: You catch me unawares. I have all sort of statistics running through my head now. Can I please respond in writing?
Q115 Lembit Öpik: I would love that. Thank you. Would any of you like to add anything?
Mr Mans: This is a real opportunity
here, because in fact a lot of the technology that is being produced in any
event clearly has a huge benefit to the environment. One of the things I say straight away is that
we have to go on investing in technology particularly through this recession,
supported by both education and skills.
If we can get more new technology into new aircraft, we influence global
CO2 emissions, because there is a very small number of aircraft
manufactures - obviously the two main ones being Boeing and Airbus, supported
by Bombardier and by Embraer. This
country has a very wide supply base, so we supply in to all those
companies. If you get a new piece of
technology which clearly makes the aircraft more efficient in one sense or
another, you can apply it very quickly across the whole new fleet. In the process,
of course, that has an effect on global CO2 emissions, not just UK CO2
emissions. It is a real
opportunity for the
Q116 Lembit Öpik: What should government be doing? I suggested before that government should be more supportive about things like direct routing and perhaps relaxing some of the conditions on more eco-friendly aircraft. What would you want to see government doing to make sure that we really press home the environmental advantage?
Mr Mans: There needs to be a lot more action on ATM. We know that we can reduce CO2 emissions by 10% in the European environment if we stop a lot of aircraft sitting on the ground waiting to take off, into flying straight to their destinations and landing without holding patterns. That also has a direct benefit on the customer as well.
Q117 Chairman:
We
saw some very impressive work in
Mr Mans: Yes. The regulators, governments, the Commission and bodies like that need to get together. Single Skies Across Europe is a good example where it really needs to happen. There seems to be an awful lot of talk, but at the end of the day we still have queues and those queues result in inefficient use of an aircraft. That is an area where I really think everybody ought to be working together more effectively.
Mr Godden: Perhaps I could echo that and say more programmes on wings and engines, because that is what we are good at and those are crucial for efficiency - and composites you would add to that. Unmanned vehicles - a very green idea. Space, which we talked about very briefly, has a role to play. Air traffic control and management systems go with that. If we push on all four of those directions heavily, we can both do things for the environment but also exploit that trend of society.
Mr Mans: I do think there needs to be more direction, in terms of whether you are going for an engine that minimises CO2 emissions but is slightly more noisy than would otherwise be the case. There is clearly going to be a battle between the geared turbo fan which is produced by Pratt & Whitney, which clearly can be made quieter but not as fuel efficient as the unducted fan which Rolls-Royce and GEAE are working on. Some direction needs to be given as to what is required. At the moment the regulator is saying they want both. That will really affect us if it goes in one direction rather than the other, so I think that really needs a lot more discussion as to the way forward. I am not saying that an unducted fan is not quiet: it meets all the exiting noise regulations - but it is unlikely to be made as quiet as a geared fan which has a cowling on it.
Q118 Lembit
Öpik: That is the challenge. It is a trade-off from the
Mr Mans: Yes.
Q119 Lembit Öpik: You did not mention fuel. Is fuel a consideration? Do you think we can get greener fuel?
Mr Mans: Yes. One of the most interesting developments that has taken place over the last few years is the possibility of second and third generation biofuels. It has been very interesting indeed how quickly a lot of airlines, together with engine manufacturers, have taken up this particular concept. It really does have at least the opportunity of aviation emitting less CO2 in the middle of the century than it does now. Two or three years ago it would have been difficult for anybody to make a statement like that. Now I think it is much more likely that that could occur, provided alongside the investment in biofuels we really make a lot more investment, as Ian has said, in the shape of aircraft and the efficiency of engines.
Q120 Lembit
Öpik: Putting it all back together,
there are loads of green initiatives: OMEGA (Opportunities for Meeting the
Environmental Challenge of Growth in Aviation), Greener by Design and the
Mr Mans: I do not know about that. You could argue that as Greener by Design started out ten years ago it had elements of the manufacturers, the trade associations and universities in it. As the subject has broadened, inevitably it has become more fragmented. OMEGA at the moment is largely restricted to universities, although in OMEGA II it is likely to engage more heavily with industry. Greener by Design is really the link between industry and the universities, so it is a small organisation obviously run by the aeronautical society. Sustainable aviation is much more business-focused. Whether you can put those three back together and still get decent reports that do not take an awful long time to produce and in the process get watered down, I do not know.
Mr Godden: My answer to this - and Mr Mans knows my answer - is, bluntly, yes. We should be putting those together and raising our game by doing so. That is a straightforward answer to the question.
Chairman: One of the great traditions of our Committee is that Mr Hoyle has the last word.
Q121 Mr Hoyle: You can judge whether that is good or bad. You give this positive approach: new aircraft, new design, green aircraft flying around. That is good depending on what you do with the old aircraft. What seems to happen is the value drops because we have a new aircraft out that those who can afford it want and we will end up selling off those polluting aircraft to somewhere else in the world, so we are adding to and not reducing the amount of CO2 that is being emitted from aircraft. My first question is: Should we say, when an aircraft comes into production, that this is the new standard that we expect people to sign up to and ensure that the older polluting aircraft are taken out of service all around the world? Second, have Virgin got it right in the way they are looking at biofuels? Third, do you think it is unfair that the aircraft industry gets the caning at the same time that world shipping continues to pollute with crude oil being put into basically an old boiler. It does not matter what they throw out in the world, nobody seems to bother. Should we have international standards for shipping at the same time?
Mr Mans: Let me answer those questions
in reverse order. I entirely agree I
think the aviation industry is being picked out unfairly in this respect. Yes, you are absolutely right about
international shipping. Second, as regards Virgin, I do not know whether they
have got it right yet but they are certainly moving in the right direction. The
first question I think is much more complicated. A lot of aircraft go out of service and sit
in the desert and they never get used again.
I think that is increasingly happening for two reasons. First of all, even operators in places like
Q122 Chairman: I would like to think that this has been the highlight of your career so far.
Mr Mans: Of course.
Chairman: But I remember in the Eighties, when you and I met the President of Egypt together, that barrel-rolling a Vulcan was the highlight of your entire career. Gentlemen, thank you very much indeed for what has been a very informative and very considered evidence session which has been very good. There are a number of things we are going to correspond about subsequently but this has been a very valuable session and we greatly appreciate it. Thank you.