Memorandum submitted by Thales UK
INTRODUCTION
Thales is a global technology leader in aerospace,
space, defence, security and transportation. In 2008, the company
generated revenues of £10.2 billion and employed 68,000 employees
in 50 countries. Our 25,000 engineers and researchers located
around the world give the company a unique capability to develop
equipment, systems and services to meet the most complex security
requirements. In the UK, Thales employs 8,500 people at more than
40 locations. In 2008 Thales UK generated revenues over £1.4
billion.
In aerospace, Thales acts as a prime contractor,
equipment supplier and training and service provider to the UK
MOD and defence ministries of other countries and to civil aerospace,
including Airbus, Boeing and civil airlines. Thales employs over
2,000 in aerospace activities and several thousand more in our
global supply chain. In the UK, Thales is a shareholder of the
consortium delivering the RAF's Future Strategic Tanker Aircraft,
is the prime contractor delivering the Army's Watchkeeper programme
(the largest unmanned aerial vehicle based intelligence, surveillance
& reconnaissance system in Europe) and is the prime contractor
for the Sea King Mk 7. Thales also provide a range of equipment,
from avionics, mission planning, defensive aide suites, radar,
satellite communications and a full range of sensors to complete
in-flight entertainment systems.
Thales UK's training and simulation business
is one of the two leading suppliers worldwide of full flight Simulators
and other forms of synthetic training systems. We support all
Boeing and Airbus aircraft types, including the latest Airbus
A380 and Boeing B787. We also deliver similar simulation and training
systems worldwide for military aircraft, including Tornado, F16,
Typhoon, Hawk and A400M and for other defence platforms including
the Lynx and NH90 helicopters, armoured vehicles and nuclear and
conventional submarines. Thales also provides training services
for the aircrew of many of the world's airlines. This training
and simulation activity directly sustains around 900 high quality
jobs in Crawley, West Sussex, and supports another 450 jobs in
the local supply chain.
This submission provides responses to the Committee's
questions in relation to the aerospace sector, in which we include
our important simulation and training business.
Q1: The effectiveness of government policies
in supporting these sectors
1. As a high skill level, high technology
content, long project cycle industry, aerospace depends on government
to:
(a) Provide the foundation of education on which
other skills can be developed.
(b) Share in the funding of research and technology,
which may be applicable to different sectors.
(c) Provide a clear strategy on its priorities
for the UK aerospace industry to enable industry to plan long
term investment.
(d) Represent national industry in multinational
projects, such as Airbus, Eurofighter, etc.
2. Taking the education function first,
the Leitch Review of Skills, Prosperity for all in the global
economy—world-class skills, is widely recognised as
the defining document regarding the UK's skills needs. The aerospace
industry relies on the education system delivering a strong national
competence in the STEM (science, technology, engineering and mathematics)
disciplines. This provides the basic skills from which we can
develop domain specialists, systems generalists, and business
leaders. The main effort of government should therefore be to
strengthen its delivery of STEM competence.
3. The joint Government and industry aerospace
Innovation and Growth Team (IGT) was set up to determine the next
steps for the sector. This has provided a clear national strategy
and a compelling logic for further government investment in carefully
targeted R&D that will help to drive innovation and growth
in the industry. Thales is confident that this jointly developed
strategy is sound, but with the rest of industry remains concerned
that the strategy will be insufficiently resourced. The long term
impact of failing to do the necessary research now is that UK
industry may in future fall behind our international peers in
this critical industry in which we currently enjoy an international
competitive advantage.
4. Turning to the funding of research and
technology, Thales believes that the NATS (national aerospace
technology strategy) that was developed in 2004 has provided an
extremely effective blueprint for success. By setting out clearly
the rationale for R&T investment, the strategy has succeeded
in raising the level of public research funding into the sector
from £20 million per year in 2003 to around £65 million
per year in 2008. This has made a huge difference to the global
competitiveness of the industry, which is regularly assessed against
other sectors as making one of the highest value-added contributions
to the British economy per pound spent.
5. The NATS focuses on building on existing
competences in civil aerospace structures, wing design and manufacture,
propulsion and power generation. In the defence field, the Defence
Industrial Strategy (2005) also identified Uninhabited Aerial
Systems (UAS) as a sector in which the UK has an opportunity to
gain an international competitive advantage. Essential to the
development of this new technology has been the ASTRAEA (autonomous
systems technology related airborne evaluation and assessment)
programme, which is designed to facilitate the use of UAS in civil
airspace, and the military UAV centre at Parc Aberporth in Wales.
These assets are both vital for the general development of the
UAS market (eg into replacing expensive helicopters to provide
persistent police observation) and in maturing the technology
required to allow UAS to operate in the same airspace as other
aviation (eg automatic sense and avoid navigation and control
technology). The MoD's capability requirements for UAS are increasingly
clear, but the huge potential civil applications of UAS await
a national strategy. As a result, the essential ASTRAEA research
programme has stalled. Thales believes that this programme should
be reinstated with full funding at the earliest opportunity.
6. Thales has a strong pedigree in exporting
from the UK. Government policies in support of global export opportunities
are therefore also a key factor in our business success. Emerging
economies are seeking to develop or revitalise their civil aerospace
industries. Against this background we urge the Government, where
consistent with current export control policy, to press for full,
open access for UK industry to the new programmes in, for example,
China, India and Russia.
7. It is also important that Government
argues for a level playing field on the provision of national
support for strategically important industries. By way of an example,
our largest export business is the training and simulation business
based in Crawley, West Sussex. Two companies—Thales UK and
a Canadian competitor—dominate the global supply of full-flight
simulators developed to a standard that allows pilots to use them
to complete training hours, in lieu of taking to the skies. The
Canadian authorities have provided substantial long-term support
for their simulation business, which has included a comprehensive
package of additional support over the past 12 months to help
the company to survive the collapse in global demand from airlines,
due to global recession. In contrast to this Canadian support,
our business has been supported solely by company investment (including
£100m to develop a new manufacturing site that includes facilities
for our training and simulation business). In part because of
the resulting competitive disadvantage, we have been forced to
announce 70 redundancies from the business so far this year.
Q2: How to maintain the UK's excellence in
academic research in aeronautical and automotive engineering,
and related disciplines, and how to extend relationships between
universities and business still further
8. Thales has extensive interaction with
UK academia, schools, Universities and learned societies. We believe
that there is a social responsibility to develop skills and opportunity,
as well as the Company's need to acquire the best staff and access
the most advantageous research. We sponsor a total of around 30
post graduate researchers, across over 20 Universities, are on
the advisory boards of over 30 University Departments and some
15 of our scientific staff hold visiting Professorships or equivalent
positions. We are currently developing a programme that will substantially
increase this level of engagement. In spite of the economic downturn
we continue our recruitment of and investment in graduates.
9. Thales believes that the EPSRC (engineering
and physical sciences research council) provides a useful mechanism
for maintaining excellence in academic research. We would highlight
the EPSRC's Strategic Relationship programme as a successful model
that should be extended.
10. Thales believes that there is further
opportunity to ensure that academic research reflects the research
needs of the industry and that it develops technology that can
be exploited in the UK. In particular, we think that greater involvement
of industry in the selection of the universities used to conduct
the research would help to ensure greater pull through of research
into tangible products and systems.
11. More generally, the incentive provided
by Government research funding is vitally important in encouraging
and growing matching inward private investment and therefore in
maintaining the UK industrial base. In turn, this helps to fund
and stimulate the university research that underpins the industry.
12. The funding rules of the Technology
Strategy Board expect the University participants to be funded
by some 80% from the 50% funding to industry. This has proven
to be a dis-incentive to industry to include universities in such
research and is a less attractive funding regime to EU programmes.
13. Thales believes that serious consideration
should be given to the creation of a UK national aerospace research
entity (physical, virtual or networked) which could become custodian
of UK national aerospace test facilities, and would also become
a focus for dispersed and duplicative regional centres for key
aerospace technologies, and a magnet for European research funding.
Q3: The impact of the recession on the Aerospace
industry
14. The main impact of the recession has
been felt through the reduced demand for new civil aircraft. This
has caused Boeing and Airbus to lower their production rate. The
reduced demand for systems, such as those provided by Thales,
has been pronounced. The drop in demand has been more acute from
regional jet-makers, whose production forecasts are typically
down 30% than one year ago. And the business jet markets are more
challenging still, with production forecasts typically at least
40% lower than a year ago. Thales believes that the Airbus-Boeing
duopoly will absorb the impact of the recession, but that restructuring
and consolidation will most likely be required in the lower tier
suppliers.
15. To make matters worse, reduced passenger
traffic has depressed airline revenues and aircraft utilisation.
As a result, airlines have postponed investment decisions (eg
the upgrade of the in-flight entertainment systems) and have also
been able to reduce the maintenance, repair and overhaul of the
existing fleet. As a result, the supply chain has suffered a double-whammy
of delays or cancellations of new equipment acquisition contracts,
whilst also suffering reduced revenues from the maintenance of
existing equipment. At the same time, equipment and system manufacturers
like Thales have needed to continue to invest heavily in new product
development, as we are required by the aircraft manufacturers
to develop the systems in advance using our own capital.
16. For Thales UK, the greatest impact has
been felt in our training and simulation business, which has taken
the full brunt of reduced demand from airline customers. At peak
demand in 2008, total orders for the UK business reached Euros
340M of which about 43% were for civil simulators, 30% military
simulators and 26% for training services. In 2009 civil export
orders have collapsed and may fall by up to 80% year-on year.
As a result we expect the business to make a very substantial
trading loss in 2009. 2010 looks similarly bleak, although we
see some prospects of recovery in 2011. This collapse in demand
has required us to announce 70 redundancies to date.
17. Somewhat unfortunately, given that military
spending is mostly governed by long-term programme commitments
and by operational demand, a drop off in military demand has also
adversely affected Thales UK—mainly a result of delays on
the A400M programme and from reductions in orders from the Middle
East.
Q4: The role of SMEs in the supply chain
supporting these two sectors
18. SMEs play a critical role within aerospace
supply chains. Their ability to provide innovative and flexible
solutions to Thales UK are significant factors in our ability
to offer tender-winning proposals to our customers. The Future
Strategic Tanker Aircraft and Watchkeeper projects are recent
examples of high profile programmes that were secured in no small
part due to the technical capabilities and service oriented focus
of our SME supplier partners.
19. As founder signatories to the SBAC's
SC21 project, Thales UK is committed to building strong, transparent,
and mutually beneficial relationships with its key SMEs and, in
the current financial climate, we are in constant dialogue with
our suppliers to identify, and where possible assist, in any short
term cash-flow difficulties that are being encountered. With Thales
UK constantly searching for ways to improve the services it offers
to its customers, the future role of innovative SMEs within the
supply chain is assured.
Q5: What barriers are there to further innovation
in these sectors and what can be done to overcome them?
20. Although effective, the UK's research
strategy has, to date, focused on structures, wings, composites
and propulsion systems. This focus risks overlooking the potential
for breakthrough innovation that will deliver major opportunities.
For example, the Single European Sky Air traffic management Research
(SESAR) programme looks likely to develop a solution that will
reduce journey times and aircraft landing queues and deliver huge
financial and environmental benefits, by using new technology
to improve European air traffic management. The UK could arguably
play a fuller role in this programme. Other areas of potential
innovation that are not currently the focus of UK research include
off-board connectivity, integrated vehicle health management and
Uninhabited Aerial Systems. In their own way, each of these areas
demands (or would benefit from) a greater integration of strategy
between the commercial and military domains.
21. In order to coordinate sector activities
better and to exert greater influence on European aerospace programmes,
many observers have suggested that the UK would benefit from the
re-creation of a National Aerospace Research Centre—which
was disbanded in the 1990s. In its absence, a number of specialist
aerospace research centres have emerged in its place (eg manufacturing,
composites, health management etc). Linking these centres together
would offer a more coherent approach to research and would allow
the UK to join EREA (Association of European Research Establishments
in Aeronautics), which is the body that influences large EU aerospace
programmes. Membership of this body is denied at present, because
the UK has no national establishment.
Q6: What steps can be taken to encourage
the application of technology development in both sectors to create
new designs, products and process in other industries?
22. Aerospace faces two concerns at present
that have universal application: the need to maximise safety and
to minimise environmental impact. The technology development necessary
to make autonomous systems safe in civil airspace will make all
aviation safer. It may also be that the development of autonomous
decision-making systems could have broader application in other
industries, eg robotics. The need to design for the environment
is driving design innovation; systems integration approaches and
concepts of operation that should at the very least have applications
across other forms of transportation. Through SESAR, the aviation
industry is also facing an unparalleled systems integration task,
which demands skills that will find application in, for example,
integrated transport systems and the development of "smart
cities".
Q7: How successful existing initiatives such
as the Aerospace Innovation Networks and Aerospace Technology
Validation Programmes have been in transforming new concepts into
marketable technology
23. The AIN (Aerospace Innovation Networks)
activities have contributed at the lower technology readiness
levels, but the real traction has been in the ATVPs (Aerospace
Technology Validation Programmes), which are strongly aligned
to the UK's main three technical aerospace research priorities
of New Single Aisle, Helicopters and UAVs.
OTHER COMMENTS
24. Unlike many other industrial sectors,
the aerospace industry is dominated by projects that have long
gestation times and which demand significant up-front investment
from large global companies. The decisions of where to place that
investment are heavily influenced by the R&T investment and
the availability of skills within a given country. It follows
that the most important step in attracting production investment
is to invest in the research base. The UK has made a commendable
investment in university research, but there remains much scope
to attract additional industrial capability to the UK in productive
areas of applied research. By way of example, the recent High
Value Manufacturing call from the Technology Strategy Board (budget
£21m) was 10 times oversubscribed from industry, indicating
that there are many more good ideas looking for investment than
available funds. Universities turn money into ideas. Industry
turns ideas into money. The British economy needs both working
in harmony to flourish in the future.
25. There are important differences between
motor sport and aerospace that come down to differences in business
domain rather than scientific discipline. Aerospace products or
programmes are typically delivered to companies that demand high
levels of capability and support. This means that aerospace R&T
must be conducted against an expectation of rigorous safety and
reliability requirements with an expectation of financial penalties
if the time and capability is not achieved. Although speed is
still of the essence, risk becomes much more prominent, and the
R&T cycle time needs to feed a thorough industrialisation
process.
30 September 2009
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