Examination of Witnesses (Questions 172-225)
Q172 Chair: Good
morning, and thank you very much for agreeing to speak to us.
Will you just introduce yourselves for transcription purposes
and voice levels?
Graham Chisnall:
My name is Graham Chisnall. I am managing director of ADS, which
is the trade association that covers aerospace, defence, space
and security.
Stephen Phipson CBE: I
am Stephen Phipson, president of Smiths Detection and vice-president
of security within the ADS trade association.
Katherine Bennett OBE: I
am Katherine Bennett, vice-president and head of political affairs
for Airbus worldwide.
Bob Keen: I am
Bob Keen, head of government relations for BAE Systems.
Q173 Chair: Thank
you very much. Perhaps I may start off with the reverse of the
question I asked the representative of Boeing. Given the lawsuits
flying around internationally between Boeing and Airbus, how does
Airbus feel about having a Boeing representative as a British
business ambassador?
Katherine Bennett OBE: I
have to say it caused a few raised eyebrows in our factories in
Bristol and Broughton. On Friday I spoke to our Unite convenor
in Bristol. There was some surprise but, listening to Sir Roger,
I could not really disagree with a lot of what he said about the
importance of promoting technology and aerospace. We shall have
to be very careful in any briefings we provide to UKTI on Airbus
sales campaigns, but it was an interesting appointment and we
look forward to working with all the business ambassadors. There
are three others from aerospace and defence as well, so we are
used to working together on a lot of these issues.
Q174 Chair: You
have hinted that there might be some difficulties for you.
Katherine Bennett OBE: A
lot of the time in our work with UKTI, when the Minister goes
abroad we provide briefings on sales campaigns. Therefore, if
Sir Roger is on a particular trade mission where there is a big
sales campaign going on obviously we would not particularly want
him to be involved. Aside from that, developing aerospace SMEs,
British technology etc., etc., is a message we would share, but
maybe we need some levels of secrecy, careful briefing and so
on.
Q175 Chair: It
would be unfortunate, given the ambassadorial role to sell British
manufacturing, if a key British manufacturer could not provide,
if you like, the necessary briefs and back-up to enable the ambassador
to do that.
Katherine Bennett OBE: We
would provide briefings on sales in terms of supplier relations,
but we would not be providing briefings on any sales issues.
Chair: This is not a criticism
of Airbus; it is just a comment on the situation, which is less
than satisfactory.
Q176 Mr Binley:
This concerned me right from the beginning, quite frankly. I
think that your interests need to be protected. Maybe our Great
British civil service has missed a point here. Would it be helpful
to you if this sensitivity, particularly in relation to sales
to overseas markets, is highlighted? I think there is a degree
of sensitivity, which perhaps has been missed and it might be
useful if we highlighted that.
Katherine Bennett OBE: I
am treading carefully because there's an element of "She
would say that, wouldn't she?"
Q177 Mr Binley:
I agree with you.
Katherine Bennett OBE: Frankly,
as I said, Sir Roger is a very able business man and former diplomat;
he has a lot of strengths. It is no particular comment on that,
but if the Committee would like to highlight it then, yes, we
would welcome it.
Q178 Chair: Before
I bring in Graham Chisnall, yes, you would say that, but it is
fair to say so would we.
Graham Chisnall:
There is nothing really unusual about that in the industries in
which we work. For a long time now we have got well used to competing
on certain programmes and partnering and co-operating on others.
There are fairly well established practices about how to keep
Chinese walls between these kinds of arrangements. I think it
could be overplayed as an issue in that regard.
Q179 Mr Binley: Well,
that is our judgment, is it not?
Graham Chisnall:
Yes.
Q180 Gregg McClymont:
Together you represent a British success story, it would be fair
to say. First, what is the secret of your success?
Graham Chisnall:
I think we are an outstanding British success. We represent about
20% of the advanced engineering and manufacturing sector by value
in the country; we turn over about £60 billion a year; we
have about 500,000 employees; the average salaries in our sector
are higher than the manufacturing average, and so on. These successes
are not built overnight. For example, the commercial aerospace
field sailed through the recession and grew employment and salary
levels all the way through and is now growing very rapidly again,
but it is building and delivering products that depend upon investments
that go back 25 years or more. I think that Sir Roger in his
evidence tried to indicate quite strongly that the research and
technology investment that led to this outstandingly successful
set of sectors needs continuous replenishment. Aerospace is, probably
more than any other manufacturing sector, truly global. The large
companies choose their suppliers on a global basis almost without
regard. If we are to maintain our share of that future prosperity
and growth we have to do the research and development now that
captures the next programmes. Therefore, it is research and development.
We have good skills. There are concerns about skills which I
am sure we will talk about in due course, but we are an educated,
highly skilled population and we have some very good, big companies.
As you heard from the previous testimony, a lot of this sector
is driven by the success of big companies that go out there and
capture long-term big contracts. This is a very long-term business.
It is about capturing large-scale contracts which, certainly
for aerospace programmes, can then run on for 30 years in terms
of the manufacturing and support afterwards.
Stephen Phipson CBE: If
I may add a point from the security perspective, it is a relatively
new sector in terms of defining a sector for ADS and industry
as a whole. I think three things underpin our success in a rapidly
growing market. One is innovation, which is our preserve: we
are seen as a world leader in terms of security technologies in
this country. That takes me to the second point. We have a long
track record in counter-terrorism and experience industrially
as to how to cope with that. Third, something to be recognised
here is our very strong counter-terrorism strategy, as produced
by the Home Office, CONTEST, which is seen as a world-leading
model for how to deal with this in many countries around the world.
Therefore, they look to British industry to supply the technology
to support that and it really does help. It is a fantastic export
tool for us.
Q181 Gregg McClymont:
Perhaps I can ask Katherine and Bob what the basis is of our success
in this field.
Katherine Bennett OBE: I
will not repeat it, because I agree with what has been said.
Engineering is the crown jewels: the aerospace engineering in
this country, whether it is BAE Systems, ourselves, GKN or Spirit,
the aerodynamicists or the very clever fuel integration experts.
Why are they here in the UK? It is a historical thing. The
most important thing is that we need them to remain here by supporting
them through infrastructure, investment, etc. It is hard to create
new aerospace engineers. They are educated at our universities
but also abroad. There is a core base of them. We have a slight
fear, as Graham said, that perhaps it is slipping away. We need
to maintain it and keep the momentum going.
Bob Keen: To look
at some of the specifics of the defence sector, BAE Systems is
the largest manufacturing-based employer in the UK. We employ
about 40,000 people here, about half of whom, to reinforce Katherine's
point, are engineers. Engineering is absolutely at the core of
our company. Of course, you do not succeed without terrific products,
and we think we have terrific products. In the export market
the defence sector is different from the commercial one, in the
sense that all of your customers are Governments. Therefore,
it is not just good enough to have terrific products, absolutely
necessary though that is; you also require absolutely joined-up
support of the British Government because the overseas customer
is buying into the relationship with the UK Government. The key
to our success has been strong political support; it has also
been strong support from the UK Armed Forces, the reputation of
which is absolutely a key discriminator for the UK in the defence
market. Therefore, in addition to all the stuff that the other
panellists have said I would highlight those key issues as being
important for our success in the export market.
Q182 Gregg McClymont:
Finally, is it fair to say that this British success story across
these sectors involves a closer, entwined relationship between
the state and the industry relative to other sectors of the economy?
Graham Chisnall:
Absolutely. There really is not a completely open, pure market
in that sense with any of these sectors. They are either heavily
influenced by Government or Government is the market. That is
clearly so in defence products, but even in the field of commercial
aerospace the Chinese Government centrally procures its airliners
and allocates them to the airlines. Therefore, it is impossible
to access the growth prospects and maintain the prosperity we
currently generate without working very closely with the Government.
Bob Keen: One additional
point is that in the UK defence sector the Government is also
our customer. For us, our future exports are absolutely predicated
on sustaining capability in the UK; in terms of military aerospace,
making sure that we have UK-based products that we can take into
the export market is absolutely crucial. For the long term the
key objective for us is to have, in the maritime sector, Royal
Navy ships that we can take into the export market in a way we
have not really successfully been able to do in the past. For
us it is an absolutely symbiotic relationship with the UK Government.
Stephen Phipson CBE: If
you look at the security sector the majority of our export customers
are related to the Ministries of the Interior in foreign Governments,
so that relationship is a key part of how we sell. It is about
products and innovation but also the relationship with those government
agencies is very important going forward.
Katherine Bennett OBE: I
once heard a great quote, Gregg: aerospace is politics with wings
on it. The two parts are totally interlinked, whether we like
it or not sometimes. Before joining Airbus I worked in the automotive
sector and there was nowhere near the amount of involvement.
The most important thing for us in the industry is to work with
that the right way. Sometimes it can get in the way but it is
usually beneficial. Therefore, the two are definitely interlinked.
Q183 Gregg McClymont:
You may have heard at the beginning of the previous evidence session
a reference to our loss of mercantile spirit, but mercantilism
as properly defined seems to be exactly what this sector has been
doing for many years.
Graham Chisnall:
I think that is true. We have a track record of being very proactive,
taking a very long-term view, developing well in advance of others
key technologies and spotting market opportunities that generate
very long-term pay-offs.
Q184 Margot James:
What would you say is the main hurdle that holds back exports
in your field?
Graham Chisnall:
We export very successfully. 70% by value of aerospace products
out of the UK is exported. I think we have a very strong track
record. One could always do more, and some of the evidence you
took earlier pointed to some of those issues. It would be nice
perhaps to have a bit more of a joined-up plan that brought together
the various facets of ministerial visits to countries, efforts
going on by members of the industry within those countries and
so on. We are working hard at that. There is a reference in
your questions to ambassadors' packs and so on. I think we are
improving on that as we go along. Inevitably, there is an issue
about finance aid. This is a global business with global competition
and everything must be looked at relative to what other countries
are doing in offering their own domestic suppliers and so on.
We have some very good organisations in place. UKTI does a super
job. We work very closely with them. There are concerns about
the future funding of some of these enabling organisations with
which we work closely and on which we depend.
Q185 Margot James:
We saw in the written evidence that there was a fear about theft
of intellectual property essentially in exporting to some markets.
China was a market mentioned often in this context. To what
extent is that a problem for your industry? Is there anything
that the Government can do to help you deal with it?
Graham Chisnall:
We are a very high technology industry. All companies that work
in this area have very strong IPR protection policies. It is
a very rapidly moving feast on the technology side. I think the
first thing to say about IPR is that if you are trying to protect
IPR you generated 10 or 15 years ago you have probably lost the
plot because your future business is not coming from it. Therefore,
staying ahead of the game in this global technology race is absolutely
vital. Future business is driven by your R and T programmes that
you are now engaged in, not your R and T that you had in the bank
for 10 years or more. On the defence side, I hand over to my
British Aerospace colleague to talk about that in particular and
the security side.
Bob Keen: From
a defence perspective, exporting to any new customer obviously
gives rise to a risk that you will lose intellectual property.
In defence particularly the Government have an interest in ensuring
that any intellectual property does not give rise to concerns
about national security. We have been pretty good at managing
that and making sure we address the needs of our overseas customers
while we ensure that the UK Government are happy with what
we are doing. If you look at our record in comparison with others,
our ability to transfer technology to new markets has been a key
discriminator for the UK. For example, if you look at what we
as a company have done in Australia, the Kingdom of Saudi Arabia
and the United States, our ability to transfer technology has
been a key issue in achieving export success. There is a risk,
which in the defence field certainly needs to be managed, and
for us that requires a close relationship with the Government
to make sure that their interests are properly protected.
Q186 Margot James:
Mr Keen, perhaps I may ask you a follow-up question as you represent
one part of the defence industry. Some of us sit on the Committee
on Arms Export Controls. We had a session at the end of last
year with representatives of your industry who were very critical
of the export licensing system of BIS. What is your view of that?
We heard a lot about bureaucracy, delays and all sorts of things.
Would you like to comment on that?
Bob Keen: Export
licensing is a perennial issue. The targets which BIS have in
meeting export licences have varied over time and there have been
varying degrees of success or otherwise. For us, at the moment
we are managing it and it is not an overriding issue in achieving
success in the export market, but the process is a pretty cumbersome
one and involves the MoD and other organisations. Therefore,
managing that process is a difficult task. It is not an overriding
issue for us but we have to keep our eye on it constantly and
keep pressure on the organisations involved to ensure that our
customer-facing requirements—getting bids in and exhibiting
equipments—are properly met.
Stephen Phipson CBE: If
I may add a comment from the security sector, we are a rapidly
growing sector. Our sector is due to double in size over the
next 10 years. Looking back over the past 12 months, we have
seen approximately a 14% increase in exports from the UK most
of which have to go through export control. The Export Control
Organisation within BIS is critical to that. We need to realise
that if this continued pace of expansion and export is to be maintained
we must ensure they have sufficient resources to be able to service
these export control requests in a timely fashion, and that is
something that concerns us.
Q187 Chair: Just
on that point, you said there had been an expansion of about 14%.
Was the licensing system an impediment to even greater expansion?
Is this in spite of or because of that?
Stephen Phipson CBE: My
sense is that we are reaching absolute capacity in the system
we have. If we are to continue our export drive we need to make
sure they have resources to be able to do it properly. Export
control is very important to the country but we need to make sure
that those resources do not start to hinder the drive for exports.
Q188 Chair: What
you are saying—I do not want to put words into your mouth—is
that in effect this an expanding market that is potentially huge
and we have reached the limit of our ability to process applications
in time to capture the full potential of it. Is that reasonable?
Stephen Phipson CBE: That
is a reasonable statement.
Q189 Nadhim Zahawi:
Before I ask my question I want to pick up Stephen's point with
a particular example where the end user licence was delayed for
a UK manufacturer to deliver a security product to the Ministry
of Home Affairs in Iraq; the Germans provided the same equipment
because their end user licence came through quicker and the customer
was under time pressure. Is that your experience?
Stephen Phipson CBE: It
is. If you look at the differences between defence and security
one of them is time. We need to respond quicker to these types
of inquiries, particularly for Ministries of the Interior in those
sorts of examples. We need to keep that in mind and have a system
that is responsive. Sometimes there are very good reasons why
we do not grant export licences or there needs to be further investigation
before we do. We need to make sure, however, that the resources
are there, and our fear is that we are now at maximum capacity.
Q190 Nadhim Zahawi:
I think Katherine has already mentioned it, but in your submission,
Mr Chisnall, you highlight the importance of a skilled worker
base to create the products that are worth exporting. How much
of a concern is this for you? Are you worried by the proposed
changes to the immigration rules?
Graham Chisnall:
It is a worry. We are worried about the changes to immigration
rules. We are a high-tech business and depend upon a high level
of skills at both graduate and technician level. We do not have
enough of those in the industry, and it hampers growth prospects
to a degree. In our submission we said that 6% of those who graduated
last year from British universities were engineering graduates;
in Singapore it is 40%. 25% of graduate engineering positions
in companies last year went unfilled. This seems to be a system
that is not in balance with need and demand. We also have the
issue of ageing in the sense that a lot of our critical skills
depend upon people who will retire in the next 10 or 15 years.
There is concern about skills and the capability of the skills
that come out of the education system these days, and we have
also made submissions on that.
Coming to the issue of immigration, in an ideal world
it would be wonderful if all our needs were supplied within the
UK through the UK education system. We hope that effective measures
will improve the numbers and quality of students who come through
the system, but if the prospect of improvement is there it will
take quite some time to generate the numbers we need. We depend
greatly on highly-skilled people. We use both intra-company transfers
and those who come in to do particular specialist jobs. Changing
the rules on that and significantly reducing the number of those
in a very short period of time causes skill shortages.
Katherine Bennett OBE: I
absolutely agree with what Graham says about engineering skill
shortages. It is a duty on all of us within aerospace and defence
to do our bit to show that engineering is a great job. God, I
wish I could have done it. The engineers I work with love finding
solutions; they are very clever and creative. My colleagues from
other parts of Airbus in other countries admire British engineers
because they are very pragmatic and are good at being diplomatic.
Sometimes you need that in international companies. We do our
bit working with what is called the Pegasus universities, which
are those that specialise in aerospace. I know lots of other
members here. We do competitions with university students to
promote aerospace and engineering. Last week there was the launch
of an advanced manufacturing strategy at which the Deputy Prime
Minister said that perhaps people did not realise engineering
was quite well paid. You do not always have to go to the City.
Therefore, we need to do our part to promote it. As Graham said,
there is a problem with the highly skilled, perhaps those people
who have two or three years' experience.
Leading on to the issue of immigration, it is a really
big problem for us. The immigration rules have been changed.
The problem is that we have made offers to people and the Home
Office are not answering calls. We have written a letter to the
Border Agency which has not replied for seven weeks; we have made
representations to Ministers. They are listening. I appreciate
the issues about immigration but it is really affecting us who
need highly-skilled people. There are only one or two lightning
experts in the world and sometimes we have to bring them in to
work on our wing issues. Don't get worried about that, but it
is something which we have to get engineers to help on. We talked
about composites earlier, which is a very specialist area, and
we do not always have composite stress engineers at home, much
as we would love to. We spend £3.5 million a year on training
our UK engineers. As to immigration, I have never had our HR
director on my back as much as I have in the past few weeks on
this issue, so we would really like the Committee to look at this.
Q191 Nadhim Zahawi:
To probe it a little further, it is worrying that the Home Office
does not respond to Airbus for seven weeks. Is there no discrimination
in terms of applications, i.e. those that come from bona fide
corporates like yourselves?
Katherine Bennett OBE: Maybe
they are just inundated with applications because of the changes.
We are not talking here about massive numbers, but it goes back
to what we are all talking about today: the perception of the
UK overseas. Are we a really burdensome bureaucratic place in
which to do business? This is just not helping. We are happy
to continue to make representations in the usual way, and we will
get through it. BIS have been listening and Vince Cable has been
supporting us word-wise, but we need some action because we want
people to do work on Airbus products whom we just cannot bring
in.
Bob Keen: To say
a word about our position, generally speaking in the short term
perhaps we have less concern about skills in our company than
perhaps others, largely because we grow our own. We have 1,000
apprentices and 400 graduate trainees in the UK in BAE Systems
at any one time. We run the largest apprentice school in Scotland
and the North West. Therefore, we have a pipeline of youngsters
coming through. The concern is about the long term. As to Katherine's
point about doing our bit, clearly we have a responsibility.
We are out there with schools roadshows on a regular basis. We
sponsor the Big Bang. In general terms, working with universities
for example, we have been trying to shape the diploma of engineering
to make sure it meets the long-term needs of industry. But there
is a long-term concern about skills in the UK. We have to find
a way to enthuse youngsters about engineering, science and technology.
We have a collective responsibility to do that and I think the
Government have to set the right education framework to make sure
we have the right people for the long term.
Q192 Nadhim Zahawi:
Just to push you a little further on that, you mentioned the Big
Bang. Do you think BIS has the right STEM strategy in place?
Bob Keen: Broadly
speaking, I think so. The Big Bang is obviously a good example;
thousands of kids in Manchester last year had an opportunity to
see what engineering could offer. But constantly pressing the
education point is something we have to do. I do not think they
are far wrong. Others, perhaps Graham, might have a different
view.
Graham Chisnall:
I should like to make a point that is related to that. There
are people who work in this space to encourage youngsters to consider
STEM-based careers. I chair the largest national charity that
does this. It brokers relationships between companies and schools
and has a fantastic uptake of girls. 40% of girls go onto these
schemes, and 90%-odd of these students go on to do a STEM-based
career. There are some very effective mechanisms. One thing
of which we would like a bit more recognition in this space is
to build on what is already working there rather than, as seems
to happen so often in this space, reinvent the wheel. The newest
bicycle is always the most attractive. There are things that
can be built on in that space. It is not a completely hopeless
situation in that case. We can enthuse youngsters when we show
them what engineering really is: that it is creative, exciting
and very well remunerated these days in this country. We just
have to do it on a much broader scale.
Q193 Nadhim Zahawi:
I absolutely concur that there is no point in having just another
new initiative, but learning from experience of what works and
what does not and supporting things that work is probably right.
What is the charity to which you referred?
Graham Chisnall:
Thank you for the question. The charity is called EDT. You will
not have heard of it, but EDT stands for Engineering Development
Trust. Its website is etrust.org.uk. It runs a number of programmes
for different age groups. The one you may have heard of is Year
in Industry, which is the programme it does for gap year students.
Stephen Phipson CBE: Just
a small point. If you look at the security sector in particular,
we have about 8,000 companies in the UK involved in it, the majority
of which are innovative SMEs. The support for new people coming
into those industries is vital for the lifeblood and growth of
those going forward. We have seen an increase in companies trying
to invest in their own apprenticeship schemes as well over the
past couple of years. We have just heard of the BAE example,
but, on a much smaller scale, many of these companies are trying
to do those training programmes themselves as well. Of course,
the funding and support of those is also vitally important to
stimulate this innovation going forward. Therefore, the point
about SMEs is important.
Katherine Bennett OBE: To
add one thing on apprenticeships, it is interesting how they are
developing, especially some of the challenges presented by university
tuition fees. Last Saturday in our factory in Broughton in North
Wales we had an open day. 4,000 youngsters and parents came.
Maybe they wanted to look round the fantastic factory, but they
were interested in engineering and manufacturing as a career.
4,000 people came to our factory on Saturday, so some good messages
must be getting through.
Chair: Nadhim, just before
you continue, Katy Clark has to leave soon, so I invite her to
ask a question then we will come back to you.
Q194 Katy Clark:
The question I wanted to ask is about finance. We have been told
that Airbus is calling on the Government to press commercial banks
to provide financing for airlines so that the percentage of the
export credit agency's support that is required is reduced. Can
you comment on that and outline whether you think there is a greater
role for private finance particularly for exports?
Katherine Bennett OBE: To
be clear, ECGD is a guarantee to bank loans to our airline customers.
The rates at which we used ECGD for our airline deals last year
went up considerably because of the economic issues. Airbus would
much prefer it if our customers were able to go to the banks directly.
We sometimes support them as well. Sometimes the demand goes
up when there is an economic crisis in world finance as there
has been. If you are asking about other sectors and why they
do not get more support, we would not have a problem with that.
I believe that the chief executive of ECGD, Patrick Crawford,
is to come before you soon, and that is a question to put to him.
From the perspective of Airbus, we are very pleased with the
support we get from ECGD. 34% per cent of our deliveries last
year were through export credit and the procedure went well.
We have had some challenges, but other sectors should apply, as
I said. I also understand from ECGD that other sectors went down
last year because of exactly the same problem—the economic
crisis—so maybe some of the big infrastructure problems
like dams in overseas countries that construction firms in the
UK would apply for just have not happened. Therefore, it may
arise just because of the present economic situation.
Q195 Katy Clark:
Do you think that it is just to do with the economic situation
we have been through, or is there a general issue about commercial
banks being unwilling perhaps to back aviation projects whereas
other sectors might find it easier?
Katherine Bennett OBE: I
cannot put everything down to the economic crisis, but we work
very closely with the banks; we keep them informed of aerospace
business. Maybe Graham has some comments on private finance looking
at aerospace. As we have all said, it is a very long-term industry.
Our products take 10 to 12 years to design, so lots of venture
capital funds or private investors will say, "Oh, that's
a long payback time. We won't bother with that. " It is
a message we have to get over. We have talked a lot to the Treasury
about the need to remind people that Airbus and aerospace is a
good bet; it is a risk worth taking, but maybe it has a longer-term
payback.
Chair: Nadhim Zahawi wants
to come back.
Nadhim Zahawi: I am pretty
much done. The way the panel was animated over the skills agenda
leads me to believe that that is an area for us to focus upon.
Q196 Simon Kirby:
I am very interested to listen to the four of you today. You
share a lot of common ground. We understand that defence and
security have their own separate part of UKTI, which is conveniently
called the Defence and Security Organisation, but aerospace sits
outside within advanced engineering. Surely, that is not sensible,
or is that the best way forward?
Graham Chisnall:
For us, the question is: who is the end user and customer? It
works fine. The defence and security customer base is a very different
one from commercial aerospace, so from that point of view we see
no problem with that separation. One aspect of which we would
like more recognition is that defence very often gets overlooked
in terms of its advanced manufacturing and engineering contribution
to that sector. Therefore, some recognition that defence is in
itself of very advanced manufacturing value and a contributor
and generator of high-value jobs would be a step forward from
that point of view.
Q197 Simon Kirby:
Perhaps I may ask it from the other side: aerospace.
Katherine Bennett OBE: I
have to declare an interest. I sit on the advanced engineering
board of UKTI. We talk about defence quite a lot in the board
meetings I go to. Airbus is owned by the defence company EADS,
so I see a lot of defence issues on the table. My defence colleagues
in EADS work closely with DSO. There is a bit of interconnectedness,
although we once made the general comment that there could be
better coordination. As to advanced engineering, I sit round
the table with crane manufacturers and high-end automotive engineers
like the gentleman from the motorsport industry earlier. There
are lots of common issues, as we talked about before. Composites
are used by all sectors, so it makes sense for us on the civil
or commercial side to sit round the table with those people.
As to UKTI, they have aerospace experts based in Glasgow to whom
I talk regularly. They follow the sector and issues. They ring
me up and sometimes tell me things that I do not know are happening
within my own company. They do make an effort to follow the issues
in the right way, but I appreciate that having two separate organisations
may bring some challenges. I will let Bob answer on defence.
Bob Keen: From
our perspective, to echo Graham's point, defence and security
is very different from the aerospace sector. The overseas customers
are Governments. For all the reasons I outlined earlier, the
kind of support we need is different from the needs of the civil
aerospace companies. I think there is perfect logic in keeping
the two organisations separate.
Q198 Simon Kirby:
That is quite clear and once again unanimous. We have common
ground even when we do not have common organisations. ADS says
in its submission that there is concern that a reduction in BIS's
budget could pose risks to the UK's export agenda. What do you
mean by that? Can you elaborate on the risks that are posed?
Graham Chisnall:
They fall into two areas. First, we have a national aerospace
technology strategy that has been in place for about five years.
It is a very thorough piece of work which has been adopted by
both BIS and industry and is funded jointly by them. These days
the BIS funding tends to be via the Technology Strategy Board.
As you heard in the previous session of evidence, we have to
maintain that R and D funding in the sector if we are to win a
similar market share on the next programmes. There are obvious
concerns in the current climate given the state of the Government's
finances about how we maintain that momentum, which we consider
absolutely vital. The second area of concern is about the enabling
mechanisms that BIS has in place like the export credit organisation,
ECGD funding mechanisms and so on, because we all want to grow
our exports but we have to will the means as well as the end.
It will hamper our growth prospects if the cuts come through
in the way we touched on earlier in terms of getting timely export
approvals in place and so on.
Q199 Simon Kirby:
Therefore, if the Department is not careful there are specific
areas that are more risky than others?
Graham Chisnall:
Yes.
Q200 Simon Kirby:
It is not the concept of cuts per se that presents a risk but
where those cuts fall within the Department?
Graham Chisnall:
Yes, absolutely. We understand that these are straitened times
and resources are not necessarily all that we would wish them
to be, but that just emphasises the need to make sure that you
put your resources where they contribute the most. If export
is one of the highest priorities then one has to pay attention
to those enabling mechanisms.
Q201 Mr Binley:
One concern that I have pursued since I came into Parliament is
the SME sector. You are pretty much dependent in your supply
chains on that sector. It tends to have great difficulty in opening
up new markets. It is reasonably well established in the EU and
North America, but the emerging markets are a real problem to
them and yet you are there. How can those SMEs be helped to move
away from the safety zone and open up those new markets to allow
them to grow and provide the jobs that will justify the growth
agenda, quite frankly? How can you help them? Can you piggyback?
Can you do other things and, if so, are you doing them? In what
areas can you work to help them in that respect?
Graham Chisnall:
We are doing a lot of things. The first thing I want to get across
is that the supply chain within aerospace and defence is the best
outside the United States and it is a national competitive advantage.
I firmly believe that we get business from the big global primes
because we have such a strong supply chain in the country. To
maintain the health of that is an absolute priority. We are doing
a number of things. There is a strong impetus to try to help
SMEs cluster together so they can group their natural capabilities
and be able to do larger jobs, and there is inexorable pressure
on them from their customers and their customers' customers to
group together, be more efficient and have one contract rather
than five and so on. Therefore, clustering is an important thing.
We in ADS on behalf of our members have submitted proposals and
requests to the regional growth fund that BIS has set up aimed
specifically at putting in place mechanisms to allow SMEs to develop
and exploit technology to capture more market share. One part
of that would be more export business through those mechanisms.
The other thing is that within the sectors in which we work the
supply chain must be seen as an entity in itself. No one part
of the supply chain can operate independently of the rest. Therefore,
enabling the big, medium-sized and small companies to extend themselves
overseas will be vital going forward. Funding is an issue. The
further you go down the supply chain and get to the SMEs, funding
still hampers their ability to make the investments necessary
to extend themselves offshore.
Q202 Mr Binley:
Perhaps I may pursue that point a little further. Are you talking
about working capital to sustain growth? Is that a problem for
them?
Graham Chisnall:
I think it is working capital and investment in new products and
processes and also in opening up new markets. It costs money.
If you are a small company, £50,000 just to try to open
up a business line in Brazil or somewhere, particularly at this
point in the cycle, is something you shy away from. I think it
is all of those things.
Q203 Mr Binley:
Forgive me for my final point on this issue which is vital in
this place. Are you saying that despite all the fine words our
banks do not understand the need in real terms?
Graham Chisnall:
We have gone on record a number of times in a lot of different
forums as saying that access to appropriately priced funds is
still an issue for our SMEs.
Q204 Mr Binley:
Let me push the two large companies on the whole point about helping
people in their supply chain to open up new markets that are there
and we can exploit but need some help. How can you do that?
Bob Keen: I should
make a general point. Using Katherine's earlier point—"I
would say this, wouldn't I?"—the reality is that our
success in the export market benefits our supply chain hugely
in the UK, so that is not to be overlooked in all of this. We
can and do help our supply chain to develop relationships in a
number of our markets particularly where we have an established
indigenous position. We are already doing that. Although this
is perhaps not quite your point, I also believe that UKTI can
help smaller companies with some of the entrées to markets
that they need. Some of this is pretty simple; it is understanding
the marketplace and local industrial scene and putting them in
contact with the right people. I see some of that happening.
It might not be to the degree that you or I would want, but ultimately
it is for the SMEs to make the risk/reward calculation of whether
or not they want to invest to develop a position in a new market.
From our point of view, the marketing costs of developing a position
in a market in which you have not operated can be very significant
even for a company the size of BAE Systems, so ultimately it must
be for the SMEs to decide.
Katherine Bennett OBE: From
the perspective of Airbus, we have 2,000 suppliers in the UK.
That is probably not as many as BAE Systems, but 2,000 is a lot
to look after in terms of helping all of them to get into emerging
markets. I agree with Bob that our success reaps success for
them, too. We are very supportive of the new supply chain development
initiatives that Graham has outlined. A good example is China.
We have built a final assembly line in China. The UK took wing
work to China. These are wings that will go on Chinese aircraft,
so you can see some of the politics at play there. But we encouraged
UK suppliers whom we desperately needed alongside us to develop
in China as well. Therefore, when we are working on a particular
project we do all we can to help them. To take a step back and
forget the subject of the inquiry for a minute, for SMEs to get
business from Airbus they need to be run efficiently and have
top-level management. So many times my procurement colleagues
say to me, "Please say to Government we need to help SMEs
have better management; they need to study more about balance
sheets, etc." That is where they often lose out with companies
abroad. We have some very strong first-tier suppliers in the UK
and we need them to continue and grow.
Q205 Mr Binley:
You raise a very important point about the basic need to have
a monthly P and L, aged debt analysis and cash flow analysis.
I understand that all of those things are absolutely vital, but
should not the banks be playing a much more active role in this
and they are not doing it?
Katherine Bennett OBE: I
tried to mention that earlier. I have noticed it also in the
automotive sector. We often need investment in our SMEs to help
them win business from big companies like us and encourage them
to get them into partnership with each other, perhaps by means
of more consortia, etc. The R and D process in the UK encourages
that now; lots of bids are being put in by companies working jointly.
Some of the UK companies are so small that they are often like
third-tier suppliers to us. Maybe conglomeration and more business
management can help, but we do not have a particular point to
make about banking and finance here.
Q206 Mr Binley:
I was talking about banking and education.
Katherine Bennett OBE: Yes.
Stephen Phipson CBE: From
the security perspective Smiths provides a lot of the security
systems to the US Government. You see it in all the airports
and DoD. In many of those arrangements increasingly companies
like ours team with SMEs and take them into those programmes.
In particular, the US Government is a large funder of R and D
in the security sector. We have been able to benefit a number
of SMEs in this country by bringing them into that programme.
It helps us as a company and helps the SME base. That teaming
arrangement and the role played by the trade association in making
sure the rules of engagement around that are clear is important.
Another point I make is about UKTI. If you look at DSO and security
in particular over the past two years of focus, bearing in mind
it is a new focus and new sector, there has been a high degree
of focus on encouraging SMEs in export markets, being able to
provide for them the right kinds of facilities. As we have said
numerous times here, it is very difficult and expensive for an
SME to go to India to try to get a major contract from the Ministry
of Home Affairs there. DSO has been working through some very
good tools to enable SMEs to be successful in those environments.
A number of trade shows and relationship building events are
tailored specifically to those small companies. It is important
to encourage that to go forward.
Q207 Mr Binley:
You are producing ambassador packs. You have not sent them out
yet.
Graham Chisnall:
Not yet, but I have one you can have a look at.[1]
Q208 Mr Binley:
That would be very helpful. In my travels I have found that the
whole issue of the effectiveness of UKTI in a given country is
almost entirely dependent on the quality of the individual staff
in that operation. I have found tremendous differences in quality.
One connecting point is that where people have had business experience
they are usually better at the job than those who have not had
that business experience. Is that your view? How can we encourage
more business people to get into UKTI, and when will you send
out the packs?
Graham Chisnall:
The packs are going out as we speak. We are doing them by priority
country. They will go through a series of information, such as
what are the opportunities in that country and who within our
supply base would benefit from those opportunities and so on;
and there is some information about who the actual agents are
in that country who would be holding those opportunities. Therefore,
the aim is to encourage a much broader campaign of joining up
all the dots on this, which I think was touched on in the previous
conversation as well as this. We think that a lot is to be gained
by getting a plan in place country by country which is specific
about the objectives we seek to achieve in that country, and then
focusing ministerial visits through that process where industry
gets a good view of the ministerial visit rather than one at short
notice. We have a joined-up programme between industry, UKTI
and the main Government Departments, so there are clear objectives.
There is a pack of information about those objectives and what
we are trying to achieve jointly through those various initiatives,
and we can see ahead by, say, 12 months as to who is doing what
around those objectives. I think that is achievable and would
be a significant step forward.
Q209 Chair: Before
we move on, can I pick up two things? First, you compiled these
ambassador packs. Do you think it would be helpful if ambassadors
had business packs?
Graham Chisnall:
Basically, these are business packs; they are exactly that.
Q210 Chair: To
clarify what I mean—I put it in shorthand—as I understand
it, you are assessing what your industry has to offer a particular
country. What I am trying to get at is: would it not be helpful
if ambassadors, the Diplomatic Service and UKTI had a pack demonstrating
the business opportunities in the particular country and proactively
tried to get British business to meet them?
Graham Chisnall:
It would certainly be highly beneficial if we could achieve a
joint view of the opportunities in a particular country and both
contributed to that view.
Katherine Bennett OBE: They
do do that. I was in Brazil last year and contacted the São
Paulo consulate which sent me brilliant information, often on
SMEs actually. It contained useful things that I did not know
about and was very useful. The point I would really like to make
to the Committee in this Inquiry is the importance of ambassadors
working together—so, the French, German, Spanish and British
ambassadors: the four Airbus home countries—on sales campaigns,
because that is so powerful. As you said, Mr Bailey, we need
eyes and ears as to what is going on in that country.
Q211 Chair: In
a way, you are making my point. You contacted the embassy. Is
there a role for embassies to identify market opportunities and
then proactively look to get British businesses to meetings?
Katherine Bennett OBE: Yes,
and to a certain extent they are doing that. In two weeks' time
there is an event in Mexico which a high-level Government Minister
is to attend working with Airbus. That came about as a result
of the Monterrey consulate contacting us, which is great. I have
been going on and on to the British Government about how they
need to be a little more aggressive and proactive. Therefore,
they do it but certainly more of it should be encouraged.
Bob Keen: On your
point about people, if you get the right people in an embassy
the extent to which they can help British industry in that market
is huge. There is also the trickle-down point. You talked to
Lord Powell earlier about the extent to which government emphasises
trade as a key part of a foreign mission. It is absolutely essential
that ambassadors see that role as being just as important as their
traditional diplomatic one. I think that is absolutely crucial,
but in the end people are the medium through which industry, particularly
SMEs, gets access.
Q212 Mr Binley:
Would your company consider secondment to UKTI? Do you do that?
Katherine Bennett OBE: Yes.
Q213 Mr Binley:
That happens quite regularly. Is it working well?
Katherine Bennett OBE: Yes.
I know that when BAE Systems owned part of us there was a gentleman,
with whom I have worked quite a lot, who worked in the embassy
in Japan for a year and then went back to BAE Systems. UKTI really
liked working with him. We have been looking at other opportunities.
Bob Keen: To be
honest, it is not as easy as it sounds. My experience over the
years is that it has been quite difficult to get the kind of interchange
between government and industry that most of us collectively would
believe was beneficial, but it does happen.
Q214 Paul Blomfield:
I want to explore the role of UKTI in a little more detail particularly
in relation to larger companies. It follows on the view expressed
to us by the CBI that UKTI needs to move beyond the work it does
with SMEs to provide better support to larger companies. If I
may turn first to Katherine Bennett, Airbus has told us that it
has a sophisticated network of sales people across the world and
in a sense it does not need the kind of support that UKTI can
offer. Does that mean it should move away from the focus on supporting
larger companies or that it need to develop a more sophisticated
role?
Katherine Bennett OBE: As
to the focus on the larger companies, I talked about the people
in Glasgow who were aerospace experts. They are based in the
UK and we keep them informed of things going on, but in embassies
around the world there are commercial attachés who spend
their lives dealing with all sectors; they do not focus just on
aerospace. Maybe moving up a level, we want ambassadors, as Bob
said, to fight their corner and realise that they also have a
role in promoting trade and business as well as a diplomatic one.
I was interested that the CBI said that perhaps there should
be account managers. Maybe we do already in aerospace. I deal
with the guys in Glasgow, and we also have an account relationship
with BIS as well in the aerospace team. Therefore, it is already
there and maybe it could be spread across other sectors.
Bob Keen: Certainly
in the defence sector we have a formal key account management
process with the DSO, but beyond that we have a very good, constructive,
integrated relationship which goes from the top of the organisation
through to the sort of people we have been talking about: the
UKTI representatives in the markets who have a good relationship
with our people but based there. That is the sort of support
we want from UKTI. One other thing is to assure the interests
of the industry across Whitehall and some of the stuff I talked
about earlier: the extent to which we make sure Ministers get
around to markets and we can offer training packages to overseas
customers; and also the extent to which we get ECGD support, which
we will probably come on to. All of that is debated within Whitehall,
and to have a champion in UKTI to recognise the importance of
these issues to industry is an important aspect of our relationship
with them. Therefore, it is both external facing but also internal
facing in Government.
Stephen Phipson CBE: It
is probably important to keep in mind the direction of travel
with UKTI. There has been a lot of improvement over the past
couple of years with Andrew Cahn and Richard Paniguian running
DSO and UKTI and being able to differentiate between the large
companies with key account management, on which they have clearly
focused and to which they provide a lot of support, and the whole
raft of support measures that go to support SMEs. Therefore,
there is clear differentiation about how they support those two
different sectors. If you look at it from the industry's perspective
over the past couple of years, there has been a great deal of
improvement in the way UKTI manages that.
Q215 Paul Blomfield:
I guess that the issue behind the CBI's comment was a concern
that perhaps there was a need for greater support for larger companies
and greater focus on SMEs—I would not want that to be reduced
in any way—but to offer an enhanced and different kind of
support for larger companies beyond their specific comments about
account managers. I wonder whether you agree with that. Can
you suggest any more that could be done?
Stephen Phipson CBE: We
are looking at it through the lens of DSO, are we not? Our sector
is looking at DSO and the improvements it has made. Perhaps CBI's
comments are on a wider basis.
Q216 Paul Blomfield:
I am sure they were, and I wonder whether all of you would respond
on that wider basis.
Graham Chisnall:
We feel we have that sophistication in the relationship and that
it works well. There is little point in our commenting on other
sectors that sit outside our immediate expertise, but the implication
seems to be that other sectors might benefit from the kind of
sophisticated relationship that we think we enjoy with UKTI.
Katherine Bennett OBE: If
the question is more about what we can get from UKTI, it is really
the co-ordination of ministerial visits abroad which I think is
alluded to in the ADS submission. UKTI said to me the other day
that they did not know that so and so from the Foreign Office
was to go to some foreign country. In my new job I deal with
the French and German Governments, who open their diaries to us.
We know when Christine Lagarde is going to the Middle East.
To get that information out of our Government is a nightmare.
I know we have security issues, but we ought to know well in
advance. We can then provide the briefing. That is where joined-up
thinking is perhaps not working as well as it could.
Q217 Chair: That
is an interesting point which ties into a question I put to the
previous witnesses about the coordination of ministerial visits
and business agendas in other countries. I gather there is room
for improvement.
Graham Chisnall:
Yes.
Q218 Margot James:
I want to ask about the Export Credit Guarantee Department. We
understand that 90% of its work is to the benefit of the aerospace
industry, which must please some of you. How do the defence and
security industries fare by comparison? Obviously, there is something
wrong in the operation at the moment.
Stephen Phipson CBE: To
start on the security side, the industry is a relatively new one;
it is growing very rapidly, and it is a certain size of contract
for which we need the support of ECGD. That is not quite there
yet but it is coming. Therefore, we can see that coming towards
us. Although it is not an immediate issue for the industry now,
I think that in another couple of years as the contracts with
these different Ministries of the Interior around the world grow
substantially it will be important to have an efficient and competitive
ECGD agency in place to support that growth as well. I will leave
my colleagues to comment on the aerospace side. I think there
are specific reasons why it looks as though it is dominant in
the aerospace industry at the moment.
Bob Keen: As far
as concerns defence, ECGD support is absolutely essential to BAE
Systems in a number of markets. Many of our customers require
it both from the perspective of straightforward financing issues
but also from the point of view of the extent to which it demonstrates
the British Government's commitment to the deal that is being
done. From BAE Systems' point of view we need it, first, to meet
our customers' requirements but, second, to be able to offer competitive
packages that compare well with overseas export credit agencies
which are aggressive in the marketplace. Over the past few years
when the capacity in the commercial insurance market has been
less because of the credit crunch ECGD support has been particularly
important. If you look at what we have done over the past 10
years, bearing in mind there is a degree to which this is cyclical,
we have paid premiums significantly in excess of £100 million
to ECGD for the kinds of support we have had from them. What
I am absolutely clear about—perhaps the past couple of years
have been unrepresentative in that sense and there has been less
ECGD support for defence—is that in terms of some of the
major prospects we are pursuing at the moment for all the reasons
I have described we will absolutely need ECGD support.
Q219 Margot James:
Why do you think that support has been falling off in recent years?
Bob Keen: Partly
it is because we have not made the applications we have made in
the past. Also, there are examples of deals we have done, for
example one we did in Chile, where the customer did not require
it and it made more sense for us to use the commercial market.
Therefore, it is partly a cyclical thing. There are some issues;
I think that when she gave evidence to you Susan Ross spoke about
the impact of NGOs on ECGD. It is certainly our sense that ECGD
is concerned in the defence sector that NGOs may mount legal challenges
to any positive decision they might make in the defence sector.
We have to be sensitive to that. We also have to work with ECGD
as we go through the major prospects I am talking about to make
sure that between us we follow the approved and appropriate policies
and processes so that the scope for legal challenge is minimised.
We have a joint responsibility to make sure that works.
Q220 Margot James:
That is very useful. Does anyone else want to say anything?
I have one further question on this issue. The CBI has suggested
that there is a review of the governance of our export credit
guarantee function. Would you support that? If so, what kinds
of terms would you like to see in such a review?
Graham Chisnall:
Things can always be improved. We would not have any issue at
all with a review of the arrangements. Our chief input would
almost certainly be to ensure that the available funds are used
in the most efficient way possible and if they are extended to
new sectors or deployed in different ways that is not done in
a way that hampers our sector's growth prospects. We think that
at this particular point in the business cycle backing the winners
with scarce funds seems to be a sensible policy. Therefore, we
would be happy to support and contribute to a review of that nature,
but we would have concerns if that took away some of the benefit
to our sectors that deploy good value on the back of those ECGD
arrangements.
Q221 Chair: Can
I conclude with a couple of questions? First, regarding the Bribery
Act, the CBI is very concerned about the guidance and implications
this might have for British business. Do you share these concerns?
Graham Chisnall:
We are a very strong supporter of the need to be seen to be taking
a lead position in this area, so we support the legislation.
First, we share the CBI's concerns that the definitions within
the legislation are too wide and do not offer sufficient guidance
to industry. We would welcome greater clarity on those definitions.
Second, there is a nervousness that this is very leading-edge
legislation; it is probably tighter than anywhere else with which
we are in active competition, and we seek reassurance that as
we comply with this legislation, as obviously we will, people
who come from overseas to trade within the UK are also subject
to the same rigour.
Q222 Chair: Are
there any other comments?
Bob Keen: I echo
a couple of points. Certainly we from the BAE Systems perspective
have supported the Bribery Act. We made clear that we supported
the Bill in its progress through Parliament. We gave evidence
to the Joint Scrutiny Committee and made clear our support. From
a company perspective, for reasons you will understand we have
done a huge amount over the past few years to put in place robust
and, to use Graham's term, leading-edge anti-bribery practices.
If the Committee has not read it I would commend the Woolf report.
A few years ago we commissioned Lord Woolf to do a review of
our business practices and the ethical nature of them. That set
out the kind of stuff we had been doing over the past couple of
years. As to Graham's point, there is an issue around the clarity
of the guidance. For us, we are already well in advance of what
the Act requires. The concern we expressed to the Committee,
which we still have, is that for SMEs there is a need for absolute
clarity in guidance in a general sense. We think there is more
to be done when there is ambiguity about a particular issue on
which they want help, but we are absolutely committed to the Act
and will continue to be in that respect.
Q223 Chair: That
triggers my next question. What do you think needs to be done
going forward on this?
Bob Keen: There
are some aspects of the guidance that need to be tightened. We
think that the whole issue of adequate procedures could do with
some clarification. Probably some tinkering is to be done in
relation to things like gifts and hospitality and, from a big
company perspective, our responsibilities for our supply chain
in particular markets. It is also in a sense an ongoing issue.
It is not just establishing guidance up front; it is being able
to help small companies in particular to know where the boundary
between what is and what is not acceptable behaviour within the
Act actually lies. That is what we would say, but for us as a
company we are very confident that we are already ahead of the
Act.
Q224 Chair: Perhaps
I may finish with something entirely different. I go back to
some comments made by Katherine Bennett about immigration and
the Home Office. First, she said there had been no response from
the Home Office. In a subsequent response I think you said that
perhaps there had been an overwhelming number of applications.
Is there a problem with the actual process or are there too few
places available for the number of people who want to come in?
Katherine Bennett OBE: The
answer is yes to both questions. You are allocated a quota.
Q225 Chair: Can
I interrupt? Am I right that you would be affected by the tier
1 quota, which I think is 1,000?
Katherine Bennett OBE: We
are talking about tier 2 now. They have reduced the quota and
then abandoned it altogether, so we have no visa allocation at
all. They have told us that we must apply each time. We are
applying each time and not getting any answers.
Chair: That is very helpful
indeed. We will make representations about this. I thank you
all for your contributions which have been very helpful. I repeat
what I said to the previous panel. If you feel our questions
have not enabled you to cover anything please submit further evidence
to us. Thank you very much indeed.
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