House of Commons Trade and Industry Committee The UK Aerospace Industry Fifteenth Report of Session 2004–05 Volume II Oral and written evidence Ordered by The House of Commons to be printed 22 March 2005 HC 151-II Published on 18 May 2005 by authority of the House of Commons London: The Stationery Office Limited £14.50 The Trade and Industry Committee The Trade and Industry Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Trade and Industry. Current membership Mr Martin O’Neill MP (Labour, Ochil) (Chairman) Mr Roger Berry MP (Labour, Kingswood) Richard Burden MP (Labour, Birmingham Northfield) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mr Jonathan Djanogly MP (Conservative, Huntingdon) Mr Nigel Evans MP (Conservative, Ribble Valley) Mr Lindsay Hoyle MP (Labour, Chorley) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Judy Mallaber MP (Labour, Amber Valley) Linda Perham MP (Labour, Ilford North) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/t&icom. Committee staff The current staff of the Committee is Elizabeth Flood (Clerk), David Lees (Second Clerk), Philip Larkin (Committee Specialist), Grahame Allen (Inquiry Manager), Clare Genis (Committee Assistant) and Joanne Larcombe (Secretary). Contacts All correspondence should be addressed to the Clerks of the Trade and Industry Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected]. Footnotes In the footnotes of this Report, references to oral evidence are indicated by ‘Q’ followed by the question number. References to written evidence are indicated in the form ‘Appendix’ followed by the Appendix number. Witnesses Tuesday 14 December 2004 Dr Sally Howes, Mr Kevin Smith and Mr Colin Green, Society of British Aerospace Companies Ev 1 Mr Iain Gray, Airbus UK Ev 13 Mr John Wall, Amicus Ev 18 Tuesday 11 January 2005 Sir John Chisholm, QinetiQ Group plc Ev 23 Mr Ken Maciver, Mr Colin Smith and Mr Lambert Dopping-Hepenstal, Aerospace Technology Steering Group Ev 29 Mr John Alty, Mr Malcolm Scott, Mr David Way and Mr Christopher Moir, Department of Trade and Industry Ev 35 Tuesday 18 January 2005 Sir Michael Jenkins, Mr George Hibbard and Mr Steve Ford, Boeing Company Ev 43 List of written evidence 1 Aerospace Technology Steering Group Ev 50 2 Airbus UK Ev 51 3 Air League Council Ev 57 4 Amicus Ev 59 5 BASIC UK Ev 60 6 Boeing Company Ev 63 7 Bombardier Aerospace Ev 66 8 Campaign Against Arms Trade Ev 69 9 Department of Trade and Industry Ev 71 10 DTI (supplementary) Ev 81 11 QinetiQ Group plc Ev 84 12 Rolls-Royce Ev 87 13 Royal Aeronautical Society Ev 90 14 Society of British Aerospace Companies Ev 91 15 Society of British Aerospace Companies (supplementary) Ev 100 16 South West of England RDA Ev 102 17 Unmanned Aerial Vehicle Systems Council Ev 105 18 West of England Aerospace Forum Ev 107 TradeandIndustryCommittee:Evidence Ev1 Oral evidence TakenbeforetheTradeandIndustryCommittee onTuesday14December2004 Memberspresent: MrMartinO’Neill,intheChair MrRogerBerry MrLindsayHoyle RichardBurden LindaPerham MrMichaelClapham SirRobertSmith MrNigelEvans Witnesses: Dr Sally Howes, Director General, Society of British Aerospace Companies (SBAC), MrKevinSmith,PresidentofSBACandCEOofGKN andMrColinGreen,Vice-President,SBACand DirectorofResearchandTechnology,Rolls-Royce,examined. Q1 Chairman: Good morning. Once again, can I and the engine capability in Rolls-Royce is welcomeyou;thisisoneofourregularlooksatthe absolutely superb. We are also very strong in aerospace industry. We do this in part because we internationalmarketsandIthinkthatisimportant. are conscious of the significance of the industry in Of our £17 billion around £12 billion plus of that partsofthecountryandgenerallyinrelationtothe actually goes out into the international UK economy, also because it is one of these marketplace,andbeingabletoworkinEuropeand industries with which the Government is very the United States—and we know there are some closely involved and, while people do not want issues there around market access on the defence interference, they certainly want the money that side—we think has some unique strengths for the interference sometimes brings along. We recognise UK aerospace industry, which we are very proud aswell thatitisone of theyardsticks bywhichwe of actually. Also, being able to export into judge the eVectiveness of our manufacturing internationalmarketsis againanotherstrengthfor industry and we do feel that it is an important the industry that we have. In terms of the future, industry because it attracts investment into the as you know, in 2002 we carried out a review of country as well as providing us with exports. That the UK aerospace industry with the Aerospace isreallywherewewanttostart,ifwecangetfrom Innovation and Growth Team, which was the first you an impression of what you think are the main such review for 40 years. It was a comprehensive competitive advantages that the UK aerospace review, it included all stakeholders in the UK and industry has in the international marketplace as it identified a number of areas of work to be able to were. If these competitive advantages do exist, are maintain that position in future. It is an industry they being sustained, are they being improved? that is changing, globalisation is aVecting the That is really where we want to start oV this aerospace industry very quickly, with nations out morning; Dr Howes, maybe you could introduce there with strategies to build aerospace industries. your colleagues and then we can get started. Chinaisgoingtobebuildingaeroplanesinthenot Dr Howes: This is Kevin Smith, the President of toodistantfuture,thatisoutthere,thatisreal,that SBAC,hebeganhispresidencylastSeptember,and isathreattousandanopportunitytousifwecan Colin Green is the Vice-President of SBAC. maintain and enhance the capability of the UK. Mr Smith: Maybe I can start to talk a little bit There are three areas that have come out of that aboutthat,andthenifmycolleagueswantto,they work for us as the Society for British Aerospace can add any points to that. The first thing to say Companies that are extremely important to us in is that we come here as a successful industry; we being able to develop the industry that we have. are the second biggest global player, £17 billion One is skills, one is the technology base and the worth of turnover in the year 2003, £6 billion of third one is what we call process excellence, which value added to the UK economy, over three per is all about productivity, and we recognise that cent of the UK manufacturing jobs and a large thereisalotthatwecandointermsofimproving positive trade balance for the UK. So as we come ourown productivity.All ofthose areasare about herewedohavethatverystrongposition,andyou capability, enhancing the capability within this do not do that without having some significant country to be able to continue to compete advantages. The first thing to say is that we have eVectivelyinthatglobalmarket.Havingdonethat, a very comprehensive industry in terms of its there are a number of areas where we would like capability and throughout the supply chain we the playing field to be level, we would like market havestrongcapabilitiesintheUK.Wehavemajor access, particularly on the defence side, in the and I think leading capabilities in wing design for United States and Europe to be more open for us, large aeroplanes, and I know Iain Gray from but all in all my summary would be as we sit here Airbus is here and you can talk to him later on— today that we are in a strong position. Our Ev2 TradeandIndustryCommittee:Evidence 14December2004 SocietyofBritishAerospaceCompanies challengesareabouthowweactuallymaintainand Mr Smith: No, it was reflected in competitors too develop that position for the future. We have a andIthinkprobablyinsomerespectsthecompanies goodplan,theworkofourInnovationandGrowth workingintheUSwhowerenotalignedwithAirbus Team was good work, came out with good hadmoresignificantproblemsthancompaniesthat conclusions and our challenges are all about were aligned with Airbus. In Airbus it actually execution; the link-up with Government in that stopped growth but in Boeing there was a very execution is extremely important for us. Is there significantreductioninoutputwhichdidimpacton anything you want to add, Colin? UKcompaniestoo,butitwasaglobalphenomenon Mr Green: No, that is a fairly comprehensive atthattime,averysharpdeclineinthedemandfor opening statement. commercialaircraftinthatperiod. Q2 Sir Robert Smith: If I can just pin down the Q7LindaPerham:Soasmuchas20%elsewhere? picture here of where we fit into the world, you Mr Smith: I would think probably in the US that mentioned the amount of money generated by the wouldbethecase. industryandinyourownsubmissionyoutalkabout 0.6%ofgrossvalueaddedwithoutthesupplychain Q8 Linda Perham: You also mention that andsomethinglike1.2%withthesupplychain.How concurrently there were development issues in a does this compare, the direct and indirect number of defence programmes leading to major contribution of aerospace industry, in our main delays;sothatwasafactoraswell. competitoreconomies? MrSmith:Doyoumeanduringthatperiod? DrHowes:Someoftheseinternationalcomparisons are actually quite diYcult to make. With both our colleagues in DTI and across industry we do Q9LindaPerham:Orjustpost9/11orinthelead-up recognisethattherearesomeweaknessesintryingto toit. get comparable information, but in terms of MrGreen:Iwouldsaythatonbalancetheimpactof productivity we do feel that the productivity gap the increased awareness of the importance of comparedwiththeUSiscertainlyverymuchcloser defenceprobablyledtoaslightgrowthifanything thanitwasandweareworkingveryhardtosupport in terms of the demand and activity rather than that.Infact,oneoftherecommendationsthatcame reduction. outoftheAeIGTwasspecificallytoworktogether with Government to try and improve the evidence Q10 Linda Perham: If I could just ask about base for the industry, but the international comparisonsareextremelydiYculttomake. somethingelsewhichisinyoursubmission,at3.1.2 you say that “Post 9/11 the security environment continues to pose substantial challenges . . . Q3SirRobertSmith:WhatmakesthemdiYcult,the Growing levels of both public and private definitionsorthemeasures? investment in security technologies in the US and DrHowes:DefinitionsandaccesstodataIbelieve, mostEUcountrieshavenotasyetbeenmatchedin theamountofinformationthatisdisclosedbothat theUK.”Aretheregoingtobechangessothatitis Governmentlevelandwithincompanies. matched,ordoesthatdependontheassistanceyou cangetfromGovernmentandothersources? DrHowes:Oneofthecriticalaspectsofthatisthat Q4SirRobertSmith:Isitanyeasierwhenitcomes theindustryisquitekeentounderstandwhatmore to trying to gauge employment and trade balances ofthecoordinateddemandfromGovernmentisfor fromaviationordothesameproblemsarise? securityproductsandservicesintothefuture.There Dr Howes: Employment is much easier to look at. arequiteavarietyofGovernmentdepartmentsand You quoted the figures, 122,000 people employed agenciesinvolvedinthiswholepieceandsometimes directly in the UK; we are the largest aerospace it is quite diYcult for industry to understand what sector in Europe and we have 30% of total thecoordinateddemandwillbe.Certainlywiththe employmentacross Europein theUK. Thefigures way that Europe is moving towards to looking at for the US I do not actually have to hand at the securityattheEuropeanlevel,itisquiteimportant moment. fortheUKpicturetobecomemorecoordinated. Q5SirRobertSmith:Butyoucouldsendthemtous. Q11LindaPerham:Weareactuallybehind,itissaid, Dr Howes: Yes, we could provide those, certainly, most EU countries and the US in security whichwouldmakeitclearer. technologies,sodoesthatconcernyou? SirRobertSmith:Thankyouverymuch. Dr Howes: Yes, it does at the industrial level. Certainly, there is an issue to do with R&D into Q6LindaPerham:Yousayinyoursubmissionthat those products and services for the future and of the terrorist attacks of 9/11 led to a dramatic course companies are looking very keenly at that, reduction in orders for civil aircraft and I think a butagainitisunderstandingwhatthedemandpiece 20% drop in UKAI turnover, an immediate drop. is going to be as well. We are quite interested and Was that reflected in our competitors or was there keen to work with and support Government in anything particular about the UK industry where havingalookatthat. therewereproblems? LindaPerham:Thankyou,Chairman. TradeandIndustryCommittee:Evidence Ev3 14December2004 SocietyofBritishAerospaceCompanies Q12MrBerry:Obviously,oneofthekeyissueshere thereisahugelygreatercapabilitythaninemerging isproductivityandcompetitiveness.CouldIstartby markets, but those emerging markets are learning askingafactualquestionaboutwhatyousaidabout very quickly and, as I have mentioned already, productivity; in 2.2.1 you say that “The UK China willbe buildingaeroplanes and theyare the aerospaceindustryhasshownratesofproductivity peoplewhoaregoingtochasethisindustryoverthe improvement of 4.2% compared to 2.3% in next20years.Theyalsoprovideagreatopportunity France . . .” Can I be clear, over what period do for us because if we can continue to enhance our thesefiguresrelate? capability, continue to be competitive, then those MrGreen:Itisbetween1992and2001. growthmarketsgivearealopportunityfortheUK aerospaceindustry.InChinatodaytherearearound Q13MrBerry:Sothatisagoodperiodoftime.You 700aeroplanesinitsinventory,by2020itwillhave alsogoontosay—andyoureferredtothisearlier— wellover2000,whichishugeandmakesitprobably that UK productivity remains behind both the US thesecondbiggestaerospaceeconomyintheworld, andFrancebutIdonotfindanyfiguresonthat.Do and in that it is actually going to develop its own youhavethosefigurestohand? industry. The challenge for us therefore is actually Mr Green: We have some figures here that I can keepingaheadfromacapabilitypointofview.What quotefrom.ThediYculty,asSallysaidearlieron,is Iwouldalsosayaboutthesestatisticsisthattheyare actuallygetting asensiblecomparator becauseone diYcult to compare and there is a history in many of the things that certainly influences the way in respects; aswesitintheindustrytodayitdoesnot whichthosecomparisonsaredrawnistheexchange feellikewearedisadvantagedbythe18%oftheUS, rate,whichitselfisprettyvolatile—andIamtalking itdoesnotfeellikewearedisadvantagedtoFrance. abouttheUKversusboththeeuroandthedollar. Whatwehavetriedtouseistheso-calledpurchasing power parity exchange rates and on that basis the Q18 Mr Berry: Let me ask a qualitative question valueaddperemployeeintheUSaerospaceindustry then. You are absolutely convinced—and I think accordingtothefigureswehaveisonaverage26% thisisgenerallyaccepted—thattheproductivitygap higher than we have in the UK; the one that we with the United States and France is narrowing, alwaysfinddiYculttoreallygetourmindsaroundis thereisnodoubtaboutthat. againbasedontheIMFestimatesandinFranceit MrSmith:Yes. appearstobe42%higherinthesameperiod,which wouldimplythatFranceismoreproductivethanthe Q19MrBerry:Myfinalquestionwouldbewhy,and UnitedStates. whatshouldbedoneinthefuturetonarrowthegap evenfurther? Q14MrBerry:Byasignificantamount. MrSmith:MyownfeelingaboutitisthatintheUK MrGreen:Byasignificantamount. Idobelievewearemuchmorecohesive.Ifyoulook atthewaythemanagersareworkingwiththetrade Q15MrBerry:Andyoubelievethis. unionmovement,particularlyinmanufacturing,we MrGreen:Thatiswhatthefiguressay,butIthink have made huge progress in not only removing the industrial anecdotal evidence does not really restrictivepracticesbutalsoworkinginamuchmore supportthatoverallcomparison,butwhatIthinkit collegiatefashionaroundcommongoalsintheUK. shows,moreimportantly,isthatoverthatperiodthe ThathasnothappenedintheUnitedStates;ifyou gapitself,evenifwemaydisputetheabsolutelevels, lookattheUStherearestillhugebarriersintermsof thegapitselfhasclosedagainstbotheconomies,so restrictivepracticesintheiraerospaceindustryand the UK aerospace industry is definitely becoming globallymorecompetitive. Ithinkthatisoneofthemajorreasonswhyweare improving ourcompetitiveness. Forthe futureitis about those fundamental things again: it is about Q16 Mr Berry: So you think that the figures are skills, it is about capability, attracting the best robustenoughtoarriveatthatconclusion. people into the aerospace industry—we have MrGreen:Intermsoftrends. enjoyed some really super people in this industry overquitealongperiodoftime—anddevelopingthe Q17 Mr Berry: That is fair enough. We tend to technologicalcapabilityofourindustryintheUK. compare UK productivity growth with countries Formeitisallaboutcapabilityenhancementinits which are doing quite a bit better in terms of broadest sense in the UK aerospace marketing absolute levels of productivity. We are chasing the economy to be able to continue to compete US and apparently France, but who is chasing us? eVectivelyinthefuture. What about those who are coming up behind the UK,whatishappeningthere? MrGreen:Iwouldliketojustamplifyonepointthat MrSmith:Iwouldcharacterisetheworldasbeinga Kevin made and that is that we have developed a fairlymaturesetofnations,whichwouldincludethe very good and lasting partnership with academic Europeannations,fallingintothatbasket,andthe institutions, so that you have got—to use a United States. Emerging economies are trying to hackneyed phrase perhaps—a joined-up system build and develop an industry, and I think the between identification of research topics in diVerence between those two is actually all about universities and the route to market for those capability;thereisabsolutelynodoubtthatinthose technologies in value adding products for developed economies that we have spoken about customers. Ev4 TradeandIndustryCommittee:Evidence 14December2004 SocietyofBritishAerospaceCompanies Q20MrClapham:Onthecapabilityissue,ofcourse, MrGreen:Itisimportantfirstofalltofocusonthe researchanddevelopmentiscrucial.CanIjusttake factthatwearetalkingaboutR&T,soitisresearch you in your executive summary to paragraph 4 andtechnologyasopposedtoproductdevelopment, whereyousay“LevelsofGovernmentinvestmentin whereofcoursethenumbersaremuch,muchbigger aerospace R&D compare unfavourably with those and the proportion spent by industry relative to intheUSandEurope.TheUKaerospaceindustry Government is much bigger. If we take the R&T continues to invest heavily in R&D and is second spend,thetotalspendbythetimewecompletedthe only to pharmaceuticals in its R&D intensity. report was £355 million, of which industry itself GovernmenttargetsforincreasingR&Dcannotbe funded£150millionwiththebalancecoming from met by industry alone.” Given that statement, is Government, both the UK Government and the there evidence to show, for example, that levels of EU.TheproposalthatwasidentifiedintheAeIGT R&Dinvestmentbygovernmentsinothercountries reportwastoincreasethattotalspend,asSallysaid, arehigh? to a total of £405 million but, more importantly, DrHowes:Yes.Again,onehastoreverttothedata focus the spend much more on industry-based thatonehasandthelastcomparativedatawehad research and technology and less on Government- wasin1998wheretheUSGovernmentwasinvesting based research and technology. In particular that £620 million in civil aerospace compared to recommendation was made within the Ministry of £120millioninGermany,£50millioninFranceand Defencewheretheyspendatotalof£165milliona just £20 million in the UK. That was the figure in year on research and technology and today only 1998and,obviously,sincethatpointintimefroma £40 million of that is spent with industry, so the UK perspective we have seen quite a further recommendation is not that the amount should reduction of Government DTI funding into civil increasebutthattheproportionspentwithindustry aerospace,andinfactontheMoDside,air-applied should increase to whatever we may feel it should researchhasfallenfrom£250millionto£185million increaseto,£92millionofthe£165million. overthelastsixyears;soonewouldsuspectthatthat gaphasprobablyworsenedoverthelastfewyears. Q23 Mr Clapham: Is headway being made to encouragetheindustrytoinvestmoreintechnology? Q21 Mr Clapham: Has this issue been raised with Dr Howes: I think industry is anyway. An SBAC Government and, if it has been raised with survey that we did in 2003 showed that industry Government, what has been the response, for investment had increased by 18% on the previous example,atDTI? yeartoalevelof£2.1billion,andifyoulookacross DrHowes:Itwascertainlyraisedasaresultofthe thetop10R&Dinvestorswehavethreeofourmajor Aerospace Innovation and Growth Team companiesinthere—BAeSystemsonthree,Airbus recommendationswhere,ofcourse,theimportance rankedseventhandRolls-Royceat10.SoIfeelthat of getting the right balance of investment in the the industry investment is actually rising R&D process from science right through the significantlyanyway. technology demonstrators and into exportable products is critical. At the time when the AeIGT reported, DTI investment was in the area of Q24 Mr Clapham: We see a diVerent scene in £20millionayearthroughaparticularprogramme America of course with the subsidy to Boeing; is ofresearchthatwasfocusedforcivilaerospace,and there a suggestion that you would like to have the it was suggested that to actually meet the right samekindofsubsidiesthatBoeinggets? targets for sustainable aviation for the industry, MrSmith: Ifyoulook atwhere wearein the UK, lookingforwardtokeeptheindustrycompetitivein thereareacoupleofissuesthatarereallyimportant itsnumbertwoposition,thisshouldreallyberising tous.WehavedoneoursurveyonR&T,weknow toatotalof£70millionayear.Thereisatechnology whatwewanttodoandwhatanybodyelsewantsto strategythathasbeenarticulatedthatsupportsthat do really is down to them and in some respects figureanddemonstrateswhatmarketsandwhythat having what we have got we feel is much better funding profile is the right one, and of course that because it is cohesive. Forthe first time everybody would be matched with industry. As a result of hascoalescedaroundasetofresearchareasandaset developing that technology strategy we have been ofareaswhereweareactuallygoingtodemonstrate workingverycloselywithourcolleaguesinDTIand the technology acquisition. That is a huge step increasingly in the regions, the devolved forwardforuswhichmeansthatresourcescanbefar administrations, to actually set out an appropriate better used around that plan, so what we would funding capture plan for that, because of course rather focus on is having that plan properly Government policy has changed. Lord Sainsbury supported and delivered and executed rather than hasbeentaskedwiththejoboftryingtolookacross lookingatwhatotherpeopleget,quitefrankly.The Government,MoD,theDTIandintotheregionsto otherpointisonthedefenceside.Asubstantialpart actuallytryandfindtherightfundingprofiletofund of R&D is on the defence side and we do feel that therightR&Dthatwillsecurethatfuture. turning defence industrial policy into defence industrialstrategyfortheUKisanotherimportant Q22MrClapham:Giventheprofile,isitpossibleto partoftryingtoensurethattheUKindustrygetsa say what proportion of investment in the UK real part of the D side, the development side, on aerospaceindustryisfromtheGovernmentandthe these programmes. What I would say to you privatesector,andhowdoesthatproportionagain therefore is that we feel that in some respects our comparewithourcompetitors? destinies are in our own hands. Industry has TradeandIndustryCommittee:Evidence Ev5 14December2004 SocietyofBritishAerospaceCompanies undertakentoincreaseR&Tfundingandwehavea whichistherightwaytodoit.AsKevinsaid,there goodtechnology strategyintermsofhowwewant is a plan, there is a justifiable and defendable todeliverit.Thechallengeisaroundexecution,you investmentthatneedstobemade,butwehavetogo know,gettingonandactuallydoingitforthebenefit throughquiteasophisticatedprocesswithDTIand oftheUKinthefuture. into the regions to match the funding availability there. It is true to say that because innovation is a new remit for the RDAs it is not clear what funds Q25 Chairman: Before we leave this issue, the mightbeavailabletosupportthatorhowtheyare sources of public funding that you get, some of it goingtoconnecttogetherwithotherregionstomake wouldobviouslycomefromtheDTIandthefigures surethattheoutcomeisrightfortheindustryaswell youquotedfor1998donotreallytakeaccountofthe as being right for economic development in that emergenceofregionaldevelopmentagencies.There region. As I say, there is a process and there are is often a worry that with a rough and ready per teamsactuallyworkingthisthroughfromtheright capitaallocationoffundingacrosstheRDAsthere endofthemicroscopewhich,ifyoulike,isfromthe aresomeareasthatmightnotbetreatedasfairlyas perspective of the National Aerospace Technology they ought to be—I use the word fairly in a non- Panel,butitisunprovenatthemoment. pejorative sense—and as far as the demand in the MrGreen:OneotherthingthatImightaddtothat, regionisconcerned,whetheritistheSouthWestand if I could, and that is that the dilemma that we all the Bristol area or the North West, are you happy face when we are talking about research and thatthemoneywhichhithertocamefromtheDTI and now comes through the RDAs is coming technologyfundingistwo-fold.Thefirstisthesheer through in suYcient amounts to support the length of time between the investment in the industry in the way that it was before? There is a technology and the economic return on that senseinwhichsomepeoplesaythatthepeopleatthe investment; that makes it diYcult for individual centre have forgotten that diVerent regions have companies and it makes it diYcult for regional diVerentrequirementsandthatsomeindustrieshave developmentagenciesthattendtobemorefocused gotalotmoreofthemoneythanotherregionswhich on the short term rather than the long term. The donothavesuchindustries.Soonemightbeunder- second is that there needs to be—because it is a resourcedandtheothermightbe—Iwouldnotsay matter ofchoosingwhicharethetechnologiesthat over-resourced, but they might get a bigger share are goingtomake a diVerenceinthelongterm—a thantheyrequire. coherent plan that all parties are signed up to. To Mr Smith: It is an issue. You find us in a time of some extent that funding therefore needs to be in transitionreally;Imean,aswementionedearlierthe somewayring-fenced,andweareconcernedthatthe CARAD funding has disappeared and the focus that we previously had with the CARAD devolvementoffundingtotheregionsistakingtime funding has now devolved into more general toactuallyfillthatgap.SomeoftheRDAscurrently technologythemes,andthereneedsthereforetobe donothavearemittoinvestinaerospacetechnology aframeworkagainstwhichthosetechnologythemes so the challenge of turning national strategy into can be brought back together and focused on the regional implementation is something at the aerospaceindustry. momentthatwearestillworkingourwaythrough. Ihave tosaytheRDAsaresupportiveofthatand Q27 Chairman: Would you say that as a wehavepeopletherewhoareinvolvedinwhatitis consequence of that you have lost money and you thatweareactuallydoing,butwearenotthereyet, havelostopportunity,orhaveyoubeenableinthe wedonothavethoseprocessesinplace.Itislagging traditionalBritishfashiontomuddlethrough? behind andone of theconcerns that we dohave is MrGreen:Iwouldsaythatatthemomentwearestill having the impetus behind making sure that that strugglingthrough,butwearealreadyseeingsome resource does find its way into the aerospace concernaboutthelengthoftimeitistakingandthe industrythroughtheregions. number of individual decision-making bodies that are engaged in arriving at an agreed way forward. Q26Chairman:Toputitverysimply,letustakethe Some of that is good because the challenge of any NorthWestandtheSouthWestastwoofthebiggest technicalplanisagoodthingtodo,butsomeofitis potential consumers of resource; areyou confident not so good if it is delaying the process and that the regional development agencies have the meanwhile, as Kevin indicated earlier on, our resourcetomeetwhathasbeenarecogniseddemand competitorsarecertainlymakinginvestments. forGovernmentsupport,orifthemoneyiscoming, isitcomingattheexpenseofotheractivitiesthatthe RDAs in these areas could legitimately expect to Q28MrHoyle:Obviouslyyouarebeginningtoget havetofulfilaswell? some experience of the RDAs and presumably Dr Howes: I think it is true to say that the RDAs Rolls-Royce look at the East Midlands and the dealing with innovation and investment in whole map, but how does it compare to, say, the technologyisanewpieceforallofthemanditisat WelshAssembly?Theyhavehadabitofastruggle the moment quite diYcult to see how the budgets trying to get CardiV to understand about North willallbeconnectedtogetherattherightlevel,atthe Wales, but I think once they overcame that they right time. The way we are tackling that together actuallysawthemoneycomingin.Ijustwondered, withDTIandcolleaguesintheregionistodriveit you have a Welsh Assembly that seems to have a fromtheNationalAerospaceTechnologyStrategy, littlemoremoneythanwhattheRDAshave,doyou Ev6 TradeandIndustryCommittee:Evidence 14December2004 SocietyofBritishAerospaceCompanies think that is an easier route and do you think the Q31 Chairman: You have given us a couple of RDAs are failing because it is diluted and you paragraphsonitbutmaybeyoucouldhelpusawee cannotjoinitup? bit more and be a bit less coy and tell us which Mr Green: Why not let Sally tell you what we are developmentagenciesarenotworthalightatdoing doinginScotland,whichisprobablyanotherwayof thebusiness.Weknowthattherearesuchthingsas explainingananswertothat. regional variations and silent pain evokes no Dr Howes: Yes, in Scotland there is quite a response; if you want to be more frank in stating significant aerospace industry and the Scottish whatisgoingwrongthenwearenotheretodefend Parliament has actually defined aerospace and in developmentagencies,wearenotheretodefendthe factdefenceastheprioritymarketforthem.Weare statusquo.Manyofushavesupporteddevelopment actuallyopeninganSBACScottishoYcespecifically agenciesbutwefinditratherembarrassingthatthey to help member companies with aerospace have such a cack-handed way of actually setting development etc but also to help them align aboutdoingthejobthatforsolongsomanyofthem communications themes into the Scottish havewantedtodo,anditisoftenattheexpenseof GovernmentandintotheParliament,andtotryand people like yourselves who have had established helpalignthosewiththecommunicationsmessages patternsofsupport,whicharecasttothefourwinds, cominginhere,sothatagainwecantakeaviewon andhavearatherdiYculttasktokeepupwiththings aregionalpolicyandregionalbusinessimperatives becauseyouarenotgettingtheresourcestreamthat thereandconnectitintothenationalview.Weare youhadassumedyouwouldbegettingbecausethese dealing very much with an international industry people just do not know what they are up to in a hereandanotherexamplewouldperhapsbetolook number of instances. Some of them seem to have atsomeofthemanufacturingimprovementsthatgo comeinoutoftherain,thereisnootherreasonfor on.ThereisahugeamountofGovernmentmoney thembeingthere,soitwouldbeusefulifyoufeltit goingintotheManufacturingAdvisoryServiceand appropriate to send us a note about any of the that goes out—it is supported an awful lot by the stickyareas. regions—into companies to help them within their MrSmith:Okay,thankyou. firmonbusinessimprovement.Oneoftheparadigm shifts that has come out of the AeIGT is to look Q32 Richard Burden: In 2.3.3 of your submission acrossthesupplychain,notjustwithinthefirm;that youstatethat“theprivatereturnoninvestmentand goes across regions and that is another driver for R&Dintheaerospacesectorisalsolow—inspiteof lookingforthoseregionalconnectionsandmaking stronggrowth,anincreasingshareofworldmarkets, surethat whatis happeningregionally isfollowing and high levels and growth rates of productivity.” the national strategy in line with the business CanIjustfortherecordestablishtherewhetheryou objectives.Sofromanumberofperspectivesgetting are talking about it is just in the nature of the thisco-ordinationisactuallyquiteimportantandwe industrythatthereturnsarelow,orarewetalking are trying to take that on through the trade aboutarateofreturnoverparticulartimeframes? organisationandgetitabitcloserbehind. MrGreen:PerhapsIcanstartwhilemycolleagues arepreparingtheirownresponse.Partofitiswhat Q29MrHoyle:Soyouaregettingthecheques? we said before, the length of time it takes for an Dr Howes: Our member companies are certainly aerospaceprojecttomovefromresearchthroughto supportiveofuscreatingthisinitiative. marketisquitelongand,inconsequence,whenyou dothediscountedreturnonthatinvestmentitisnot Q30 Mr Hoyle: The bottom line is if you are not as attractive as putting the investment into near gettingthemoneythroughitisfailing,butyouare return technology. Also, it is implicit in the other sayingtousthatthemoneyiscomingthroughbut part of theparagraph that we as the industry fully maybenotasquickasitdidinthepast. understandthatitisthelifebloodoftheindustryto DrHowes:Yes. be pushing that technology barrier forward at all MrSmith:Thereis adiVerencebetweenthethings times,andthegrowththatwearepresentlyenjoying thattheRDAshavetraditionallybeenmandatedto in the commercial aero engine sector is very do, which we would say are going pretty well— definitelydrivenoVtheinvestmentsthatwemadein things like skills initiatives and those sorts of technology 10, 15, 20 years ago. So getting that things—andwehave goodrelationshipsthere,and economic fact of comparison relative to shorter the things that they are in the process of being timescale industries into a balance is important. mandated to do which is in the innovation and Thatisconnected,notsurprisingly,tothepointthe technology area. In that area, Lindsay, we are Chairman was making a second ago, which is that concernedaboutourabilitytomakeprogressandif we have to find a way in the new structure for thereisonemessagetotakeawayfromusitisthat promotingresearchandtechnologyandinnovation youareright,Martin,thisisanissueforus,thepace inthiscountryforenablingallstakeholderstohave at which we can actually deploy national strategy a view of the strategic importance of long term through the devolved process around this R&T investment in R&T. There is a bit of a challenge activityisofconcernforus.Wehavenotgotaflag therebecause,byitsverynature,notallinvestment up the mast, the white flag is not flying, but it is inR&Twillbesuccessful,somewillwitheranddie somethingthatweareconcernedaboutandthatwe becauseitturnsoutnottobesomethingthatactually willbeworkingextremelyhardon,andanysupport is exploitable in the market. The message we are inthatwouldbemuchappreciated. tryingtoconveyhereisthatifitisleftsolelytothe