Aerospace Industry

Ian C. Lucas Excerpts

Wednesday 12th September 2012 Westminster Hall

[Ian Lucas (Wrexham) (Lab)]

It is a pleasure to appear under your chairmanship this afternoon, Mr Turner. This is the first opportunity that I have had to welcome the hon. Member for Sevenoaks (Michael Fallon) to his new position as Minister. His closeness to the Chancellor has clearly paid off—congratulations to him.

Aerospace has been much in the news of late, particularly with the ongoing debate on airport capacity in the United Kingdom. My immediate motivation in asking for the debate was that the discussion on airport capacity has largely excluded mention of the importance of the UK aerospace industry. I hope that deficiency will be addressed and remedied this afternoon. The UK aerospace industry is a great national success. We are the premier aerospace manufacturer in Europe and second only to the United States worldwide. We hold 17% of global market share, which generated £24.2 billion of UK revenue in 2011—75% of which was exports.

I have two fundamental points about our world position in aerospace. First, it has been very hard won. It is the result of long-term policy and investment decisions made by Governments of different political persuasions and by the sector itself over many years. Secondly, it is a valuable resource. Developed and developing economies are ambitious to eat into our market share. China and Russia see the importance of the aerospace industry and are anxious to move into it. Companies such as the Commercial Aircraft Corporation of China and the United Aircraft Corporation are ambitious to take part in the expanding world market.

I have read “Reach for the skies”, and I must say that it is an excellent document. A civil servant once told me that he did not think that a change of Government made much difference; I would not quite go along with that. The document is impressive and a welcome template for the future of our aerospace industry—as a former aerospace Minister, I want to put that on record. It is persuasive, and in preparing for the debate, I spoke to a large number of representatives from the industry, and it is striking how widely supported it is by those to whom I spoke.

The document owes a lot to the model the previous Government established for the UK automotive industry. The establishment of the Automotive Council made the UK the investment destination of choice for the world automotive sector in the past five years, not only the past two. The recent announcements by Honda and BMW—trumpeted by the Prime Minister—followed earlier decisions on investment by Nissan, General Motors and Toyota, and are testament to the attraction of the UK.

The Automotive Council has been a success for important reasons. First, it has buy-in at a very senior level from both Government and industry. Secondly, it has shown a capacity to identify the policy required and to implement it. The most obvious example is the car scrappage scheme, which the Government implemented quickly and efficiently in response to a crisis in the automotive sector in 2008-09. The long-term consequences of the framework for developing effective policy are reflected in the recent inward investment decisions made by businesses based abroad.

Thirdly, there is a spirit of co-operation in the industry between management and the work force. I despair at some of the rhetoric that I hear from the Tory right about fire-at-will policies. Such policies will undermine successful employment relations in successful businesses and do nothing to improve skills development. I urge the Minister to make early visits to plants such as Halewood on Merseyside, where the close working relationship between trade unions and management is creating an effective workmanlike atmosphere in which real progress is being made.

[Mr Jim Cunningham (Coventry South) (Lab)]

Will the Minister extend his visit to Jaguar Land Rover, where the trade unions recently played a big part in securing more than 1,000 jobs in the west midlands? That was no mean feat for trade union co-operation.

[Ian Lucas]

Absolutely. That is an excellent point. In his new role, I am sure that the Minister will see such examples if he visits those factories and others across the country.

[Chris White (Warwick and Leamington) (Con)]

I congratulate the hon. Gentleman on securing the debate. The aerospace industry is vital for the UK economy. It has thrived through a combination of good management, supportive trade unions and long-term Government support. Does he agree that we should learn lessons from the success of the aerospace industry and draw on them to build a comprehensive industrial policy in Government?

[Ian Lucas]

I agree with everything that the hon. Gentleman says. An important thing that industry and Government can do together is identify deficiencies in the UK and devise policy to address them. Supply chain development has been identified as a difficulty that needs to be addressed in both the automotive and aerospace sectors. I am pleased that the UK aerospace partnership is following that broad structure, which has been successful in the automotive sector. I hope that the successful approach will continue. Will the Minister confirm that he will act as the joint chair of the partnership with Marcus Bryson of GKN? Will that reflect the Government’s commitment to the success of the partnership?

In passing, I should mention that I am grateful to GKN for providing me with an Industry and Parliament Trust fellowship back in, I think, 2003-04. It gave me a great insight not only into the company and the aerospace industry more generally, but into the onset of globalisation, its challenges and the work that a large manufacturing company needs to do to deal with it.

In all my dealings with the aerospace sector, I have been struck by how good it is at engaging with MPs—not only local MPs, but anyone who shows an interest in the industry. It is keen to work with both Government and Back Benchers to extend the appreciation of the industry. The general public still have not got the fact that we are leaders in aerospace—I take part of the blame for that, because I was the Minister for a year—so we need to repeat that fact consistently.

Airbus, which is next to my constituency, has been a great friend to me over many years. AgustaWestland has kept me informed about the exciting developments in the civil helicopter sphere in which it is involved. The ADS group, as a collective organisation, works extremely hard to promote the aerospace industry in the UK.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

My hon. Friend mentioned AgustaWestland. As shadow Defence Minister, I would say that British aerospace’s enormous success and the respect that it is held in globally are extremely important to the defence sector. The commercial and defence sectors are put in separate boxes—one does well and the other less well—but it is vital that we have a strong commercial aerospace industry, which in turn supports our defence needs.

[Ian Lucas]

That is indeed the case. My hon. Friend makes a very good point about the importance of both the defence and the civil aerospace sectors. There will be particularly difficult times, as there have been for the defence sector in the past couple of years, while the civil aerospace sector is more buoyant. It is important to have a very close relationship between those two arms of the sector to ensure long-term planning.

Aerospace is a growing sector. The aerospace growth partnership report states that

“growth in air travel has proved remarkably resilient”.

It is forecast that that will continue, with 27,000 new large civil airliners needed by 2030. There are also extremely challenging climate change regulations in place, so air travel expansion will be coupled with demand targets that will need to be met by technological advances. As a nation, we are well placed to address those challenges—for example, through the development of composite technologies, leading to lighter, more fuel-efficient aircraft. We need to make sure that such commitments are worldwide, so that we do not hand a competitive advantage to our competitors. We must ensure that the UK industry’s advantages are not prejudiced in the world market.

One of the key issues facing UK aviation at present is the introduction of the EU emissions trading scheme. Please will the Minister confirm that the impact of the scheme on UK aviation is being assessed? What steps are the Government taking to ensure that the UK industry is not prejudiced by the introduction of that scheme?

[Mark Tami (Alyn and Deeside) (Lab)]

Does my hon. Friend accept that the aviation and aerospace industries have made great strides and great progress in cutting emissions compared with, for instance, shipping, where emissions are still very high and very little progress has been made? The focus seems to be very much on aerospace, as if it was somehow the only polluter.

[Ian Lucas]

My hon. Friend is absolutely right. He knows the great Brian Fleet from Airbus very well. The first time I met Brian in 2001, shortly after I was elected, I raised the issue of emissions, which took him slightly aback. He was able to give me a very good response on the work that Airbus was doing back then to combat the emissions challenge. That has come to fruition with the A330—an incredibly impressive piece of engineering—and that project has very ambitious goals for addressing the climate change challenge. As a nation, we have the advantage that we can produce more fuel-efficient, lighter aircraft than anyone else, and we should use that to increase the strength of our industry.

There is, however, a threat. I am advised that China has suspended orders of 45 A330s from Airbus, which amounts to $10 billion of business. That might have a real impact on Airbus jobs across Europe and also act as a barrier to environmental progress. The aerospace growth partnership must also work hard to identify the deficiencies that exist in the UK aerospace sector. The industry is open about those deficiencies and wants to work with the Government to address them.

Recent investment decisions—such as the one in June to shift the conversion of 14 A330 multi-role tanker transports from Cobham Aviation Services to Airbus Military in Madrid, costing about 300 UK jobs—have sent out warning signs. It is important to appreciate why that is happening. There was the real worry about the failure of the UK to win a £13 billion military aircraft contract with India, which the French press called

“the biggest arms contract of all time in the subcontinent”.

The UK lost that contract. I hope that the aerospace growth partnership will consider key decisions made by international investors when such investments happen and, if they go abroad, look at why they do so.

[Mr Jim Cunningham]

Another issue that affects not only the aerospace industry but manufacturing in general is the law of unintended consequences. For example, the EU’s introduction of new financial regulations, even though we all think that they are necessary, can mean—I hope that the Minister will address this—that when companies, such as manufacturing ones, borrow from a bank to hedge against changes in exchange rates and so on, that can have a major impact because it affects their liquidity, which is a big concern in manufacturing at the moment.

[Ian Lucas]

Indeed it is. I am sure that the Minister will address that point in his closing remarks.

It is imperative to have the continuity that I hope we are seeing in aerospace policy taken forward from today. Above all, aerospace is a long-term business that needs long-term approaches from the Government and from industry. What is very encouraging about the aerospace growth partnership is that, as a Minister who had responsibility for aerospace in the previous Government, it has so much in it that I am pleased to support. I am, however, concerned about whether the Government as a whole buy into such an approach. Last weekend, the Minister said:

“Deregulation and privatisation worked before”.

Will he please clarify what particular deregulation he intends to apply to the aerospace industry, and how that will help Britain to compete?

One identified weakness in UK aerospace is access to finance. I take a contrary view to the UK Government about the banking deregulation of the late 1980s, which was one reason why British banking has been so unresponsive in its support for manufacturing companies. Banking deregulation since the late 1980s has reduced competition between banks, and the welcome recent expansion of challenger banks is a development that could assist supply-chain development in the UK. I am very pleased by what the Secretary of State has said about a business bank that would build on the initiatives of the green investment bank—it would also build on developing Labour policy—but such a bank must not just be a rebranding of existing funding mechanisms. Will the Minister say whether such a bank would be able to raise capital to support the aerospace industry?

Those are all Government initiatives that business has identified as necessary to address deficiencies in the banking market. That market, which has built up since the 1980s, has produced a situation in which businesses, especially smaller and medium-sized ones, have been starved of investment. The advantage of the aerospace growth partnership is that it has identified a defect in the industry and is working in partnership with the Government to address it. The last thing that the industry needs is a raft of soundbites born out of the dogmatic attachment to laissez-faire that the Secretary of State deprecated in the Chamber on Monday.

The industry also needs an effective Department that not only says the right things, but does them, too. Earlier, I mentioned the success of the car scrappage scheme, and in aerospace there has been repayable launch aid investment, which is a key factor in the continued success of the British aerospace industry. Contrast that with what the Public Accounts Committee said this week about the regional growth fund and the role of this Government—that

“the Committee was highly disappointed to find that so few final approvals had been given and so few projects had actually started. The Committee was particularly concerned that with £1.4 billion set aside for the Regional Growth Fund, of the £470 million so far paid out by Government, £364 million has been parked with intermediary bodies via endowments and a further £57 million paid to other intermediaries. Only £60 million has been spent on front-line projects.”

[Mark Tami]

The key to repayable launch aid investment is that it is repayable. Aid has been repaid, and the scheme has been very successful for companies such as Airbus, but the Government have also made money on it, so it makes sense all round. It is not only about the money, but about the fact that the Government are demonstrating to other Governments that they support companies such as Airbus.

[Ian Lucas]

Indeed. Airbus consistently says that the scheme has been a great return on investment for the British taxpayer and that it has provided not only payments in cash, but, over many years, jobs—including high-skilled ones—training and careers for young people in regions such as north-east Wales, which my hon. Friend and I are honoured to represent.

When Government funding is limited, it must be efficiently and quickly applied. UK aerospace is a success. In “Reach for the skies” we have an agreed approach across political divides that has been formulated by the industry to ensure that it remains a success, and it is set out in the aerospace growth partnership report. We now need continuity and concentration on swift implementation of policy. It would be a massive mistake to undermine the shared vision of the future by applying outdated ideology. That has been part of the problem and will certainly not help our aerospace industry to rise to the challenges of the future.

--- Later in debate ---

[Mark Tami (Alyn and Deeside) (Lab)]

Thank you, Mr Turner, for calling me to speak; it is a pleasure to serve under your chairmanship today. I also welcome the Minister to his new job, and I am obviously very pleased that my hon. Friend the Member for Wrexham (Ian Lucas) was able to secure this debate.

As hon. Members have said, we can be rightly proud of the British aerospace industry. It has been a great success for our country; it is high-value, high-tech and high-quality. It is everything that we want it to be. Several colleagues have said that the industry is worth more than £24 billion to the UK economy and that more than 400,000 jobs rely on it, either directly or indirectly.

I am proud to have Airbus at Broughton in my constituency. It is a company that supports around 100,000 jobs, either directly or indirectly. Broughton is the centre of wing excellence, not only for the UK but globally.

Airbus has been a success story, but the success has been hard won. Back in the 1970s, when Tony Benn, the then Secretary of State for Industry, had a choice to take up the share in Airbus or support Concorde, he chose the latter, which in hindsight was probably not the better option. BAE Systems picked up the share in Airbus, and we were fortunate in the UK to have the wings. It was through luck rather than judgment, if we are honest, but the wings have turned out to be the best part of the aircraft to have, with a lot of value added. BAE Systems chose to sell its share several years ago, and that is generally regarded as not the brightest decision it has ever made. Then again, the company probably has a record of such decisions—if I am not being too unkind.

Airbus has continued to grow, and projects such as the A380 and the A350 are moving on. Despite the fact that we were told that there would not be a market for some of the aircraft, the orders are now beginning to come in and the company is extremely successful.

It has not all been plain sailing. The events of 9/11 saw a dramatic decline in orders, and some orders were scrapped. Airbus was able, nevertheless, to ride that difficult period, thanks not only to the company itself but to the unions, which made some difficult choices to maintain employment and, importantly, the skill base, as colleagues have already mentioned. One of the first decisions taken after 9/11 was to write to every apprentice in the company to say, “Whatever happens, your job is safe.” That compares, perhaps, with the approach of some other companies—if I am honest, particularly British ones—whose first decision would have been to get rid of apprenticeships, considering them a cost rather than the long-term investment that they are.

Currently, Airbus has a 64% market share of civil airliners, which is an incredible state of the order book. There were more than 1,400 orders last year and, with a backlog of 4,500 orders, that equates to work for about seven or eight years. Last week we saw the first A350 wing leave Broughton for Toulouse, for the test aircraft that is being put together there.

The apprenticeship scheme is important because it is an investment. There are 393 apprenticeships already going through, and a further 85 apprentices have been recruited this year. We have to praise the company, because it has not been doing this only recently, but for many years, at a time when the rest of British industry had decided, frankly, that somehow apprenticeships were a thing of the past, and that, rather than investing in younger people in their own companies, they could pinch staff from others.

[Ian Lucas]

Isn’t it striking how many individuals in the aerospace industry at very senior—chief executive—levels are former apprentices?

[Mark Tami]

Yes, that is true. We have mentioned Brian Fleet, who has retired from Airbus but started off as an apprentice there, left and then came back. That is telling. Such people have a real feel for all levels of the company and are loyal to the aerospace industry and to this country.

Nevertheless, we cannot rest on our laurels. There are threats to Airbus, not only from Boeing in America but from growing industries in Russia, Brazil, Canada and China. When orders are given to Airbus, or indeed to Boeing, part of the deal will often be that some production function will end up going to one of those countries. We might not like that, and in an ideal world it would not happen, but that is how it works, and the challenge for us is to stay ahead and always be moving forward so that no matter what we end up giving away we have something to replace it with, the skills and value of which are hopefully higher than what we have lost.

Airbus is a European partnership, and we are fortunate to have the wings. Spain, Germany and France would love to have the wings. Although we have had a good order book, going back, as I mentioned, for many years, it is always about the next aircraft. We have the A350, and the next one will be the replacement for the A320, which is the real workhorse of the fleet for most airlines. Clearly, we want that here, and it should be here, but Spain, Germany and France will make a good case for its being elsewhere. If we lost that work, the long-term future would not be good. It is vital, therefore, that we invest now. Composites are the future—in fact, they are not the future, they are now. Aircraft are being built with composites now. The UK was behind in composites, and is now catching up, but we need to invest more if we are to bridge the gap that is still there.

The Government need to invest. They have put money in and given support, but I am concerned when I hear that government is not about picking winners. I do not have a problem with picking winners; I have a problem with picking losers. We must invest in success. In the past, the Government too often waited for companies to fail and then threw money at them. That perhaps delayed what was going to happen anyway, but rarely did it turn around a business that had probably gone too far to be saved. I do not have a problem with investing early in the success of a company. There is a huge and growing market out there to exploit, and we are fortunate to be in a strong place in it.

Mention has been made of the military side of things, which unfortunately is sometimes seen as totally different from the civil side. Clearly the planes are different, but the ways in which planes are developed, whether via composites or a whole host of engineering changes, often come from innovations made through military aircraft. The 400M military transport aircraft is the first aircraft to have composite wings produced in Bristol. A lot of work has been done there that could be used for composites in civil aircraft as well. We have only to look back to the Boeing 747, the entire development of which was, I think, paid for by the US military apparently because it was going to be a military transport aircraft. Clearly, it was never going to be that; it was just a way of being able to pay Boeing’s development costs for what became a successful large-scale airliner. We cannot, therefore, separate civil and military; they are both important.

Colleagues have already addressed some of the main issues regarding the EU emissions trading scheme, so I will not go into great detail, but the point I will make is that China and America are concerned and angry about how the scheme operates. I am not saying that we should just scrap it, but we need to consider ways of getting through the issues, otherwise we will end up with a repeat of what we had in the World Trade Organisation, with the different sides throwing rocks at each other and no one really winning.

Mention has been made of the orders that are potentially under threat. It is not just Airbus that would lose from that, but the whole supplier chain, including Rolls-Royce, which would supply the engines for the aircraft. It is important that the situation should not spiral out of control.

The motor industry has also been mentioned; clearly the industry in the UK went through a dramatic decline. I am pleased that we now produce more cars than we ever did in the past—or, if we are honest, we assemble more. However, the supplier chain has not recovered and we have lost quite a lot of the design stuff. Some has not come back—perhaps it never will. Even the aerospace market is very competitive, and there is pressure to get suppliers to give the best price. Sometimes those suppliers will come from abroad; but we still have a good supplier chain in this country, and we need to invest more in it.

Training has been mentioned, and perhaps, whether with Airbus or anyone else, we need to focus lower down, because we still have skill problems. We must be honest about that and address it. It is a major problem, and it relates not just to technical skills but some basic skills. I think many employers are struck by the fact that there are still such problems.