GKN: Proposed Takeover by Melrose

Jack Dromey Excerpts

Thursday 15th March 2018 Westminster Hall

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Stringer.

Guest, Keen and Nettlefolds has a ring to it, and GKN is an iconic engineering company, a British success story with a history stretching back over 259 years, founded in south Wales. Three years ago, I remember a man who had worked 44 years for GKN calling it “as British as the royal family”.

Here in Britain, GKN employs 6,000 people across major sites in Filton near Bristol, Birmingham and, in particular, the Isle of Wight. It now employs 58,000 people worldwide, with companies and joint ventures in more than 30 countries. Crucially, GKN undertakes the largest portion of its research and development work in the UK, with the majority of aerospace R&D taking place in Filton and automotive R&D in Abingdon.

I welcome the all-party approach to this issue, and the hon. Member for Redditch (Rachel Maclean) is right to say that we talk with pride about GKN, its workers and what it does—so do I. The Driveline factory is in my constituency—800 excellent men and women who serve the industry and the nation well.

The takeover puts a great British engineering icon into jeopardy, because of not only the history of Melrose but what is happening with some of GKN’s major customers. Reference has already been made to the revelations made only yesterday in the Financial Times about what Airbus has made abundantly clear. In the words of its chief operating officer:

“The nature of our industry is one that requires a commitment to long-term investment and strategic vision...The industry does not lend itself to shorter-term financial investment which naturally reduces R&D budgets and limits vital innovation.”

As my hon. Friend the Member for West Bromwich West (Mr Bailey) rightly said, typically we are talking about development lines and R&D strategies that stretch over 20 or 30 years, and the Airbus chief operating officer went on:

“It would be practically impossible for us to give any new work to GKN under such an ownership model when we don’t know who will be the long-term investor.”

He is right and—I can say this with confidence—others will follow in the days to come.

As the hon. Member for Isle of Wight (Mr Seely) said earlier, Melrose has a chequered past with regards to the companies it has owned. For example, Melrose owned Dynacast from 2005 to 2011, during which time it moved much production overseas to—in its words—“cheaper countries”. Melrose closed its Alcester site the same year that it took over the company and had no UK presence between 2005 and 2008. In July 2008 it acquired the FKI group, of which manufacturing firm Brush is part. Melrose began selling off parts of the group in 2009 and sold off about 15 businesses between 2009 and 2014. It implemented severe job cuts at the Brush plant in Loughborough, taking the number of employees down from 1,200 to 600, with a further 270 redundancies announced this year, again moving production overseas and hollowing out a once great company.

One of the workforce’s big concerns, which I share, is pensions. As the hon. Member for Redditch said, like many UK companies GKN has a significant pensions deficit that it is working hard to reduce. By agreement with its workforce and their trade unions, in 2017 the GKN group pension scheme was closed to future accruals. A contribution of £250 million was paid into the scheme. Crucially, on assessment of the company’s pensions covenant, the scheme was found to be the “high end of good”. No concern was expressed about GKN’s ability to deal with the pensions problem.

Significantly, however, Melrose has not given the guarantee it was asked for. On the contrary, its whole approach has been to increase debt significantly. The consequences of that will be to weaken the strength of the covenant and to put at risk the pension scheme. In the aftermath of tragedies such as Carillion and British Steel, the last thing we need at an iconic British engineering company is such a problem befalling the workers of GKN.

To turn to the defence issue, GKN Aerospace has 52 manufacturing locations across 14 countries and turnover of £3.5 billion, much of it defence work. Reference has been made to GKN Aerospace and what it does here and abroad. It supports the British armed forces, such as with the Typhoon, the F-35, the P-8, the A400M, the Chinook, the Apache and the MQ-9. Equally, many of the other platforms that GKN Aerospace is a part of support the armed forces of NATO allies. GKN is a strategic supplier of defence platforms, making canopies for the Typhoon, for example, or being a strategic supplier for the F-35. In factories all over Britain, its role in support of our armed forces and that of our NATO allies is critical.

In a former life, I was chairman of the defence unions and worked closely with the Ministry of Defence. Time and again at events and at first hand, I saw GKN on the ground with that intimate relationship with the Ministry of Defence and our allies. That is why I say to the Minister that he has the power to intervene. The Secretary of State has the power to intervene under section 52 of the Enterprise Act 2002.

Another reason I think this issue is important is that one of the last battles I fought in my former life was the battle against Kraft’s takeover of Cadbury. No one in Britain wanted it. Cadbury was a profitable, iconic British company that was taken over by a debt-laden American multinational. Guarantees were given, but the first guarantee about the Bristol plant was broken and it was closed. Sadly and inevitably, that led to a debate about tightening up the rules on corporate takeovers.

The Government have made some faltering progress in the right direction, but they have gone nowhere near far enough. The Prime Minister has committed to look at the rules and to change them so that we do not have such bids ever again succeeding. Having said that, and however important the future debate is on general takeover regimes, the Government have the powers here and now. They have the grounds. If there is a will, there is a way. I earnestly hope that the Government will respond to the very substantial all-party concern that has been expressed in this place.

I feel a particular passion because I used to represent the people concerned. I have been into the GKN Driveline plant and others; I have seen men and women who are the salt of the earth, with 25, 30, 35 or 40 years’ service, following their mums and dads. I have been into their homes; they have GKN awards and certificates up on their walls. They are proud of who they are and what they do. This country is proud of GKN, and the last thing we want to see is for GKN, that great British engineering icon, to become history.