Aerospace Industry

Jim Cunningham 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.

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[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.”

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[Andrew Stephenson (Pendle) (Con)]

I congratulate the hon. Member for Wrexham (Ian Lucas) on securing this important debate and welcome the new Minister to his role. His predecessor, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), was a strong and vocal advocate of the aerospace industry, and I hope that the Minister will become one, too. I apologise to him and other Members that I have to leave straight after my contribution, but I look forward to reading the debate and the Minister’s response at a later date.

The aerospace industry is vital to Pendle’s manufacturing base. I raised the subject during Business, Innovation and Skills questions last Thursday. In reply, the Secretary of State said:

“Aerospace is an excellent example of how Government and industry can work together to create growth and world-leading industries.”—[Official Report, 6 September 2012; Vol. 549, c. 382.]

The UK aerospace industry is the second largest in the world. It is worth more than £24 billion and employs a huge number of people in Pendle in highly skilled jobs in firms such as Euravia, Graham Engineering, the Merc Engineering Group, PDS (CNC) Engineering, Regal Precision Engineers, Rolls-Royce, T and R Precision Engineering, Weston EU and Whitwam Precision Components.

Last November, the hon. Member for Wolverhampton North East (Emma Reynolds) re-established the all-party parliamentary group on aerospace, and I was delighted to take on the minor role of treasurer. In June, we held a meeting with the Secretary of State for Business, Innovation and Skills, and I was encouraged by what he said about Government support for the industry.

The broad picture both locally in Pendle and nationally is encouraging. I have visited most of the companies that I just mentioned, and on the whole, they are doing well and are positive about the future. Aerospace industry exports rose by 15.6% in 2011 and the civil aerospace market is booming worldwide.

Pendle’s largest aerospace employer, Rolls-Royce, which employs more than 1,000 staff at its sites in Pendle, recently reported record profits and an order book of nearly £52 billion in its civil aerospace division. I took my right hon. Friend the Chancellor of the Exchequer to the Barnoldswick site before the last general election and look forward to my next visit there on 19 October.

I echo what the hon. Member for Wrexham said about the positive role of the trade unions. One concern that was raised by Rolls-Royce trade union officials at their last meeting with MPs here in Parliament—it was also raised with me by my local trade union representatives—is the unforeseen consequences that the EU’s reform of financial regulation could have on companies such as Rolls-Royce, and I could not agree more with them.

The Minister might be aware that, after the financial crisis, the G20 agreed that over-the-counter derivatives contracts should, if sufficiently standardised, be moved to clearing houses and be reported to trade repositories. That poses real challenges for large non-financially based companies that utilise OTC derivatives for risk management purposes. That is particularly important to the UK aerospace sector, because virtually all deals are done in US dollars.

[Mr Jim Cunningham]

Does the hon. Gentleman agree that the issue affects not only aerospace but UK manufacturing, which is something that we are all trying to build up at the moment? He has touched on an important issue.

[Andrew Stephenson]

This is a huge matter that will affect all non-financially dominated companies and all large-scale manufacturing companies. Using OTC derivatives allows companies to focus on development and growth of the business and is a simple way of managing risks; it is simply good housekeeping. If the move goes ahead, it will not be long before companies such as Rolls-Royce will be looking to move their headquarters overseas. It is a crucial point, and I applaud the trade unions for spending so much time trying to raise it.

Turning back to my local area, the regional growth fund has had a positive effect. The Government have agreed to fund the Regenerate Pennine Lancashire bid for an additional £7.5 million in business support and its accelerating business growth in Lancashire scheme is designed to meet the needs of local manufacturing small and medium-sized enterprises.

There was also a successful bid from the North West Aerospace Alliance, which I met last December to discuss the challenges that face the industry. It is currently putting together a bid for a national aerospace supply chain centre that would be based in the enterprise zone at Samlesbury in Lancashire. Needless to say, I strongly support the creation of such a centre in the north-west, even though it would not actually be in my constituency.

The regional growth fund announcements came just two weeks after the Government said that they would back the bid from the Visions Learning Trust to create a new £18 million university technical college in east Lancashire. The sponsors of the new UTC are Pendle companies with large aerospace contracts, such as Graham Engineering and Weston EU, so the college will play a key role in addressing the skills shortages faced by many local aerospace companies.

All such developments come on top of issues that the Minister has previously talked about, such as cutting corporation tax, promoting exports and getting the banks lending again. However, there are some areas where the Government could go further. In advance of this debate, I spoke to Dennis Mendoros, the founder and managing director of Euravia—an aerospace company based in Kelbrook. It is a medium-sized business with a global reach, and it won the Queen’s award for export in 2010. Mr Mendoros believes that the main issue that has not been extensively discussed is the support that should be provided to aerospace companies with a strong export record.

As many hon. Members will know, exports account for nearly 75% of the UK aerospace turnover. None the less, Mr Mendoros feels that UK export companies do not receive any real structured support from the Government, whereas other countries, such as France, Singapore, and the USA have a structured national strategy for aerospace development. He believes that much more could be done to ensure that UK Trade and Industry and the Ministry of Defence are focused and committed to supporting UK export companies, especially small and medium-sized businesses such as his own. In addition, he believes that it would be helpful to receive tax incentives to help procure new technologies, skills and expertise, which are essential for continuous growth.

I am aware that industry and the Government have formed the aerospace growth partnership to look at those issues and at what more can be done to support the industry. Will the Minister explain how that partnership and other structured support can help SMEs such as the one run by Mr Mendoros?

In conclusion, the aerospace industry, which is vital to Pendle, is doing incredibly well, with a growing number of orders and jobs. However, more could be done to help SMEs with exports. As I have said in previous debates on manufacturing, the long-term future of the aerospace industry in the UK cannot be secured without a long-term commitment to research and development and support for the supply chain. The Government have done a lot for the aerospace industry so far, but many of our international competitors are taking similar steps, so we need to be constantly striving to stay ahead of the game.