Aerospace Industry

Mark Tami Excerpts

Tuesday 2nd September 2014 Westminster Hall

[Sir Peter Luff]

That is true in the civil and defence markets—long lead times are a characteristic of new aircraft development. That is why the AGP is intended to span 15 years, and why it is vital that it receives cross-party support, to ensure support continues throughout future Administrations. Therefore, I have a central and, I hope, easy question for the Opposition. Do Her Majesty’s loyal Opposition hold true to the principles to which Labour worked in the last Parliament, and do they still endorse the broad approach being followed by the Government in this Parliament, subject to the kind of detailed questions that we are asking today?

I cannot avoid the sensitive issue of the understandable rivalry between Airbus and Boeing. I bow to no one in my respect and admiration for Airbus UK and its management team. I bitterly regret that the British share in the ownership of this fine business was lost when BAE Systems unwisely divested its shareholding. As a result of that decision, we have to work all the harder to ensure that we keep, and if possible increase, the UK’s share of each Airbus aircraft that is built. Airbus employs around 10,000 people directly in the UK: 6,000 at its site in Broughton, north Wales; and 4,000 at Filton, in Bristol. Broughton manufactures the wings for all Airbus civil aircraft; Filton designs the wings, as well as designing and testing the fuel systems and landing gear. Filton is also the manufacturing site for the wings of the A400M military transport aircraft, which will soon go into RAF service as Atlas. The Airbus supply chain involves another 1,000 UK companies; Airbus is one of the UK’s biggest inward investors in R and D, with 2013 investment at around £480 million; and there is the new North factory in Broughton.

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

I join other Members in saying that I am very pleased the hon. Gentleman has managed to secure the debate. I will make a point before he moves off the issue of BAE Systems. He clearly said that he regrets the sale by BAE Systems of its share in Airbus. In hindsight, BAE Systems may have taken a different road, but one of the problems that was harming Airbus in this country was that BAE Systems cried wolf so many times, threatening to sell its share—it said it was not selling the share, then threatened to sell it. Does he accept that that, too, was not a sustainable position?

[Sir Peter Luff]

The hon. Gentleman makes an important point. We are talking about the long-term commitment to this sector; long-term commitment to ownership also matters very much. I strongly endorse what he said.

Of course, the new North factory in Broughton was opened by the Prime Minister three years ago. That factory shows the continued commitment of Airbus to the future of UK manufacturing and R and D. The company deserves the kind of high-level endorsement demonstrated by the Prime Minister. However, we need to give that endorsement practical substance by attacking non-compliant World Trade Organisation subsidies of Boeing and by robustly supporting export campaigns for Airbus aircraft.

Let us move briefly to Washington DC and, in a sense, to Washington state. At the end of July, it was astonishing to hear a senior Boeing executive tell a congressional hearing about

“the economic and employment benefits Europe has achieved with aerospace using massive state support over the past four decades”.

The old biblical phrase about the mote and beam comes to mind. The land of the free does not always extend its commitment to freedom to free trade.

Sadly, an ongoing dispute before the WTO regarding US and EU support for large civil aircraft manufacturers remains a real threat to the competitive position of Airbus. In essence, the WTO has found that European repayable launch investment loans to Airbus are legal and WTO-compliant but that many US grants, contracts and tax concessions to Boeing between 1989 and 2006 were WTO-inconsistent. Against this background, it is bewildering that, in blatant disregard of the 2012 WTO findings, Boeing has been awarded the single largest targeted tax break in US history, amounting to nearly $9 billion, in order to underwrite development and production of the new 777X aircraft in Washington state. The 777X is a serious competitor to Airbus’s wide-body A350 XWB and A380 families. This latest tax break for Boeing essentially allows it to develop the new aircraft for free, which places Airbus and its suppliers at a huge competitive disadvantage. It means that fair competition is not possible for products such as the A380. The “massive state support” happens not in Europe but in the USA. Will the Minister assure me that the UK Government will use their strong influence with bodies such as the European Commission and the WTO, and work with other Governments, to ensure that there is a level playing field in which UK companies can operate, with a fair global legislative environment?

Having said all that, Boeing builds excellent planes and it will remain a force to be reckoned with for the foreseeable future. We may think that the US Government’s use of subsidies is outrageous, but we still respect the technical skill of Boeing and the success of its aircraft. As the Defence Minister with responsibility for equipment, I was determined that all the major defence suppliers—including Boeing, Lockheed Martin and Northrup Grumman—should be made to feel entirely welcome in the UK and were encouraged to invest here, so as to work ever more closely with our supply chain.

In that spirit, we should recognise the way in which Boeing has thrown itself into the UK, supporting the AMRC at Sheffield and, for example, the Royal Aeronautical Society’s excellent “Build a Plane” challenge. The views of the major US players in aerospace—defence and civil—who value our supply chains so highly must be properly understood if we are to ensure that British suppliers can play a significant part in their future products. Yet the very name “Boeing” seems virtually to have been exorcised from AGP documentation, with only the briefest and most cursory of mentions. We want British technology to be so compelling that Boeing has no choice but to increase UK content on its planes, but we will get to that point only if we properly understand its needs, too. What are we doing to ensure we have that understanding?

I turn to exports. Industry insiders tell me that official support for sales campaigns is absolutely vital for the aerospace industry. From my time at the Ministry of Defence—I look to my hon. Friend the Member for Aldershot (Sir Gerald Howarth) in this regard as well—I have supported, in India, Turkey, South Korea, and elsewhere, the excellent work of the UK Trade & Investment Defence & Security Organisation. Sadly, UKTI is seen as being

“a long way from being optimal on the civil side.”

Specifically, the industry needs more advanced information on when Ministers are travelling on trade missions and not just to have what one chief executive described to me, in a description I recognise all too clearly, as

“a complete obsession from a media/comms perspective for ‘announcables’.”

Aerospace contracts take a long time to negotiate and cannot just be pulled out of a hat because a Minister happens to be visiting a particular country. As that same chief executive said to me,

“The UK diplomatic service is one of the best in the world; my colleagues from overseas regularly say that to me, the PM has a high regard on the global stage—we should use it more. He has said to us on several occasions that he is happy to be the number one Airbus salesman—it’s just that sometimes the back-up from UKTI is lacking.”

Another company has emphasised to me that advance warning of ministerial visits abroad and of trade delegations here to help support sales campaigns is just not being given, although that happens regularly—routinely—in other European countries such as France. On exports it seems we could do much more. Will the Minister pledge to look at that issue?

When politicians speak of SMEs, they often mean the very smallest firms, employing perhaps 10 or 20 people —members of the Federation of Small Businesses, say. Much of the debate about the aerospace industry appears to the outsider to revolve around the original equipment manufacturers on the one hand, and SMEs on the other. Discussion of the former usually focuses on the pursuit of new programme investment, in the case of purely indigenous companies, or on the methods by which non-indigenous companies can be persuaded to invest in the UK, embody original intellectual property in the minds of UK employees and deal with the constraints of the US international traffic in arms regulations regime.

Discussion of SMEs quite properly tends to concentrate on increasing their market access. However, in such a debate the industry layer below that of the OEMs but above that of the SMEs tends to be ignored. This layer, made up of companies that we could call the large sub-prime suppliers, includes companies such as Marshall Aerospace and Defence Group, Cobham, Meggitt, Ultra Electronics and Martin-Baker, most of which are completely British; the value they generate flows directly into the British economy and the Exchequer.

I acknowledge that many of these companies have particularly strong positions in defence aerospace, but I will be asking shortly whether we are right to think of the defence and civil markets in such distinct compartments. Any serious analysis of the future of the UK aerospace industry should take account of the large sub-prime suppliers and their contribution to the UK economy, national security and prosperity as well as to innovation, skills and training. Are we focusing sufficiently on the large sub-prime businesses in the AGP strategy?

We must also ask whether the British supply chain is sufficiently robust. Monday’s Financial Times reported that there were concerns about the ability of the UK supply chain to cope with the rapid upturn in orders. Industry chief executives have expressed concern to me about the lack of ambition of some of their suppliers, which are content to remain static but are risking stagnation or worse through an absence of plans for growth. Others have expressed concerns about the stability of small suppliers and said that they are forced to use two different suppliers for the same component to ensure stability of deliveries—and that second supplier is generally not a British one. There may be a need to provide not just finance to the smaller SMEs, as the AGP promises, but management consultancy on growth strategies and possible consolidation with other suppliers. I suspect more active intervention in the supply chain will be needed. Will the Minister consider that?

Is it right to limit the scope of the AGP’s work to the civil aerospace market? I ask because I am sure the linkages with defence aerospace, and space in particular, should be more explicit. Indeed, the Office for National Statistics classifies activity in this area as

“manufacture of air and spacecraft and related machinery”.

The Library briefing note reminds us that support for the sector from successive Governments owes much to the need to sustain the defence aerospace sector.

The AGP could learn directly from the Defence Growth Partnership, too. As noted in “Delivering Growth”, recently published by the DGP, the UK’s defence value chain comprises all suppliers of equipment, support and technology for defence, including defence aerospace, and includes the enabling functions of Government, ranging from test facilities to regulators, and the UK’s strong academic and science base in universities, research bodies and technical institutes. This is a profoundly capable resource, but a diverse one.

The DGP intends to harness the power of the value chain in a more co-ordinated way, to enhance responsiveness, agility and competitiveness in meeting customer needs. In addition to leveraging the existing value chain, it aims to maximise the synergies with other sectors and attract new companies into defence—particularly SMEs that can bring fresh thinking into the sector, but might otherwise struggle with market access. This is the kind of approach that we see in all industrial strategies, but I do not see it in the AGP.

In the 2010 Select Committee report, we looked at defence research and expressed concern about the sharp reductions being planned by the last Government, concluding that

“If we are looking at developing UK national capabilities for future defence requirements, it is self evident that if there is less being spent on research and technology now, we will have less UK capability in future.”

We also stated:

“While defence research is primarily the responsibility of the Ministry of Defence it is important that the Government acknowledges the fact that defence research has an impact on other areas of R&D, especially other high-tech industries. The Department for Business, Innovation and Skills should be involved in any discussions about funding for defence research to ensure that the impact of any reductions on advanced manufacturing industries is minimised.”

As Minister with responsibility for defence equipment, I was proud to put a floor under the Department’s spending on science and technology and prevent any further cuts, but our spending on defence S and T remains far too low.

In defence aerospace, much of the activity will have a direct read-across to the civil sector, particularly, for example, when it comes to sustaining relevant skills and fostering innovation. The rigid policy separation between defence and civil markets owes much to departmental boundaries, but also to a disappointing sense that promoting defence is not quite as acceptable as promoting civil aerospace. No such concerns cloud the minds of US policy makers and Boeing is again the beneficiary. It is time we grew up and joined up the parts of aerospace more convincingly.

That leads me to my final comments on the importance of sustaining the engineering skills of the aerospace sector. This was one of the most compelling sections of the 2010 BIS report and, more than four years on, there is not a word I would alter. “Lifting Off” gives a graphic account of the skills shortages and the demographic problems facing the sector. However, what I find profoundly disappointing is the apparent lack of acknowledgment that these are the problems of the wider engineering sector, too. Yes, the strategy outlines actions of Government and industry to address the issue—I welcome unreservedly the 500 masters-level postgraduate places announced in the scheme and the development of high quality, employer-led apprenticeships—but as EngineeringUK says, the UK, at all levels of education, does not have either the current capacity or the rate of growth needed to meet the forecast demand for skilled engineers by 2020.

The Royal Academy of Engineering and EngineeringUK estimate that by 2020 in the UK there will be demand for between 1.28 million and 1.86 million engineers and technicians. Approximately 640,000 graduate engineers will be required by 2020 across all sectors of the economy. Seven out of 10 jobs will be to replace the ageing work force. UK higher education institutions currently produce only 21,000 engineering graduates and UK industry creates only 66,000 engineering apprenticeships each year.

Against that background, it is profoundly worrying that each of the published industrial strategies, including the AGP, seem to regard skills in their sectors in isolation. The progress report on the AGP this year speaks of

“improving the image of the”

aerospace

“sector to make it a more attractive career choice”.

Companies have briefed me proudly on their own contribution to solving the aerospace skills shortage, but the Government and the Royal Academy urgently need to work for consolidation and co-ordination of the plethora of schemes, to build a coherent, comprehensive cross-engineering approach.

--- Later in debate ---

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

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

Manufacturing and aerospace are clearly vital to the economy of north-east Wales and the north-west of England. At the heart of that, as has been mentioned, is Airbus at Broughton, where there are more than 6,000 jobs at one plant. Importantly, there are thousands more in the supply chain. We do not talk enough about the supply chain, although I am pleased that other hon. Members have done so today—without it, the primes would not be able to produce the goods. We should give it more support and discussion.

Airbus alone supports more than 100,000 jobs in the supply chain, and if we included the other aerospace primes the number would be very high. That area of activity is high quality and export-driven; it raises billions of pounds for the UK every year, and the jobs are of high quality as well.

If such a level of employment is to be maintained, and if there is to be expansion and growth, we need to improve our skills base. Even during the economic downturn, companies told me that they found it difficult to find skills at the level they need. Apprenticeships are important in that context; in the past three years in the UK, Airbus alone has enrolled 4,000 apprentices. It is telling that 70% of its senior managers were apprentices at one time. We need to send a message—I am pleased that other hon. Members have mentioned this—that apprenticeships are not something for kids who do not get to university because they are not bright enough. They are very important. We need to adopt more of a German model, where it is not a case of university for some and apprenticeships for others. We need a programme where it is more possible for people to transfer between the two. Most employers would probably say that the ideal person has a university qualification but has worked or done some training in the workplace—not someone who has been nowhere but the classroom, but someone who has skills they can use and the benefit of a university education.

We have a long way to go to catch up. For every pound that the UK spends on research and development, France spends £10 and Germany spends £15. Many hon. Members have mentioned the Aerospace Growth Partnership, which is doing a good job. It needs more, and we should help it more, but the key, as has been mentioned, is the fact that it has cross-party support.

A problem in the past has been that whoever came into government chucked things out and brought other things in, which led to uncertainty. Big employers—even small employers—do not know whether to invest in the relevant area, and whether the Government will still support them. A classic example of what I mean is the area of composites. The UK failed to invest in the coming material for aircraft. I was pleased that Lord Mandelson grasped that and realised that we should provide support. If we had not done that—we were well behind the Spanish and Germans, and I think we still are; we need to do much more work—we would have been in a difficult position.

The importance of the A400M, which has already been mentioned, was civil as well as military, because it demonstrated that we could do the relevant work with composites. The A350 extra-wide body will be 53% composite. Our colleagues in Europe—our partners in Airbus—would love to get their hands on that work. The Spanish and Germans have made no pretence about it. We are fortunate to have it, but I do not think that, just because we have built the wings for years, we can assume that we will always get them in years to come. We are only as good as our last aircraft, or our potential to produce the next one. Clearly the next big challenge for Airbus will be the replacement for the A320, which is the workhorse of so many airlines. If we were not to get that work, the longer-term future for Airbus in the UK would be bleak.

[Sir Gerald Howarth]

I am glad that the hon. Gentleman mentioned the Airbus A320. I happened to fly in one of the test models. It was, of course, a good example of Government and industry working together; the Thatcher Government put £250 million into the programme. Margaret Thatcher took a lot of persuading, but eventually even she agreed that Government intervention on that was a good idea.

[Mark Tami]

I totally agree. Going even further back, I remember when an Industry Secretary had the choice whether to keep the Airbus share or go for Concorde. He went for Concorde, which, in hindsight, was probably not the best choice. There will be crucial choices for the UK about Airbus in the coming years; the new A320 is almost certain to be a wholly composite aircraft, with structures different from those we are used to.

There is a big challenge for us out there, but there are also other threats to Airbus. The hon. Member for Mid Worcestershire (Sir Peter Luff) mentioned unfair competition. There is nothing wrong with competition, which is good in many ways, but unfair competition is bad and threatens the future of an important industry. For years, the US dominated both the civil and military aircraft markets and I suppose it thought that no one would ever challenge it. Airbus did, however, and it now accounts for a large share. New players such as China, Canada, Russia and Brazil are all looking for a segment of the market, so we cannot assume that the big players will remain unchallenged.

We need only to look at the 747, which was funded by the American Government as a military transport aircraft. Boeing actually received all the funding and had many of its costs paid and then—surprise, surprise—somebody decided that people could also be put on it and that it could be used as a civil airliner. Airbus and Boeing have both been to the World Trade Organisation. Such processes are always long and drawn out, but the WTO found in 2012 that many of the US subsidies were not allowable under WTO rules. Back in 2011, the WTO found that repayable launch investment was, but there was some issue with the interest rates.

The EU has sought to address some issues, but, as the hon. Gentleman made clear, the Americans have done the exact opposite and decided to give the biggest ever single tax break of $9 billion to Washington state, which will then hand it on to Boeing to pay for the development costs of the 777X, which is exactly what was done with the 747. That is happening at a time when America is looking to Europe for an agreement about more competition and more open markets.

To be honest, the problem is that the US wants to compete freely in our markets, but it does not think that we should be able to compete in theirs. We have seen that before, such as when BAE Systems tried to break into the American defence market. Probably the worst example was the air tanker competition in the US, which was won convincingly by Airbus, but Boeing then went crying to the US Government, who then stopped the competition and changed the rules so that Boeing could be the only winner. Surprise, surprise, the contract went to Boeing.

I certainly do not want us to return to a system of closed markets because that would not be good for Airbus or our industry, but we need a level playing field. We cannot have a system in which we are expected to play by the rules when others are not; many jobs will be lost, plants will close and we will return to Boeing, or whatever company, ruling the roost once more. We want open markets for our companies to compete in and can expect that America does as well, but the situation cannot be unfair. I hope that our Government will be far more forthright with Europe and will work with it to ensure that we stand up and make our case, because it is vital to the future of the industry.

I want to refer to another threat—the hon. Member for Mid Worcestershire may disagree with me on this: our future in Europe. I am particularly worried because Airbus is an example of the perfect way in which Europe can work together. Were we outside the EU, I have serious doubts that we would have the same level of investment. I am not saying that the plants at Filton or Broughton would close tomorrow or that we would lose existing orders, but we would jeopardise future investment as the Germans, the French and the Spanish would make a strong case for investment to be made within the European Union and not in an outside country. Those who are calling for our exit need to consider the implications for jobs.

[Sir Peter Luff]

I am grateful to the hon. Gentleman for his fine speech. Just for the record, I strongly agree with his point about membership of the European Union and the particular impact on the aerospace sector.

[Mark Tami]

I thank the hon. Gentleman for that. Such a move would affect not only Airbus, but also the many thousands in the supply chain.

[Mr Laurence Robertson (Tewkesbury) (Con)]

The hon. Gentleman is making a good speech. However, the biggest employer in my constituency is GE Aviation, an American company that has been visited by ex-Ministers. There was concern about its plans when it took over the plant, but it has heavily invested in it.

[Mark Tami]

I clearly welcome that. As I have said, it is good that we have American companies over here, but I would like to see more British companies buy companies in America, although that often seems difficult. There are great opportunities for us, but there are threats as well. We must learn the lessons of the past. We have lost many manufacturing companies that we thought would go on for ever, and many will never return. Aerospace is a great opportunity and we must grasp it and invest, not just let it fall by the wayside.