Aerospace Industry

Gerald Howarth Excerpts

Tuesday 2nd September 2014 Westminster Hall

[Sir Gerald Howarth (Aldershot) (Con)]

I reinforce the point that my hon. Friend made about the lead time for developing new aircraft today in comparison with even a generation ago. This morning, we had a briefing from the Royal Navy project director on the joint strike fighter programme. That programme has taken 14 years of development to get to where it is today, and we are a long way from getting any aeroplanes into service, which really illustrates my hon. Friend’s point.

[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.

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[Sir Gerald Howarth (Aldershot) (Con)]

It is a delight to participate in the debate under your chairmanship, Mr Hollobone, and to follow my hon. Friend the Member for Mid Worcestershire (Sir Peter Luff), who was my colleague at the Ministry of Defence. He has done us all a great favour in raising the debate, which follows a debate we had on 22 November 2012. Many of the key points that have surfaced in today’s debate were also mentioned then. I share his recollection of the Viscount flying over Windsor because I was at school at Haileybury and Imperial Service College junior school in Windsor. Indeed, I used to fly on the Viscount 700 from the then new Heathrow airport to my home in Hamburg in Germany.

I also share an appreciation of the Farnborough air show, which takes place in my constituency. Those present who did not attend the Farnborough air show need to report to my study afterwards to explain why, because the whole world comes to Farnborough. Interestingly, this year the air show was responsible for the signing of a record number of orders for new aircraft and systems. About $83 billion of business was done at the last air show; this year $200 billion of business was signed at Farnborough. It is hugely important to the British economy and to our industry.

Farnborough is home to BAE Systems, the world’s fourth largest defence contractor, and QinetiQ, which is one of the world’s leading research companies. QinetiQ holds more than 1,500 patents, 1,000 patents pending and has 1,000 defence contracts at any one time. Farnborough also has the headquarters of AgustaWestland International. Its senior vice-president in charge of international business is no less than our former colleague Geoff Hoon, with whom I get on extremely well. He is doing a great job promoting the interests of Westland around the world. I also have a lot of smaller companies in my constituency, such as Cam Lock, which makes face masks for every US naval fast jet in operation and for the Royal Air Force. I have EWST, which makes electronic warfare testing equipment. I have Sonardyne, which makes detection equipment. A huge amount goes on in my constituency, and I hope hon. Members will understand why I am keen to take part in the debate.

As my hon. Friend the Member for Mid Worcestershire said, aerospace is a hugely successful business in the United Kingdom. We are world leaders. We have the second largest aerospace industry in the world and the biggest in Europe. We have 17% of the world market. The UK industry is split 50:50 between civilian and military. It employs 109,000 people directly and 120,000 indirectly. It is a massive contributor to manufacturing industry. Everyone is talking about the importance of the manufacturing industry for this country, but we have in our midst the world’s second most successful manufacturing industry. Let us go out there and promote it. It is not just BAE Systems, QinetiQ or Rolls-Royce, but a whole string of companies, whose names I cannot exhaust. I will single out a few: MBDA, which stands for Matra BAE Dynamics Alenia; Cobham; Marshall; Babcock; Serco; Martin-Baker; and Bombardier—formerly Short Brothers. I have seen some of the fantastic work that goes on in Northern Ireland, which is world leading in missile technology.

Aerospace manufacturing is done across the kingdom, including in Scotland, which I hope will remain part of the kingdom. As the son of a Scottish borderer, I am going to Scotland on 15 September—battle of Britain day—to fight for the maintenance of the Union of the United Kingdom.

We have hundreds of SMEs—another success story. In 2008 there were 380 enterprises engaged in this industry, according to the Library’s very helpful brief. Today that figure is 560. This industry is growing, and it provides prosperity to the United Kingdom. That is critically important. Interestingly, the 2009 Oxford Economics paper states:

“A £100 million investment in the defence industry generates an increase in gross output of £227 million, and increases Exchequer revenues by £11.5 million.”

[Sammy Wilson]

Northern Ireland is the ninth biggest European region for the aerospace industry and we therefore greatly feel the pressures. Does the hon. Gentleman accept that there are great pressures on the industry because of the high exchange rate, the difficulty in getting finance from banks—and the effect that has had, especially on the small and medium-sized enterprise supply chain—and the anti-competitive practices in other countries, where certain firms are given advantages that we do not have in the United Kingdom?

[Sir Gerald Howarth]

The hon. Gentleman makes a good point about having one hand tied behind our back. Our businesses are not hugely helped by the anti-corruption legislation that we have put in place, which other countries do not sign up to as readily as we do. In fairness, I acknowledge the huge importance of Northern Ireland in the wider United Kingdom aerospace business: it is an integral part, not an add-on.

The aerospace industry contributes two things. First, there is the prosperity, which I have illustrated. Secondly, it provides us with the sovereign capability to defend ourselves. That is critically important. We can all see what is currently going on around the world. It is devastating for those of us who have been around a bit. Things have never looked so uncertain, volatile and frightening. We need to remember that we have taken our defence for granted. In much of it, we are assisted by the United States of America, its massive spending programme and its lynchpin role in NATO. In the United Kingdom we have the ability to defend ourselves. We are not reliant on other people, who might withhold technology or equipment. We must be able to generate such things in the United Kingdom.

When my hon. Friend the Member for Mid Worcestershire and I were in the MOD we had a battle about whether we should have a defence industrial strategy, and whether maintaining a sovereign capability in the United Kingdom should be a key Government policy. He and I were on the same side. It is common knowledge that some of my colleagues in the Conservative party took the view we should not have any kind of industrial policy. They felt that was interventionist and socialist. I do not accept that. The Government have a responsibility for the defence of the realm. That is the first duty of Government. We have responsibility to ensure we have the means to protect ourselves. Two years ago I paid tribute to Lord Drayson, who produced the defence industrial strategy, and I do so again. It is one of best, most articulate and clearest documents to be produced on this matter. As Lord Drayson said, we have to remember that today’s kit is the result of yesterday’s investment. Therefore, we have to invest today.

I congratulate the Government on what they have done on the aerospace growth partnership and the defence growth partnership. There has been a genuine partnership, with industry and the Government working together. That is the sort of thing we need to do and I warmly welcome it. Industry is also doing well on the skills front. BAE Systems has a huge investment in taking on young people and giving them skills. Leo Quinn, the chief executive of QinetiQ in my constituency, is seriously concerned about the promotion of skills. As my hon. Friends the Member for Mid Worcestershire and for Burnley (Gordon Birtwistle) said, we need to do more to promote the merit, mobility, importance and excitement of the manufacturing industry, particularly in the field of aerospace and defence.

We should, however, be concerned, because the order book of BAE Systems is declining. It stands at £40 billion and that is a massive figure, but it is falling, and we know the pressure that defence budgets are under around the world. There is increasing competition from other countries. We have promoted defence exports—and the Prime Minister has been magnificent in giving a lead on that—but it is not possible to sell anything nowadays without being prepared to transfer the technology. We face a growing challenge from India and China, who want to take their place in this important marketplace. If we will have to transfer our technology every time we seek to sell the Typhoon or other important military equipment, what is there for the United Kingdom? How are we going to feed our people? That is where innovation comes in. That is where investment in technology, and defence research in particular, comes in. I could not agree more with the comment by my hon. Friend the Member for Mid Worcestershire that innovation underpins growth. I have made a note that the only way we can compete is by innovation. We are all on the same page with that.

The Government have a role to play. Unfortunately, there has been a fall in defence research by the Ministry of Defence. The latest figures are not encouraging. In 1990-91 the Government spent, at 2012-13 prices, pretty well £4 billion on defence research. That figure fell to £1.8 billion in 2010-11. Fortunately, industry seems to be spending more. According to KPMG, 75% of respondents to a survey said that they would spend between 2% and 3% of revenues on research and development in the next two years; 16% said they would spend between 4% and 5%. If we are to maintain our position in the world we must do that. We must also decide where we go after the joint strike fighter. I have been visiting BAE Systems at Warton for many years. When I used to go there 20 or 30 years ago, I would always be told “We are okay for the next five or 10 years, and then there is a cliff edge.” The Typhoon came along, and now we have JSF—but where do we go after that? I do not believe that manned fighter aircraft can simply be consigned to the dustbin of history. Manned flight still has a critical role to play, particularly in situation awareness.

I welcome what the Government and BAE Systems are doing with Taranis, which is an ITAR-free programme that I launched to the press, who were not allowed to come within 50 yards of it, I am pleased to say. However, we need to maintain the technology. Taranis is a great technology demonstrator. We need more technology demonstrators and we also need a proper debate on where the industry will go, post-JSF.

[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.

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[Mr Wright]

The hon. Gentleman makes an important point.

Going back to what the hon. Member for Burnley (Gordon Birtwistle) asked in an earlier intervention, not only with specific regard to particular trades and fitting, but the whole education system, from primary through secondary education and on to further and higher education, the system should be geared up to say, “The aerospace industry: you could have a fantastic career if you choose it.” Going to work in a factory, in particular somewhere such as Airbus in Broughton, is certainly not a sign of failure. I would be absolutely delighted if one of my children won an Airbus apprenticeship. It is a fantastic success story, which we need to encourage. The culture of this country is that we do not make anything in Britain any more, but that is simply not true in practice. What steps are the Government taking on manufacturing in general and aerospace in particular to ensure that that is dealt with?

I mentioned the success of exports for the UK aerospace industry, with 90% of the high-value products made by the sector in Britain exported overseas. However, the industry has told me—the hon. Member for Mid Worcestershire mentioned this—that more support and co-ordination are needed for export sales campaigns. Primes and suppliers have said to me fairly consistently that they would like more advanced information and to be more closely involved when Ministers are travelling on trade missions, or when international delegations are visiting the UK. Will the Minister respond to what seems to be a constant voice?

[Sir Gerald Howarth]

As my hon. Friend the Member for Mid Worcestershire (Sir Peter Luff) said, the UKTI Defence & Security Organisation has done a fantastic job under Richard Paniguian. May I add that, in my experience, our embassies around the world are fantastic? For the record, the late Simon Featherstone, our high commissioner in Malaysia, was one of those diplomats who really helped us.

[Mr Philip Hollobone (in the Chair)]

Order. To draw his remarks to a close, I call Iain Wright.