Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 80 - 85)

TUESDAY 23 JANUARY 2001

MR K MACIVER, MR D MARSHALL, MR J ROSE, MR J WESTON AND MR R WOOD

  80. In relation to the repayable investment, the £530 million package, I had a discussion with another parliamentary colleague on this issue at the time who attacked vigorously the whole notion of Government providing any kind of support for the private sector and the argument was, particularly given the success of previous Airbus projects. Surely in this day and age it was not necessary, he said to me and to the viewers, for Government to get involved in this kind of assistance. Would you care to respond to that?
  (Mr Weston) It comes back to this thing of creating a competitive environment in the market sense as well as in the industrial sense. If we are looking at the launch of a product like the A380—and I do not think there are huge risks associated with the A380, because I do believe there is significant demand out there in the airline market, and providing we make a success of designing and building the aeroplane we will sell it—in a commercial sense it is still quite a lot of risk to have in one project basket. It needs quite a significant, $10 or $12 billion investment to develop the aeroplane. Essentially the way the mechanism works is we do get the loan at a commercial rate, slightly better perhaps than the rate at which we could borrow it as a company, and the Treasury is sharing a little bit of the volume risk on the programme with us. In return for that they actually get the capital repaid and interest on the capital. Because they are sharing in the volume risk they get a benefit from that in the long term by also getting a royalty on every aeroplane which is sold after we have repaid the launch investment. If you went back and did a development appraisal, for example on the Treasury launch investment on the Airbus narrow body, you would find it had been a very good return for the Treasury as an investment. What we are actually doing is having the Government share a little bit of the risk but they are actually getting a commercial upside to that when the project is successful. That does help us make a decision to launch some of these programmes where we have a lot of risk sitting in one basket.

Mr Hoyle

  81. The A3XX is interesting and the number of jobs which are claimed. You will remember some of the statistics which were used: 22,000 UK jobs and 8,000 in BAE Systems would be created because of this new aircraft. I wonder why on earth some of these 8,000 new jobs which are to be created could not be shared out to stop the job losses which are taking place at the moment; or potential job losses as we have still not been told where they will take place but we can only assume that Samlesbury and Warton will be suffering job losses now and yet we are seeing these new jobs being created. What percentage of work can be given to Warton and Samlesbury to stop those job losses?
  (Mr Weston) We have already split off some significant parts of the Airbus work we have and are doing those at the moment both in Samlesbury and in Prestwick. If you would like to come to spend a day with us at Broughton, you can come down to have a look at the production of the Airbus wings and you will readily appreciate when you see the size of the job and the tooling and things in which it comes together, it is readily apparent, that it is quite difficult to peel parts of the core part of building one of these Airbus wings off and put it somewhere else. It certainly is not an efficient way to do it. What we are doing is where we are having to make job losses elsewhere in the company, where people are prepared to relocate we are prepared to pay their removal expenses and move them to where we have the jobs. I can assure you that if it were easy to split some of that work off and move it around the country and it was economic we would do it. Unfortunately with the nature of this job it is quite difficult to do what you are suggesting.

  82. That does not quite stack, does it? Eighty per cent of the Airbus work was done at Samlesbury. That work was transferred to Prestwick not very long ago. So it can move around. Yes, they do have that expertise in building Airbus and there is a danger—and maybe you can end speculation because there is a belief—that you do not want to put work into the military division because there is a possibility that Airbus must be sold off. If that speculation could be ended a lot of people would be happy.
  (Mr Weston) Regardless of what happens to Airbus in the future, and we certainly have no plans to sell Airbus, the important thing as far as the military division and the aerostructure activities of BAE Systems were concerned was having a long term agreement with Airbus when it became an Airbus integrated company. The direct involvement in the day to day management and sub-contracting that BAE Systems had was therefore actually reduced. The reason we moved some of the Airbus work—and we only moved some of it out of Samlesbury and up to Prestwick—because Prestwick was desperate for the work and as Eurofighter production built up at Samlesbury, rather than employing extra people on Eurofighter at Samlesbury and make people redundant at Prestwick, it made sense to move some of the work, which is actually what we did. We still believe we can achieve the overwhelming majority, if not all, of the redundancies we are currently talking about at Warton and Samlesbury by volunteers. They are not in the hands-on manufacturing areas, they are in the overhead areas. The problem we have in the British aircraft business at the moment is one of an absorbed overhead. What we are doing is reducing indirect staff.

  83. I have been to visit Airbus and I have seen the technology of the wings. To follow on from that there is another aircraft called the A400M. Is it right to say that is a military aircraft? If it is a military aircraft can we ensure that some of that work will come to Warton and Samlesbury to try to stop this haemorrhaging of jobs?
  (Mr Weston) The A400M is a military programme inasmuch as the end customers are military. We decided that we would prosecute that through the Airbus military company because it is a large aircraft and the technology of the design of that is closer to a civil aircraft than it is to a Eurofighter, a Tornado or a Harrier. I am well aware that as part of the campaign for A400M a lot of effort was put in by the workers and unions on those sites and we shall be doing our very best to make sure they get some work out of it if and when we finally get the programme under contract and through to the production phase. We are still working on that at the moment.

  84. That is good because you did say we should not worry and you would make sure we would get some of this work.
  (Mr Weston) I have reminded my colleagues in Airbus that I made that commitment.

  85. That takes me on to training which is important. You have mentioned BAE Systems' commitment to lifelong learning. Everybody recognises that. The other part of training where there seems to be a major effect is that the number of apprentices has substantially decreased, in fact it used to be 120 apprentices taken on annually at the sites within the North West; that decreased to 60 and the intake is now going to go down to 40 next year which shows a 33 per cent reduction. I am very worried about that and I am sure you must be, because the long-term viability has seen people being shaken out at the top end with redundancies and voluntary redundancies taking place, yet we are not seeing the young people coming in the numbers to replace them.
  (Mr Weston) Those numbers are new to me. I would recognise that if you took our apprenticeship schemes in total we have had a shift over the last few years of taking fewer undergraduate apprentices which is how I started myself 31 years ago. We are taking more people on as graduates and putting them through a two-year development programme when we first employ them. I should like to go away and look at those figures to see whether what we are talking about there is what we call in the old terminology the craft apprentices or the technician apprentices or the undergraduates and what the combination is. I should be happy to write back to you on that. Even in the times when we were making the largest reductions in capacity in the business in the early 1990s we did keep the recruitment of young people going through that because we were determined we were going to maintain that commitment to the future. One of the significant differences if you look at the age profiles we have in the business today compared with what they were ten years ago, because we invest a lot of money in the voluntary redundancy schemes so we can get people to volunteer, is that we have tended to lose rather more of the long-serving members within the organisation and if we compare ourselves to the American companies, who tend to use rather more direct methods of reducing their workforces, they have got quite old populations by comparison. I think that is probably true if you compare that with some of the continentals as well. For me that is a real indication of what we did over that time. Even though you could deem that to be an uneconomic way of going about it we did make that investment in the future. I would be disturbed if I thought your numbers reflected what we have done in the business as a whole. I will go and have a look at it, because I remember when we shut Preston one of the things we did do for the local community was to say we would keep the apprentice training school going because people still wanted to train youngsters locally in those sorts of schools.

  Mr Hoyle: There really are issue of morale at the moment. You have had a lower workforce which has been leading the fight to ensure contracts are being won for aerospace, because it is one of the few industries which is still a world leader and I recognise that. But at the end of the day it is a two-way street and I think that in fairness we ought to respond to some of the workers, especially if you take the tool room which two years ago at Samlesbury had 140 people and is now down to 65. This is a really worrying trend. When there is a £37 billion orderbook people wonder why they have to see another shakeout of jobs. The uncertainty as the axe is swinging at the moment, not knowing which side is going to be affected, not knowing how many people are going to be affected, does not do anything for the North West. They have been loyal to you. Please reconsider.

  Chairman: Message given. May we thank you, gentlemen? We have covered all the areas we have wanted to raise with you and we should be grateful for the additional information from you. We are approaching a General Election but equally the fact is that a number of members of the Committee do have a great interest and knowledge of the industry, especially in relation to their own constituencies. That has been displayed this morning. Apart from that, we thought it would be useful to have you in since you are a major part of our manufacturing base and we are very grateful for your time and the frankness with which you were able to address most of the issues. We realise there are occasions when you are not going to satisfy us in every respect and we like to show our dissatisfaction in these areas. We are very grateful to you for the time you have taken this morning. We have had quite a long session. Thank you very much.





 
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