Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 86 - 99)




  86. Mr Robson, if you could introduce the team we will get started?

  (Mr Robson) We have, on my left, John Quigley, who is the Chairman of the CSEU Aerospace Sub-Committee, and also a National Officer for the AEEU. We have got John Wall, who is a member of the Aerospace Sub-Committee and is a National Secretary for MSF. We have, on my right, Neil Moore, who is a National Officer for the GMB. Could I put in apologies for John Rowse, of the TGWU, he was anxious to come here today but, unfortunately, he has trade union commitments which prevent that. But, I will say, John Quigley is the Chairman, he will assume the Chairman's role and he will be the lead contributor on behalf of the CSEU.

  87. Thank you; that is fine, Mr Robson. Maybe we could start with a general question, Mr Quigley, that I think it is fair to say that the UK aerospace industry is a global one, and that, although we have UK-owned elements of it, is it your view that once a job is a British job it must always remain so? Is this where you are coming from, because we hear a lot about outsourcing, which we will be talking about later, but we do get the feeling that there is a sense in which `this far and no further' as far as jobs going abroad are concerned; would that be right?
  (Mr Quigley) I think you are correct, Mr Chairman. I think you are correct in the sense that it is a global industry, and I think we would be living in the unreal world if we thought that we could work in a vacuum, if you like. The fact that the aerospace industry is so tied up in, if you like, partnerships, joint approaches to projects, because of the finance involved, and that does not go just for companies, it goes for countries as well, I think it would be unreal to think that we could keep every job, for every project that is obtained by a British company, in the UK. I think what we would say, however, is that we see that the higher added-value jobs should remain in the UK, and intellectual property rights, with regard to projects, remain in the UK, because only in that way can we sustain the industry that we have got, as far as aerospace is concerned. And I think you have only to look at what has happened, in you like, in the motor-car industry, to see that once we lost control of that industry then we were at the mercy of multinational companies to place the product, whatever they wish, in the world. So I think the aerospace industry is a success. I think we are in a situation where, because of money that has been ploughed in, in the past, especially for research and development, in the fifties, sixties, seventies, eighties, we are, to a certain extent, living on that past record, the fact that we did invest in that industry heavily, and that is why it is sustainable at the moment, and we have great concerns about the drop in the amount of money going in for research and development.

  88. Some of the job losses have been to the euro-zone; what is the feeling of the Confed. about the euro? I realise that the Confed. is a somewhat disparate group, whose constituencies do not all have a uniform view, and so maybe it will be difficult for you to answer that one. I know that particular unions have particular positions, and some sit elegantly on the fence, or inelegantly, as the case may be. Is there a Confed. view on the euro, and, if there is, what is it?
  (Mr Quigley) I think I will let Alan answer that.

  89. A bit of outsourcing, is it?
  (Mr Robson) You are quite right that there is nothing peculiar about organisations of our type, and indeed the TUC, having different views, and the autonomy of different unions to express different views. But, on the euro, we have got a clear policy, that we support the euro, we support an early entry into the euro-zone, notwithstanding the views of constituent unions; that was a collective decision taken at the last biannual conference, It is carrying the support, it is now a conference decision, which is unique, insofar as it is binding on the CSEU, but it is not binding on certain autonomous unions.

  Chairman: Yes. I think we have come across this kind of delicate balance before.

Mr Chope

  90. Surely, that depends on the exchange rate at which we would enter the euro; and what is the exchange rate that you would think would be a reasonable exchange rate for entering the euro?
  (Mr Robson) A reasonable rate certainly would not be the rate that is prevalent now. I think we learned the lesson from the ERM fiasco that entering into any sort of currency situation could be detrimental, if it is too high. Obviously, I am not an economist, but I am fairly pragmatic, that the Government has laid down criteria; we do not know yet what the criteria are, in relation to the level of the exchange rate, but our experience tells us that, as far as we are concerned, the current rate possibly could be detrimental, in the intermediate and long term, to the industry. The industry is already suffering.

  91. A lot of people say that the current rate is detrimental to the industry in the short term, so, if we went into the euro at the current exchange rate, it would be detrimental to industry in the long term as well; and that is what makes me ask the question. You get your members to put up cards and vote in favour of going into the euro, but why do you not inform them as to the issues of competitiveness which arise from the issue as to what exchange rate you would be recommending?
  (Mr Quigley) Can I just make a point there. I find it rather strange that we are debating the euro here, on the basis that most, if not all, certainly all, of the major contracts have been in dollars, as far as the aerospace industry is concerned. There may well be some implication with regard to the supply chain, relevant to the exchange rate with the euro, but, as far as the aerospace industry is concerned, in many ways, the fact that we deal with the one currency in orders has been very, very helpful to the industry. In many ways, it gives you a more level playing-field, because you can account on a specific currency; and, I think, if anything, with regard to the euro, that same accountability, if you like, could be there. And, in many ways, I have got a responsibility for the shipbuilding industry, and what we have noticed, within the shipbuilding industry, is that, since the advent of the euro, some of our colleagues, in some of the southern European nations, have not got the same appetite for subsidies that they used to have in the past, because there is more transparency with regard to the effects that the euro is having on their particular economy. So, in many ways, I think, there might be a few economic arguments, because we are not economists, that it may well be beneficial, in the long term, for the aerospace industry; that is just a view.

  92. Yes; we will move on to something else. But there is a stability argument in favour of sticking with the present arrangements, because so much of the aerospace business is in dollars?
  (Mr Quigley) I think it will be in dollars anyway; whether we go into the euro or whether we do not, I think it will still be done in dollars, that is the nature of the business.

  93. Can I ask you about research and development, and specifically about what is now described as basic research, or R&T. Because we have had evidence from the Society of British Aerospace Companies that, although the R&D spend as a whole in the UK has been going up over the three years, the proportion of that, and in absolute terms the amount being spent on R&T, which is basic research, is now down to about 1.9 per cent of turnover. And they made a comparison between that situation and what is happening in the United States, where there has been a very large increase in R&T spending by UK-owned aerospace business units in the United States, where it has gone up from 1 per cent of turnover to 4 per cent of turnover. So you have the situation where British-owned companies are spending 4 per cent of turnover on basic research in the United States, but they are spending only 1.9 per cent of turnover on basic research in the UK; and do you find that an ironic and unsatisfactory state of affairs, and what are you trying to do about it?
  (Mr Quigley) I think you are correct, that we do find it unsatisfactory, but not only can you make that comparison with the US, you can make that comparison also with France and Germany, in respect of research and development within the aerospace industry. And what are we doing about it; well, we harangue employers constantly about the importance of research and development, and, indeed, we raise the issue constantly with the DTI, on the question of research and development. And, I think, on major projects, where we have got launch aid, and so forth, and we had an excellent announcement today with regard to Rolls Royce, we are conscious of the fact that, unless we spend on research and development, I made the point earlier, we had an excellent record, over the last 30 years, investing in research and development, and I think that augurs well for the industry at present; what we are doing about it is what we always do, we voice our opinion on it and hope that companies will take heed of it. But I do make the point, for instance, with launch investment, I will not call it launch aid, I will call it launch investment, the taxpayer, from the A330 programme, actually is getting now about £100 million a year back into the Exchequer. We would think, a good way for that to be used would be to reinvest it in industry, especially in research and development, because, in that way, I think, it would give additional value added to the economy in later years, and that is something of which we would be supportive.
  (Mr Robson) Can I just supplement that, because one of the questions we will be posing to the company, we meet them on a fairly regular basis, because it is absolutely correct, the same company can have R&D investment far in excess of what it is in the UK, we will be asking the company that, given there is always some sort of Government support in R&D programmes, is there a more advantageous situation in America than there is in the UK. Because, certainly, we know that in Europe there seems to be the inference that the Governments do adopt a more positive, hands-on approach, in ensuring that the R&D does reach a specific level, and have measures and rafts of support for that. We would be interested to know if the Americans have such a system, where they can encourage companies to go to the 4 per cent and yet in the UK we have the 1.9; we suspect that possibly there could be a little bit of political support there. And, of course, we will press, through the bodies that we have, for the same type of response from the Government.

  94. And meanwhile the Government seems to be cutting the sort of aircraft research and development programme; are you lobbying hard on that, or what are you doing about that?
  (Mr Robson) Yes, we will continue to lobby all the time; but, like everything else, there is a pot of money and the Government has to go about its business. But we point out, continually, more so on the success of the Airbus, which is an outstanding example of where the impetus can be put into civil projects that can be a massive benefit. We are now taking on the mighty Boeing, in their product three engine, beating them hands down on price, quality and, indeed, production, and we will be encouraging the Government to look on this, which, to be totally honest with you, the Government has been receptive to these types of approaches, but always on the basis that, and quite rightly so, that has got to be good value for the taxpayer, and cost-effective. And, indeed, now, all the support that is given has usually got a criterion attached to it, where it does represent that; John has pointed out to you the Rolls-Royce initiative, it is not a state handout, it is a loan, given to Rolls-Royce to develop that type of industry. But, in the similar markets, we believe it is foolhardy not to participate; that is the-fastest-growing market, and if we do not keep our level of research and development, obviously, we are going to suffer. And we will continue to lobby the Government, and also lobby the Europeans, because they are now coming into a more European dimension.

  95. So, in a nutshell, you accept that the technology is mobile and jobs follow their technology, but what else do you think the Government can do to ensure that the technology remains in the UK, which is the key to all this?
  (Mr Quigley) Can I say that, we were saying that technology certainly is mobile, jobs are mobile, in many ways, as well, there are issues surrounding outsourcing, offset, agency labour, temporary labour, that give a great deal of concern to both the trade unions and their members within the aerospace industry; and, in many ways, it is easier to track that with the majors than it is with the supply chain. Certainly, a lot of work is put out by the majors to UK companies, small and medium-size enterprises, and then to try to trace where it goes after that, because there is the feeling that some of it goes offshore, rather than being completed in the UK. My own organisation, the AEEU, have actually commissioned a survey, we have just recently done it, which finally should be out in July of this year, looking at all these issues that are of concern to us, and that will be desk-based and also it will be on the basis of interviews with the majors and with the supply chain, to try to determine and get a handle on just to what extent the work is leaving the UK. Because there are horror stories that are told, but, sometimes, when we investigate them, it is more emotion than it is fact, at times, and it is very easy, and you can understand it quite clearly, if people have loss of employment, and they hear about X amount of work going to a particular Eastern European country, they can extrapolate out of that that there is a massive amount of work going to an Eastern European country. So it is really to get a handle on that, and it is because of the complexity of the question you put, that we are actually undertaking and putting in some money to get that research done for us, because our own research department would be just overloaded if it tried to deal with that particular issue.


  96. When do you anticipate having that finished?
  (Mr Quigley) July.

  97. July; it is a wee bit late for us, unfortunately. But, assuming there is a general election, a successor committee may well return to this subject. I am sure it will not go away, but we might well be interested in seeing it.
  (Mr Quigley) You will be welcome anyway.

  Chairman: Mr Berry, would you like to come in?

Mr Berry

  98. Yes. There is something curious about the way that aerospace companies talk about the supply chain. I notice that, whenever there is a question of launch investment, for example, the A380, we get very precise figures about the number of jobs protected and the number of new jobs, so that, in the case of that, we are told 62,000 jobs safeguarded, including in the supply chain. And then when you ask another company, let us, say, randomly choose Rolls-Royce, and ask about job loss proposals, and you say, "What would be the effect of these job losses on the supply chain?" and they say, "We haven't got a clue, but this will improve our competitiveness, and, of course, competitiveness improvements generate jobs in the future." And, indeed, the SBAC told the Committee that, in many cases, job losses would create new work in the supply chain in the future. Now can you help me with this; to some extent, you are doing this research, and maybe you cannot say more until you have done that, but do you see evidence that jobs lost by the major aerospace companies are being offset by extra jobs being created in the supply chain?
  (Mr Quigley) This is one of the reasons why the research is carried out; we do not see that you can make the comparison that jobs lost in the majors are creating jobs in the supply chain, we certainly do not see that. What we would say, however, is that, as far as job losses within the aerospace industry are concerned, it tends to be that, for instance, British Aerospace, if I use an example of just one company, I think, over the last four years, British Aerospace have made roughly about 5,000 people redundant, and in the same period have recruited nearly 3,000 people. So there is this mix, and it is a question of the skills and the disciplines within the industry. And, indeed, we have made the argument to British Aerospace, as a company, that we feel that it is a waste of resource, and, to be fair to them, they have accepted that argument; and what they are trying to do now is put something in place which will retrain people for the particular skills they have. But the unfortunate thing about that is that technology is mobile but sometimes people are not that mobile, and where they are creating a number of jobs at Broughton, and where there has been recruitment, then other parts of the industry, if you look at Warton and Salmesbury, they are laying people off. So we do see that a role can be played both by the company and we would think that there should be some support from Government, not just for British Aerospace but for the aerospace industry in general, where retraining and creating opportunities for people, rather than the choice of "You are to put your hand up to go to the Labour Exchange," or, "There's another choice there for you." We believe that something can be done to create that atmosphere that people will want to change the discipline, of the type that we have at this point in time, to another discipline, to let them remain within the industry. But the question you ask, about creating other jobs in the supply chain, I do not know if any of my colleagues want to add to it, I certainly do not see any examples of it creating other jobs in the supply chain, when a major leaves people off, I do not see it. But, again, it is open to question, and it is something we will be looking at, with regard to this research work we are carrying out.

  99. Part of the argument is, is it not, this restructuring is, we are told, all about improving competitiveness, and no doubt that is absolutely true. Another aspect of this was identified when Mr Rose of Rolls-Royce explained to the Committee that companies, like General Electric, for example, were encouraging their suppliers to source components from Brazil, from Mexico, from Russia, and so on, so that the pressure is on the supply chain to source components from, obviously, lower-cost sources. Are you worried that this is becoming a practice in the UK?
  (Mr Quigley) Yes. The short answer is, yes, we are very worried. And I think Rolls-Royce has got a different view from British Aerospace, in terms of, well, perhaps I should correct that, probably a different view is the wrong terminology, they have got a different approach than Rolls-Royce. Rolls-Royce compare themselves with Pratt & Whitney and GE, who outsource vast amounts of work worldwide, and Rolls-Royce seem to be following in their shadow, in doing that. And, indeed, they announced in November last year that they want to look at their `make and buy' policy to increase the `buy' at the expense of `make', within Rolls-Royce, and they have made no bones about that, they have indicated that to us, and they believe there are savings there. But what I would say is that, in some cases, Rolls-Royce, what they deem has been core to their manufacturing can change, it can change overnight, and, indeed, they are actually trying to sell some businesses in order to recupe money so that they can invest in other parts of their business, and that is a grave concern to us as well. I think the short answer is, yes, we are very concerned about the supply chain, and it is much harder to try to get a handle on what happens in the supply chain just because of the number of companies involved.
  (Mr Robson) I think you need to recognise also the structure of the large aerospace companies; the days are gone when every component in a project is manufactured in-house, they have now adopted a strategy of being a prime contractor. Now one of the concerns we do have is exactly what you have highlighted, whilst the change in manufacturing techniques within a prime contractor change, it could lead to job losses, other parts of that structure can create jobs, that is in high tech. But it is of concern to us that, like all parts of commerce, you have a retail trade where the sub-contractors, or the supply chain, are squeezed, some of them virtually out of existence, by the prime contractor, in the UK, which leads to jobs being offset abroad. And what we are saying to the Government now is, when the applications for launch aid are made, which carries our support, it is obvious we will carry all that support, written into, or understandings need to be reached, that the claims that the company are making, in relation to safeguarding 2,000 jobs within the industry, not only need to be justified but need to be transparent. And Airbus is a classic example; that is not only an aircraft manufacturer, they manufacture the wings, but with the changes that have been put in place, and the trade union changes, and this, that and the other, they are the most successful part of the Airbus empire. But, nevertheless, we recognise that, being part of a manufacturing process and being as good as you are, it is not necessarily guaranteed that you are going to be there tomorrow; there are political decisions being taken, there are commercial decisions being taken. And it goes right back to the first question the Chairman asked, about is every British job sacrosanct; we would like to think so, but the reality is that they are not. But we believe, when we have got a commercial case and a good productivity argument, that companies should be reminded that, when they apply for launch aid and give the figures, they have got a responsibility to ensure, to their best ability, that those figures are realised.

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