Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by AIRLINE—the Aerospace Industry Regional and Local Authority Network


  1.1  AIRLINE (the Aerospace Industry Regional and Local Authority Network) is a network of local authorities from across the UK, formed in 1990 to represent the interests of key aerospace manufacturing regions. The Network aims to:

    (a)  Represent the interests of local communities as long-term stakeholders in the future viability and prosperity of the UK aerospace industry.

    (b)  Help promote the aerospace industry's contribution to the manufacturing and wealth creating capacity of the UK national economy.

    (c)  Maximise local employment and business benefits of both established and new investments in the UK aerospace industry.

    (d)  Influence future UK Government and EU decisions about regional development, international trade and other policies wherever they impact upon the long-term viability of aerospace areas.

    (e)  Work with and influence the aerospace industry at every level to secure their manufacturing, research and development investments in the UK regions.


  2.1  Direct employment in UK aerospace manufacturing stands at around 150,000 with another 350,000 jobs in the supply chain. The industry turns over almost £18 billion annually and exports 60 per cent of its sales. Aerospace is a huge net earner for the national economy, making a massive contribution to the balance of trade (yielding a positive balance worth £2.13 billion in 1999). Overseas-owned aerospace assets are also very significant, with UK companies employing around 40,000 people outside the UK (mostly in North America).

  2.2  All this means that "UK Aerospace plc" is consistently in the world's top three in terms of market share and technological innovation.

  2.3  Technology leadership in this industry is critical, combined with the constant pursuit of cost savings and productivity gains—all are key competitiveness factors in global aerospace markets.

  2.4  Maintaining competitiveness in these areas depends absolutely on the quality of two things: the UK skills base and UK suppliers companies. But it also relies heavily on appropriate support from Government for skills development and for adequate, ongoing investments in the "knowledge base" (principally through R&D programmes and longer-term launch loans to the industry).

  2.5  In the areas which AIRLINE represents, the supply of high-quality skills and the presence of world-class suppliers have long been acknowledged by the prime contractors/Original Equipment Manufacturers (OEMs) as major factors influencing their investment and sourcing decisions.

  2.6  The aerospace supply chain in the UK represents a very significant part of a "hidden" aerospace economy. The SBAC's recent survey of the equipment sector supply chain alone showed that:

    (a)  Of around 1,400 suppliers to first tier equipment sector companies (including Rolls-Royce, Smiths Industries, Lucas and Dowty), 70 per cent are UK based, providing £1.3 billion worth of manufactured goods and related services annually.

    (b)  Almost half of these firms are single site operations. 70 per cent are private limited companies, and a similar proportion are small to medium size enterprises (SMEs). So most suppliers are relatively small, locally owned and managed firms.

    (c)  Despite this, the majority are offering quite specialised, highly skilled services.

    (d)  A very high proportion of the workforce employed in the supply chain at this level (48 per cent) is in professional, technical, scientific and skilled manual occupations. Well over a quarter (27 per cent) are qualified to at least HNC/D level or equivalent (higher than the UK average).

    (e)  An unusually large number of these small firms (84 per cent) offer structured training to their employees—from update training for skilled workers, through apprenticeships and graduate programme, to management development.

  2.7  The investment being made in both R&D and skills by businesses at this level in the supply chain is very considerable. But they depend ultimately on the prime contractors—the likes of BAE SYSTEMS, Rolls-Royce and GKN—maintaining a significant manufacturing presence in this country.

  2.8  However, the industry at prime contractor/OEM level is changing fast. The globalisation of markets is being matched by the increasingly international presence of UK aerospace companies. Overseas assets mean that these companies now have capacity and capability in other countries as well. This also means that UK companies have access to support from foreign Governments that do see the strategic advantage of having a strong domestic aerospace industry and are willing to invest in it.

  2.9  As a result, we are now seeing a steady migration of manufacturing activities and contracts from UK sites and suppliers. This poses a direct threat to the wealth creating capacity of our local communities, both in terms of direct employment with the OEMs, and jobs and businesses in the supply chain.


  3.1  As a key customer of the aerospace industry, Government decisions, particularly those made by the MoD, play a significant role in determining economic and industrial impacts in our communities.

  3.2  Based on AIRLINE's recent fact-finding and research on defence procurement policies, it appears that issues of defence capability and service needs, together with cost and programme timetables (especially over the last 10-15 years), are at the forefront in decision making.

  3.3  The Government decision-making process continues to pay insufficient methodical and systematic attention to a range of economic factors and implications. Insufficient information is generated and analysis undertaken on the industrial impact and economic factors associated with procurement decisions. In AIRLINE's view, the quality of decision-making suffers accordingly, and the long-term strategic benefits of this industry to the prosperity of UK aerospace communities are placed at risk.

  3.4  Among the factors that should be addressed are:

    (a)  An accurate assessment of industry and employment implications, incorporating the entire UK supply chain.

    (b)  The quality of employment involved, including skills levels, knowledge and technology contents of aerospace work (from R&D through to systems integration/final assembly).

    (c)  The long-term skills and capabilities of the UK aerospace workforce.

    (d)  The longer-term implications for the competitiveness of the aerospace supply chain in the UK.

    (e)  Long-term strategic capabilities of prime contractors and key technology providers.

  3.5  AIRLINE research suggests that these factors are not yet being addressed methodically and systematically, for the following reasons:

    (a)  The introduction of a new "commercial" approach to defence procurement in the mid-1980s, which took no formal account of "industrial base" economic factors.

    (b)  The introduction of "Smart Procurement" policies in the late 1990s, which recognised in principle the industrial base/economic issues but does not yet provide sufficient methods and organisational processes for evaluating and taking them into account.

    (c)  Major decisions made at Cabinet level appear to take broad and basic economic factors into account, but it is not known which factors are considered, how they are being measured or how accurately.


  4.1  Our view is that, although the prime aerospace contractors remain heavily locked in to the UK as a source of skills, innovation and supplies for the time being, the situation is changing fast. The UK Government must be alerted to the potential threat posed by these companies continuing along the path of globalisation.

  4.2  Urgent consideration therefore needs to be given to the nature and scale of UK Government support for aerospace R&D and launch investment/loans. The goal must be to improve this country's attractiveness vis a" vis competitor nations that are providing a much more positive investment environment.

  4.3  The Government should also be developing (a) an explicit policy on the economic development implications of its aerospace/defence procurement activities and (b) a methodology for measuring and justifying the UK impact of specific procurement decisions over a certain value.

  4.4  We can make a choice about the future of UK aerospace. We can choose to prevent this crucial industry haemorrhaging from the UK economy by recognising its strategic importance and maintaining an investment environment that is conducive to that continuing role. Or we can let it wither on the vine and see our competitor nations benefit from the export of UK skills and expertise.

18 January 2001

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