Examination of Witnesses (Questions 60
TUESDAY 23 JANUARY 2001
MR K MACIVER,
MR D MARSHALL,
MR J ROSE,
MR J WESTON
60. Very clearly you are not saying, because
you cannot, that the job losses are currently being proposed and
who knows what might happen in the future because there are salami
style job reductions at Rolls-Royce these days. You cannot say
with any confidence at all that the net effect is going to be
an increase in jobs. You simply made the obvious comment that
all successful companies have to be competitive. I understand
that and I understand the case for outsourcing. I understand the
case for all sorts of changes which may be difficult but you are
talking currently about substantial job losses of highly skilled
workers. I am saying okay, if you say you have no alternative
but to do that, please say that, but do not claim that the effect
of this is clearly going to be more high value employment in the
UK and that it is the jobs at the end of the day you are concerned
with. I cannot understand how that could be the case.
(Mr Maciver) May I make a brief comment on the overall
situation as this is focusing on one company? The reality is that
this industry has been very successful by comparison with most
British industries in maintaining employment, maintaining business
in the United Kingdom. That is not without pain, that is not without
difficult decisions. I do not think any of us can pretend that
there will not be difficulties at some time in the future. We
could have a recession in the industry. It would not affect long-term
growth but there will be painful periods as there are in the other
industries. Not only do we have a history of maintaining a successful
industry, we have the opportunity to maintain a successful industry.
I really do believe it is that long-term focus and what we have
to do, both in the creation of the skills base through the public
sector into the training we do inside our company, likewise the
investment in technology, these are the really important things.
None of us, hand on heart, can say we will not confront difficult
situations from time to time.
61. The SBAC itself has produced this manifesto
for the UK aerospace industry and you talk yourselves as an association
about the risk of the hollowing out of the industrial base, talking
about as the aerospace industry globalises the danger of the UK
aerospace industrial base being hollowed out. Then you go on to
talk about the action which is needed between Government and the
UK industry on R&D. Side step that issue. If you continue
down the road of outsourcing and globalising outside the UK, do
you accept that would place in some jeopardy the continuing maintenance
of highly skilled and experienced people who currently work within
the industry? I have a feeling that if it goes beyond a certain
point some of those very highly skilled and experienced jobs will
themselves be at some risk.
(Mr Maciver) That is the very point which we have
alluded to throughout this session. There are risks but they are
risks which can be overcome as we have to date. What we cannot
afford to be is complacent. I do not believe there is any hollowing
out of the total skills base today, in fact in the case of my
own company over the past three years we have increased by 50
per cent the number of design engineers we employ. Some of that
is spinoff from Rolls-Royce increasing demands upon us based on
success in winning programmes. I do not believe we are seeing
that situation. All of us share a concern that that should not
happen. There are some very bad examples which none of us want
to see repeated here but I do not think we are seeing that today.
That is not where we are and it is not my impression of where
my colleagues are.
62. According to this it is a risk; there is
(Mr Maciver) Yes.
(Mr Weston) We have said this morning that we do see
some trends; there are worries in that respect. At the end of
the day it is not just a question of the competitiveness of the
industry it is also the competitiveness of the environment in
which we all have to make our investments. What we are saying
is that in the UK at the moment, both in terms of some of the
funding going into civil research and in terms of some of the
purchasing patterns out of MOD, we are seeing some worrying trends
that over time will have a negative impact upon the industry base
in the UK. It is not because we are all sitting here and being
unpatriotic and saying we are going to shift all these jobs offshore
because things are better elsewhere. That is the reality of the
economic marketplace in which we all have to operate. All of us
sitting here in front of you today would like to see the UK industry
continue to prosper and grow and we shall do our very best to
make sure that is the case. It would also be irresponsible of
us not to point out to you some of the underlying trends which
we actually see in the marketplace in which we operate and what
we believe other countries are doing.
63. Coming back to Rolls-Royce, can you tell
us why £150 million has been spent on restructuring and yet
that has resulted in job losses?
(Mr Rose) It is quite important that we keep on focusing
on the fact that what we have to be in the UK is a successful
player in a global industry, not an unsuccessful domestic industry.
That is the objective of our company and I am sure it is consistent
with what Mr Weston and others have said. We made huge investments
in doing that. We have spent £1.25 billion on capital over
the last five years on our domestic facilities and about £1
billion on IT to support that. We are extremely committed to being
a successful player in a global business. We have a significant
orderbook and the prices in that orderbook are transparent to
us. It is the double edged sword of large orderbooks. They give
you a view of the future. We recognise in order to continue to
be successful and to launch new programmes which will return a
profit which allows us to make those sorts of investments we need
to be at least as competitive as anybody else in the world. The
consequence is that we will not necessarily within Rolls-Royce
be able to employ all the range of people we have historically
employed. We are creating a lot of jobs in the supply chain so
frequently the jobs which are moving out of Rolls-Royce are occurring
in the supply chain. It is not a loss of jobs to the industry,
it is a migration of jobs from Rolls-Royce into the supply chain.
If the UK supply chain is going to be the biggest beneficiary
of that, clearly it needs to be internationally competitive because
that is the environment in which we are operating. What we have
said today has been largely to do with how we focus on the conditions
which will ensure that for the longest time possible the UK will
be as competitive as it can be and that will go to proper investment
in R&T, proper support of training initiatives and so on.
That is where the focus from our perspective should be because
it is an industry which is global, it is an industry which is
growing, therefore it is an industry which provides significant
opportunity, but it will not always look like it did. That is
not a statement of complacency: quite the opposite. It is a statement
asking how on earth we can make sure that we can be as successful
as possible in this industry of opportunity.
64. Can I get some clarification on numbers
of jobs which could actually be lost? Is it 2,000 or is it not
(Mr Rose) Chairman, with your permission, I have a
separate meeting arranged with Mr Cunningham specifically on the
jobs issue and we will deal with that separately. I think that
is more appropriate. We would expect to be losing jobs from Rolls-Royce
at the rate of between 1,000 and 2,000 a year over the next three
65. I recognise that there may well be things
which in a private meeting you are prepared to say which you are
not prepared to say in public.
(Mr Rose) No, it is just that it is to be a detailed
66. If Mr Cunningham thinks that the detail
you give him would be of use to the Committee, then perhaps you
could send them to us at the appropriate time, if that is acceptable.
(Mr Rose) I should be very happy to do that, indeed
we have communicated with the DTI already.
67. To clarify for the Committee, we do not
yet have a date for that meeting but it will involve other MPs
from the Rolls-Royce plants; just so nobody thinks there is any
(Mr Rose) I was not suggesting that.
68. No, but I want my colleagues here to understand
(Mr Rose) We have provided the detail that we can
to the DTI in written form already but we are very happy to provide
that to the Committee.
69. I understand you are involved in negotiations
and all that goes with that but there is a lot of public concern,
particularly in the Coventry area, about the future of Ansty.
(Mr Rose) The future of Ansty will be that it will
continue as a place where we proceed with a number of activities.
We would hope to grow our repair and overhaul activity there;
we have a successful repair and overhaul business which is competing
currently for a range of military repair and overhaul programmes
and if successful in those we would see an opportunity to grow
employment in that area. A number of activities will continue
to be prosecuted on the Ansty site. We are looking at some specific
rationalisation of where we do some engineering and some of those
jobs will move to Bristol and Derby and some of those will no
longer be required. Similarly with the manufacturing area, over
time we would expect a change in the balance of manufacturing
which takes place in Ansty, but manufacturing will persist in
70. You referred to the job losses at Rolls-Royce
giving rise to the creation of "lots of jobs in the supply
chain". Could you give us some information on that in due
course? I do not expect it now obviously. Clearly you have some
estimates of jobs in the supply chain. It would be useful if the
Committee could have those.
(Mr Rose) I can give it to you now. It is bound to
be an approximation but since 1995 we have increased about 10,000
jobs. The expenditure in 1995 in the UK supply chain was £600
million, it is now £1 billion and it will be about £1.3
billion in 2003. That will have the impact of creating further
jobs between now and 2003.
71. I am sorry, I do not think I made my question
clear enough. My question was that as a result of the 5,000 job
losses or whatever1,000 or 2,000 jobs per year over the
next two or three yearsyou advised the Committee that this
would create lots of jobs in the supply chain. It is the specific
effect of that decision in terms of direct employment at Rolls-Royce
and the restructuring that involves, what the effect of that will
be on jobs in the supply chain, some in the UK supply chain and
some in the supply chain in other countries. That was the question.
(Mr Rose) Let me be clear. Firstly, our ability to
be competitive has created jobs in the supply chain. Secondly,
we would expect that some of the outsourcing which takes place
from the company as we change the balance will result in an increased
opportunity in the UK supply chain. I cannot give you specific
numbers at this point for how many will accrue to the UK supply
chain because we have not been through the process; it will be
a decision which takes place on a case by case basis. What I can
say is that on the basis of the success we have already had in
the market we have increased our spend in the supply chain with
a resultant increase in jobs. Rather than speculating, I can tell
you what has actually happened.
Mr Berry: The trouble is that does not answer
my question, but yes, I agree.
72. What some of us are having a little difficulty
about is that we understand there are programmes for outsourcing,
there are programmes for increasing equipment, because you are
more successful in selling, therefore you have to find more kit.
What we are not very clear about is that when you strip out the
jobs which were there originally, and these are now being done
by people outwith the factory, outwith the plant, are these extra
jobs? It is a bit like the way the Government sometimes counts
money it gives to industry: it recycles the figures when it suits
their purpose. We have come across this kind of arithmetic before
so we are not really clear. You take bodies out and have them
working somewhere else and there is a third element which is that
new work is actually being created by you being leaner and fitter;
as a consequence of stripping out this work your are able to get
more business and sell more orders. It is that kind of logic?
If you could give us the figures maybe that would help.
(Mr Rose) I cannot give you some of the figures because
as we look forward it is difficult to predict what the consequence
of the competitions will be between prospective suppliers. I cannot
give you with any accuracy what the outcome will be. Clearly work
which needs to be done will get done somewhere and hopefully a
proportion of that will occur in the competitive UK supply chain
because there are significant reasons why one would like it to.
They will clearly have to be competitive.
73. Fifteen years ago these jobs might have
been in Britain: they could now be in the eurozone or even more
likely they could be in the very low paid but highly skilled workshops
which are in the former eastern bloc countries which we now call
more correctly central Europe, places like Poland.
(Mr Rose) I should just like to go back to Mr Weston's
point which is that in terms of the proportion of the total buy
which is made in those areas it is a very small proportion of
the whole. It is important to keep on coming back to this point.
What we are trying to do is create a bigger pie.
74. What benefits or inducements have the Canadians
given in the way you cannot get them here?
(Mr Rose) In Canada there is an attractive environment
of R&D funding which has been helpful historically in the
development of our industrial power business. That is not available
here. That is one of the points that both Mr Maciver and Mr Weston
have made today about the internationalisation of the R&T
community. It is terribly important that we as a country recognise
the importance of investment in R&T both well before the market
and at the time of product development.
75. You know that the Government is still intent
on going ahead with the climate change levy. Do you think that
is going to help or hinder the competitiveness of your industry?
(Mr Marshall) I do not think it will help the competitiveness
of the industry. Our industry has been seeking to strike an agreement
for those members who want to be in one through a trade association
but it is difficult to see how the system proposed actually improves
competitiveness vis-a"-vis what is being done elsewhere.
76. What do you think it is going to cost your
(Mr Marshall) It is difficult to say as whole. Quite
a few millions of pounds which will not therefore be available
to invest in the things we have been talking about this morning.
(Mr Maciver) As a general answer it does not compare
with some of the very high energy users but it is still a significant
factor. The issue we would all see is that the way the burden
is distributed does seem strange. That is the fact of the matter
and there is nothing more we can say.
77. May I turn to the happy experience of the
A380? In the DTI's note for the Committee they state that up to
22,000 new jobs will be created and 62,000 existing jobs safeguarded
in the UK, including the supply chain and indirect employment.
I simply note in passing that apparently Rolls-Royce has difficulty
estimating these indirect effects but somebody has been doing
it for the Airbus project. Of these jobs, is it possible to give
us some idea of the breakdown between jobs at BAE and jobs elsewhere,
if not immediately, certainly in writing in the future? I just
want to get some feel for the extent to which others benefit.
(Mr Weston) You will probably find it is one third,
two thirds, but let me make sure I have actually given you the
(Mr Maciver) I would make the point that while that
is successful so far, a large number of the purchasing decisions
on that aircraft are not yet made and that is particularly relevant
to some of the equipment companies like my own where we are in
competition for business on that aircraft. Many of these decisions
will be taken on a very global basis indeed. We are still in head-on
competition and there is a lot more to be won or lost on that
aircraft. It is successful so far, it is an excellent thing, it
is launched, but there is a lot more to play for.
(Mr Weston) It does remain a fact of public life these
days that the job losses tend to get more headlines than the job
gains. We are busy building up our engineering resources at Filton
at the moment and we will be building up our manufacturing resources
at Broughton significantly as the programme progresses. We are
now trying to hire 2,000 new engineers over and above our usual
recruitment from the universities and engineering over the next
year or two. We do not get a lot of publicity for those: we do
get a lot of publicity for the areas who are having to manage
the jobs downwards.
78. Did the agreement surrounding the launch
aid provided by the Government involve a commitment to build a
specific or general number of jobs in the UK? Is there a link
that as a consequence there is a guarantee of some jobs being
created in the UK?
(Mr Weston) We should like to refer to it as a repayable
launch investment not launch aid.
79. Absolutely. I think you described it as
repayable investment by the Government.
(Mr Weston) That was provided under the understanding
that this was one of the issues associated with the formation
of Airbus as a single company. Clearly there was a political desire
to make sure that there was some long- term security for the centres
of excellence of Airbus wing design at Filton and manufacture
at Broughton. Both we and the DTI paid some considerable attention
to that in the formation agreements together with AIC. Yes, there
were some linkages between the repayable launch aid investment
and getting satisfactory terms into those agreements. In a rational
commercial world, if you looked at the risk of moving that centre
of excellence out of either of those places and putting it elsewhere,
it would be a crazy thing to do. The risk that anybody would ever
want to do it, regardless of the ownership and control issues
around Airbus on commercial made decisions, would not be an issue,
but we all felt more comfortable with some linkage between them.