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Aerospace Industry

I do not think it is right to double-guess companies’ commercial strategies, but my hon. Friend makes an important point and I am sure that the company has heard what he said. I hope it responds to both of us to explain its industrial rationale for taking that particular decision.

Airbus’s UK contribution includes civil wing design at Filton and build at Broughton; fuel system and landing gear design and testing at Filton; and A400M wing design and manufacture at Filton. UK suppliers providing other significant components and services to Airbus include landing gear manufacture in Gloucestershire; window manufacture on the Isle of Wight; maintenance service panel manufacture in Greenford; design houses around the country; and even a standby compass. We are also strong in the military market. Eurofighter, the Saab Gripen and the F35 all have significant British content.

These are exciting times for the UK aerospace industry, and there are significant opportunities for further growth. The latest monthly commercial aircraft order and delivery data, published last week by the trade association ADS, reveal a further increase in the backlog of more than 12,000 aircraft and 21,000 commercial aircraft engines. That equates to about nine years’ work in hand for the industry and could be worth about £155 billion to the UK economy.

Obviously, the UK civil aerospace sector makes a huge contribution to UK jobs, skills, exports and long-term growth. In 2013, UK aerospace was worth £27.8 billion to the UK economy, with 91% of final demand coming from exports. Aerospace exports grew by 12% in 2013, and the industry employs 109,000 people in well-paid, highly skilled jobs, and supports another 120,000 in the supply chain. The average wage is about £41,000, more than 50% higher than the UK average, and the sector has grown 10 times faster than the rest of the UK over the past three years.

After the record number of orders and commitments made at the recent Farnborough international air show, the longer term looks strong and opportunity-laden too. It is estimated that by 2032, more than 29,000 new large civil airliners, 24,000 business jets, 5,800 regional aircraft and 40,000 helicopters will be required. As the UK specialises in developing and manufacturing some of the most complicated and high-tech parts of modern aircraft, the industry estimates that that requirement means a potential market share of about $600 billion for the UK.

Against that background, we must ask ourselves whether the Government and the industry are doing enough to ensure that the UK retains and improves on its current position. To be honest, I was concerned by the breezily optimistic picture painted in “Flying High”, this year’s update on the Aerospace Growth Partnership. It reads more like a sales brochure for Government policy than an honest assessment of the challenges facing British aerospace companies. Only on the very last page do we read:

“However, the challenges of intensifying international competition, the rapid pace of innovation in the sector and a need to broaden our customer base remain.”

Those words encompass my reasons for seeking this debate.

There were starker warnings in the strategy “Lifting Off”, published last year, which says that

“recent trends have shown that UK content on new aircraft is in decline and that, without action, this will accelerate as new generations of aircraft are introduced.”

My confident hope is that the new Minister’s response will reveal a depth of thinking about the competitive

challenges and a strong commitment to do all that it takes to maintain the UK’s position internationally. [Interruption.] I am encouraged by his affirmation of my hopes and aspirations. I also hope—again, confidently—to hear recognition from the official Opposition spokesman that the AGP’s success is built on the firm foundation laid by previous Governments, and therefore an expression of strong support for this Government’s approach to working with the industry. This should be an opportunity to examine in a bipartisan spirit how we can ensure that the success story of British aerospace is maintained.

The industry, through its trade association, identifies four principal challenges: overseas competition and innovation, environmental demands, access to finance, and skills. Advances in technology are driven by environmental needs to cut emissions, reduce fuel-burn and increase aircraft efficiency. The UK must continue to be at the forefront of research into improvements in those areas in order to stay competitive, drawing on its capability in propulsion, and advanced structures in particular. Small and medium-sized enterprises throughout the supply chain will face increasing pressure from larger companies to cut costs and innovate. Many companies face problems accessing the necessary finance to grow, respond to new demand, collaborate and conduct R and D. Banks and financial institutions can be less willing to offer the finance needed for innovation due to the inherent risk and the long time scales involved.

UK industry requires not only a greater number of aerospace engineers and technicians to replace the current generation, but candidates with the right skills and knowledge to understand the use of new materials and structures in aerospace manufacturing. I will return to that at the end of my remarks.

However, my first specific question to the Minister flows from the first of those four industry concerns—overseas competition and innovation. Innovation underpins growth. If we do not invest in innovation now, the UK will not be competitive in the years to come. That is especially true in high-tech industries such as those in the UK aerospace sector, which face increasing global competition. We know that public investment increases private investment in innovation, but as the Business, Innovation and Skills Secretary has observed, the UK has both lower public funding and lower total investment in R and D than most of our competitor nations. More must be done to boost UK aerospace R and D, and to create a more level playing field with Europe and the rest of the world. For every £1 invested in the UK, France spends €10 and Germany €15.

However, the AGP looks set to improve that position. Later this year, the Government are due to publish their science and innovation strategy, which also offers an excellent opportunity for the UK to make a serious commitment to innovation policy, complementing all existing industrial strategies. However, countries such as South Korea, Japan and Brazil are throwing their immense firepower at building their share of global markets—for example, we can look at the strong position of Japanese suppliers on the new Boeing 787. Other nations such as France and Germany have been doing more, and often for longer, to stimulate technology and R and D. The growth in opportunities in civil aerospace means that the UK faces increasing competition from both mature and emerging markets. Therefore, we must

foster innovation throughout the supply chain to bring new technology, products and expertise in order to stay ahead in a competitive market.

I worry about whether the various mechanisms being established are sufficiently integrated and comprehensive. The response that has developed and that is spelled out in the AGP’s strategy is built around a variety of mechanisms. It rightly identifies areas of UK competitive advantage—wings, engines, aerostructures and advanced systems—and emphasises the importance of reinforcing that success. It seeks to address a major shortcoming in the UK business environment for aerospace. As “Lifting Off” says:

“Long-term predictability and stability of Government funding for R&D is a key factor in determining where it”—

the industry—

“chooses to invest and...the UK needs to do better in this research.”

At the pinnacle of the AGP is the Aerospace Technology Institute, an industry and Government co-funded £2 billion investment over seven years. That is precisely what the BIS Committee 2010 report called for and I am delighted to see our recommendation being so enthusiastically embraced. The ATI’s small team will lead on the development of the strategy and will identify the specific technological activity required to address capability needs in the UK. It aims to align early research and cross-sectoral R and D innovation delivered through the Technology Strategy Board, which will soon be known as Innovation UK. It already has more than £300 million of collaborative R and D projects under way, spanning the four UK priority areas: wings, engines, aerostructures and advanced systems.

The ATI works alongside the recently established UK Aerodynamics Centre and the various component parts of the High-Value Manufacturing Catapult, but a manufacturing accelerator programme is also being proposed. I am not currently clear about what that programme would add to the complex landscape of organisations. Indeed, I confess to being just a bit concerned about the complexity of the environment, with the ATI, the UKADC, the MAP, the TSB, the HVMC and its seven component parts, including the excellent Advanced Manufacturing Research Centre near Sheffield, the inspirational Manufacturing Technology Centre at Coventry, the important National Competence Centre near Bristol, and, possibly finally, the National Aerospace Technology Exploitation Programme that is aimed at smaller companies, never mind the host of academic organisations and those many organisations involved in defence aerospace.

I am a strong supporter of the AMRC and the MTC. I have been to both—I went to the MTC last week. They are fantastic centres of excellence, designed to encourage improvements in manufacturing across Britain and not just in aerospace, and they have a vital part to play in the aerospace sector and across all sectors. However, I worry whether that is a complex environment. How are the Government and the AGP assessing the strength of the international competitive challenges, and what lessons are they drawing about the adequacy and, crucially, the coherence of the UK’s response? We must always remember that the aviation industry works to very long time frames—they are often several decades per programme—and therefore consistent and long-term support from the Government is vital to provide a stable policy environment in which to operate.