NDI Weekly Insights 30/07/2019

30/07/2019

WESTMINSTER NEWS

New Secretary of State for Defence;

This week has seen not just the appointment of a new Prime Minister Boris Johnson, but the widest Cabinet reorganisation ever. This has included the appointment of a new Secretary of State for Defence, Ben Wallace, replacing Penny Mordaunt, who was in charge for a mere 85 days. Early statements from the new Prime Minister suggest that increased investment in the Armed Forces is on the new Government’s agenda, in particular for the Royal Navy – a response to the increased threat to UK shipping in the Gulf from Iran. Nevertheless, from a procurement and industry perspective, Mr Wallace arrives at the department facing a number of challenges. The central pillar of the Defence Strategy, the long-anticipated Modernising Defence Programme (MDP), was published in December last year after a well-documented battle of wills with the Treasury who had been parsimonious when weighing up defence’s requirements against those of other Whitehall budgets, particularly given the potential economic headwind that Brexit threatens.

Regretfully, the compromise that emerged with the MDP was considered by many in industry to be problematically inconclusive. Despite £186bn being allocated by MOD to its equipment plan out to 2029, the concern remains that this simply does not match the ambitious capability requirements set out by the MOD in the 2015 Strategic Defence and Security Review, ambitions that were explicitly restated in the MDP. Squaring these against fiscal realities thus remains the central challenge that faces the Defence Secretary as he assumes his new responsibilities. It remains to be seen if the new Chancellor, Sajid Javid, will be more obliging in terms of increasing the defence budget.

Success will of course depend on the sustainment of a robust manufacturing supply chain in order to deliver against MOD’s capability requirements on time and to budget. Make UK and NDI have continued to press for a model that fulfils the MOD’s commitment to promoting economic prosperity through defence, campaigning for as much manufacturing work to be undertaken with the UK supply chain. That approach will of course continue under the new leadership.

Prior to his appointment to the MOD, Mr Wallace served as Security Minister in the Home Office for three years, with responsibilities including counter-terrorism, economic crime and cyber security. He was elected the Conservative MP for Wyre and Preston North in May 2010. His experience before Parliament also makes him an apparently good fit for MOD; a graduate of Sandhurst, Mr Wallace saw active service with the Scots Guards in Northern Ireland, Germany, Cyprus and Central America, before leaving the Army in 2003 to join QinetiQ as an executive.

Mr Wallace’s ministerial team at MOD has yet to be finalised, though it has been confirmed that Mark Lancaster will remain as Minister of State for the Armed Forces.

DSEI 2019: countries, territories and organisations invited by DIT DSO to attend

DSEI 2019: countries, territories and organisations invited by DIT DSO to attend

The Defence Secretary and her Swedish counterpart have signed a landmark agreement

Defence Secretary Penny Mordaunt and her Swedish counterpart Peter Hultqvist have signed a landmark agreement to partner on future combat air.

The Memorandum of Understanding (MOU) commits both governments to work on a joint combat air development and acquisition programme, including the development of new concepts to meet both nations’ future requirements.

At the MOU signing with her Swedish counterpart, the Defence Secretary Penny Mordaunt said:

The UK and Sweden have an enduring defence relationship, with our two industries sharing a rich history of collaboration in air power.

Not only do we share the same commitment to tolerance, freedom and free trade, we also share the same determination to defend those values, including in Afghanistan, Iraq and today as part of the UK’s Joint Expeditionary Force.

This agreement further deepens this partnership and sees us look to the future with a bold and shared vision of UK and Swedish air power.

Defence Committee: Select Committee Announcement

The Defence Committee launches an inquiry into the defence industrial policy of the Ministry of Defence (MoD), exploring procurement policy in relation to UK prosperity and the Department’s impact on the defence supply chain.

Context: In 2015, the Strategic Defence and Security Review introduced a new National Security Objective to “Promote our Prosperity”. The Defence Industrial Policy refresh published in 2017 reaffirmed that “competition and strategic choice remain at the heart of our approach to defence procurement”, whilst committing to taking measures to protect freedom of action and operational advantage on national security grounds. It also laid out a three-pronged refresh to industrial policy, including:

Improving the way defence delivers wider economic and international value, and national security objectives;
Helping UK industry in its plans to be internationally competitive, innovative and secure; and
Making it easier to do business with defence.

Supporting exports is now a core task of the MoD and has been incorporated into the National Shipbuilding Strategy (2017) and the Combat Air Strategy (2018).

Philip Dunne MP was commissioned by the then Defence Secretary to produce a report on “Growing the Contribution of Defence to UK Prosperity” which was published in 2018. He recommended that the MoD produce clearer, practical guidance on the prosperity factors defence is most likely to consider, the reasons for their importance and the primary metrics which might be used in assessing their value and relevance.

The Committee held an oral evidence session on 21 May 2019, looking into the procurement of Fleet Solid Support Ships and the planned (but now cancelled) move of a propulsion capability outside the UK. We are now expanding our inquiry to consider broader trends in defence industrial policy in relation to procurement and prosperity.

Call for evidence: The Committee would welcome written evidence addressing the following questions:

Is the current Defence Industrial Policy effective? Is a new Defence Industrial Strategy required?
What are the national skills and competencies needed for a successful UK defence industrial sector? How can the UK ensure, and assure, that these are maintained in the right place at the right time for the right cost?
Does the market for Defence systems, products and services have any specific characteristics, which differentiates it from other markets? Does international collaboration limit the potential for defence exports?
Is tension between competition and strategic choice inevitable?
Should the UK adopt a formal Offset/Made in the UK policy? What impact would this have on the national and international defence markets?
What is considered in assessments of “prosperity” and “value for money” in defence procurement? What consideration is given to the local economy, skills retention and balancing the positive financial impact across the regions and nations of the UK?
What progress has been made in implementing the recommendations from Philip Dunne’s report?
Does the MoD understand the risks and opportunities in the Defence supply chain, and the procurement strategies of other buyers in the market?
What has been the impact of reforms to defence procurement and acquisition? How should Head Office and DE&S acquisition reform be aligned to defence industrial policy and strategy?
Given that major capability acquisition programmes are international by design—the Combat Air Strategy and Type 26 frigate for example—how does a modern national defence research and industrial policy successfully manage cross-border long term partnerships and align with the industrial approach of allies and partners? What lessons can be learnt from other defence exporting countries?

The Committee invites written submissions for this inquiry, which need not cover all the points above. These should be submitted via the inquiry page on the Defence Committee website.

The deadline for written evidence is 9 September 2019.

Inquiry: Defence industrial policy: procurement and prosperity

PARLIAMENTARY QUESTIONS

Turkey: Arms Trade: asked the Secretary of State for Defence, what representations she has made to her Turkish counterpart on the implications for their NATO membership of their purchase of a Russian Anti-Air System, Minister of State for Defence Mark Lancaster said:

My right hon. Friend the then Secretary of State for Defence (Penny Mordaunt) met with Turkey's Defence Minister in Brussels last month, when she raised our concerns about Turkey's purchase of the Russian S-400 air defence system. Turkey is a valued NATO Ally, and while we are disappointed that Turkey has chosen to acquire the S-400 we remain committed to our strategic partnership. We will continue to discuss our concerns with Turkey.

Combat Air Strategy Update: Made by Earl Howe (Minister of State, Ministry of Defence)

My right hon. Friend the then Secretary of State for Defence (Penny Mordaunt) has made the following Written Ministerial Statement:

The Combat Air Strategy was launched a year ago on the opening day of the Farnborough Airshow, the birth place of aviation. It re-affirmed the Government’s commitment to the Combat Air sector, laying out a clear vision for our nation to remain at the leading edge of this sector and providing a clear roadmap to achieve this.

On publication of the strategy, my right hon. Friend, the then Secretary of State for Defence, made a commitment to update the House annually on implementation of the strategy and the programmes it launched. Today I provide this update.

It is worth reflecting on the strategy and its key themes. First, it recognised the strength of our industry and its contribution to the well-being of our nation. This sector is economically, strategically important and is enables sovereign decision-making on where and how to deploy our military capability. Secondly, it makes clear that partnering with like-minded allies is the best means to deliver our collective objectives. The update will therefore cover both themes – domestic developments, as well as international.

Domestic Update

Alongside the launch of the strategy, the Department re-affirmed our commitment to the approximately £2 billion Future Combat Air System Technology Initiative (FCAS TI). This initiative will mature the technologies needed for our future combat air systems and crucially, develop key skills across both Government and industry. The central pillar of FCAS TI is ‘Team Tempest’, a co-funded partnership between Government and our industry partners. Over the last year this partnership has driven a step change in relationships and behaviours between Government and industry by aligning incentives, sharing costs and benefits and creating common interest in pace and agility. The team is on track to delivering 17 European-firsts and 7-world firsts. The first of these has already been achieved – the embedding of an electrical starter generator by Rolls-Royce within the main body of a powerful military aircraft engine. This increases the power density and reduces the complexity of future aircraft engines, resulting in more efficient engine designs and is fully exploitable to Rolls-Royce’s multi-billion pound civil business. This technology will continue to be matured in the coming years, leading to a fully integrated novel power and propulsion system.

This partnership, and the private and public funding underpinning it, already supports over 1,000 jobs, many of them in high-end design, across the breadth of the country, from BAE Systems in Lancashire, to Rolls-Royce in Bristol and to Leonardo in Edinburgh and Luton. This number is set to rise to 1,800 by the end of this year.

The strategy recognised that there is significant capability residing in UK companies of all sizes and therefore, we are engaging with companies beyond our ‘Team Tempest’ partners. My right hon. Friend, the Minister for Defence Procurement hosted an Industry Engagement Day on the 19 March at Farnborough where 180 companies representing a wide range of capabilities and sizes, received briefs on the technologies being matured by ‘Team Tempest’ and the opportunities that exist for further collaboration. I am pleased to announce that the ‘Team Tempest’ partners have subsequently engaged an additional 500 companies and so far, have let over 120 sub-contracts in support of Team Tempest activities.

The Combat Air Sector is likely to be a key driver in new technologies and skills in areas such as automation, machine learning, advanced manufacturing and big data which will have broader benefit to the economy. Crucial to the long-term sustainability of this sector is ensuring that the skills needed in the future are identified, the workforce trained and that ultimately these skills are transferred to the next generation. Team Tempest has therefore established a dedicated STEM engagement team to inspire young people to be involved in this sector. This approach, along with the assurance provided by the strategy has resulted in record numbers of young people joining the workforce. This year, Leonardo MW will recruit 104 graduates and 62 apprentices, with the majority planned to be involved in Team Tempest activities. Similarly, BAE Systems is planning to recruit approximately 700 apprentices and 300 graduates to grow the percentage (currently 10%) of their Team Tempest workforce that are graduates and apprentices.

Working closely with officials from the Department for Business Energy and Industrial Strategy (BEIS), the Department has launched a skills index to monitor the health of industrial and government skills critical to the delivery of our national objectives. Industry have provided their inputs and we are analysing the results and intend to present our findings in September. The skills index will be used to inform and measure the success of interventions such as FCAS TI, to ensure the health of the sector.

International Update

On F-35, in February, the avionic and aircraft component repair hub in North Wales was awarded a second major assignment of work worth some £500 million by the US Government. This will create hundreds of additional jobs in the UK and was the result of working closely with industry to deliver a national campaign approach.

On Typhoon, the strategy confirmed our commitment to continue to invest in this remarkable platform. In June, NETMA, on behalf of the UK and the other European Partner Nations, awarded a €54 million contract for the Typhoon Long Term Evolution study to industry which will explore how to maximise Typhoon’s capability for this decade and beyond.

The FCAS TI programme is maturing technologies for national usage, as well with our international partners. We are contracting our industry to work with their French counterparts on technologies that would maximise interoperability of our current and future platforms, recognising that, as currently envisioned, the Franco-German Système de Combat Aérien Futur (SCAF) acquisition programme does not meet the objectives laid out in our strategy. We are also investing in the development of the next generation Lift Fan for the F-35B, to reduce weight and improve the overall effectiveness of this world beating platform.

Our next generation acquisition programme will define and deliver the capabilities required when the backbone of the RAF, the Typhoon, leaves service. The team delivering this is working at pace, having within a few months of forming, delivered the Strategic Outline (Business) Case, which confirmed acquisition options to deliver our future combat air capability, which are now being explored and tested with potential international partners.

Despite challenging international dynamics, the Department has made great strides in our discussions with potential partners. With the support of wider Government (most notably officials from the FCO and DIT) and our industry, we have launched feasibility studies with potential partners.

We have discovered that there is a great appetite to collaborate with us. We offer a unique partnering approach, recognising the need to deliver ours and our partners’ benefits together, learning from our rich history of collaboration. This approach provides the firm leadership needed and appears to be an attractive alternative to the traditional, dominant-junior partner relationships.

Last week I signed a Memorandum of Understanding with my Swedish counterpart on this topic. This marks a significant step in aligning our nations, recognising both nations have highly capable Combat Air sectors. We will work together to mutually develop our understanding of the systems required to deliver our future requirements and how best to develop, deliver and ultimately support them. Beyond Sweden, we are furthering our engagement with other potential partners and I aim to sign similar arrangements over the next year.

From progress to date, we believe that Europe can afford two separate Combat Air programmes. We are investing in technologies, such as open systems architectures and advanced design and manufacturing techniques which offer significant reductions to the time and cost of design, manufacture, in-service upgrades and modifications. We are also ensuring that collaboration will be with partners whose strategic objectives align with our own, including the determination to reduce costs. We recognise that in an effective and efficient collaboration, there will be an optimum number of partners, which may include those outside of Europe.

The strategy’s next major steps are to continue the Concept Phase until December 2020, gathering evidence on the acquisition options presented and then submit the Outline Business Case. This will select the preferred acquisition route and concept to be taken forward into the assessment phase.

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