An imminent £bn deal for Saudi Arabia to buy 24 military aircraft from BAE Systems could help secure an important corner of the economy in Lancashire. Dave Chadwick reports on the balancing acts required to underpin the modern defence industry
The world's most powerful woman might have been unwelcome at a Blackburn mosque, but there was no shortage of glad-handers at the nearby military aircraft factory at Samlesbury.
Unlike the improbable alliance of Islamists and peaceniks, executives at BAE Systems greeted US secretary of state Condoleezza Rice and her host, foreign secretary Jack Straw, with open arms.
And well they might. The defence sector, like no other, is enormously influenced by the political dynamics of an uncertain world in which government policy determines what should be made and where it can be sold. Today's nice people are tomorrow's bogeymen; yesterday's threat, tomorrow's opportunity.
Take Libya, quickly eschewing its tag as the world's wickedest country, to become a prospective trading partner. Initial moves might be limited to civil aviation, but where the civil sector goes, the military often follows.
And political leaders are fast becoming the ultimate salesmen in the battle for defence contracts. Prime Minister Tony Blair ardently supports BAE Systems in the teeth of competition from French President Jacques Chirac, similarly talking up the efforts of Thales and Rafale.
But defence contracts aren't just about selling units of military hardware. If the Saudi deal goes ahead to buy an initial 24 Typhoon fighters jets, the contract will be worth more for the ongoing servicing and maintenance of the aircraft. It has also been reported that the Saudis may take orders before that of the Royal Air Force (RAF), so keen are they to upgrade their defence system.
Sales are also in the pipeline for Norway, Switzerland, Turkey and Japan. There had been nagging doubts that only Austria and the RAF had so far opted for the Typhoon.
The specifics of BAE Systems' presence in Lancashire are certainly impressive on an economic level. Its military aircraft operations in the county represent the hub of a huge regional aerospace sector with a turnover of £36bn, 70 per cent of which is exported. The directly employed workforce comprises some 60,000 with a further 120,000 people in jobs that depend indirectly on the sector through supply chains.
BAE Systems' activities in the region are centred around Warton, near Preston, which is the headquarters of its military aircraft business known as Air Systems.
Warton is the largest of BAE Systems' sites, with around 5,000 staff on a 700-acre site that boasts a full range of systems integration, final assembly and flight test facilities. Specialist test facilities include a comprehensive range of hot gas and systems laboratories, radar cross-section, electronic warfare and wind tunnels.
Warton is also the company's design centre for combat aircraft.
Almost 4,000 people work at the 350-acre Samlesbury complex, which is a world-class design, engineering and manufacturing centre, involving the production and assembly of major units for the Typhoon fighter and F-35 Joint Strike Fighter (JSF) programmes.
Additionally, Samlesbury is home to some of the most advanced technologies in the world, many of which have been developed on site.
In recent years more than £3100m has been invested in Samlesbury and this will continue as the JSF programme gathers pace.
One of the most ambitious projects that BAE Systems is working on is the development of uninhabited air vehicles (UAVs), which are at the forefront of forward planning at the Ministry of Defence.
In January the company formalised its position on UAVs by launching its snappily named Autonomous Systems & Future Capability (Air) business programme. The company also revealed details of successful trials flights with UAVs, including the first Civil Aviation Authority-approved fully autonomous flight in UK airspace last August.
At the heart of development across the sector is the defence industrial strategy (DIS), a wide-ranging policy doucment unveiled by defence secretary John Reid in December 2005.
According to Reid, the strategy will ensure the UK's armed forces have the equipment they need, when they need it, and at best value for taxpayers' money.
"We are telling industry what we think we will need, what will be strategic to the UK, where we will be spending taxpayers' money, and how we will engage with the market," says Reid. "Skills and capabilities needed by this country change over time - we need the high-value, technological and systems engineering skills required to ensure that our current fleets can be maintained, supported and upgraded and that we have in the UK the ability to build and design the sort of equipment that we require now, and in the future."
Fine words, yet Dennis Mendoros, chairman of the North West Aerospace Alliance (NWAA), believes downward pressure on UK defence spending means regional businesses must increasingly look to export markets.
As managing director of Blackburn-based gas turbine and propulsion specialist Euravia, Mendoros has first-hand experience of the problems faced by regional aerospace suppliers.
He believes a collective approach will protect the region's industry from a three-pronged threat, stemming from the inexorable acceleration of technology; the emergence of nations keen to develop their own aerospace industries; and greater demand for improvements in supply chain efficiency.
"The main competitive threats come from China, India, Indonesia and eastern Europe. These countries are causing us some concern because each has its own unique strengths," says Mendoros. "There is a huge difference in labour, production and investment costs. European Union (EU) accession countries, for example, are benefiting from EU funding, formidable political will and an open market, all of which reinforces their competitive position. "If you were going to open an aerospace factory in Poland, you would gain five times more benefit than in the UK as a result of EU grants, bilateral agreements to encourage inward investment into Poland, and significantly lower investment and operating costs."
Nevertheless, Mendoros remains optimistic about the future of Lancashire's aerospace companies - with the critical caveat that they must continue to embrace technological advances.
"If we continue to build metal components, we will lose our position as the world's second largest aerospace exporter within ten to 15 years.
However, if we continue what we have started doing, we will maintain the same command of the market that we have today."
Modern aircraft are built by multi-national consortiums, and the age of traditional aircraft production is long gone. Almost 50 per cent of a typical aircraft is now made of composite materials that require fresh skills and heavy investment in new processes.
There are encouraging signs that Lancashire aerospace businesses are rising to the challenge. This year, half of the region's companies are working with composite materials, compared with only 5 per cent in 1999.
Supply chain diversification is another key element in ensuring competitive flexibility. Around 70 per cent of the NWAA's membership is involved in other aspects of technology-led engineering activity, such as automotive and nuclear.
The NWAA, together with the Northwest Regional Development Agency, the Department of Trade and Industry, and local universities have joined forces to produce ambitious plans for an aerospace innovation centre (AIC) to be located at BAE System's Samlesbury site.
The centre, aimed at safeguarding and expanding the region's globally renowned aerospace industry, will create a collaborative and innovative environment that could generate thousands of high value-added jobs and attract investment worth hundreds of millions of pounds.
"The AIC will consolidate effort and make us collectively strong, helping the smaller firms who could not invest in such facilities alone and also the bigger companies in coordinating effort," explains Mendoros.
Studies are taking place to determine how the AIC will develop and an agreement between the partners is expected to be announced in the next two or three months.
In the meantime, Mendoros is convinced that an entrepreneurial approach to the export market is already bearing fruit.
Fifteen years ago, only a small number of regional small to medium-sized enterprises took part in the Farnborough international air show, compared with this year when there will be 40, each committed to developing export sales.
"We are expanding our economic horizons through international collaboration and getting involved in projects that we wouldn't otherwise have had access to," says Mendoros. "We don't want to polarise the market, we want to expand by working with large aerospace players across the globe, as well as with India, China, the eastern European countries and places such as Brazil."
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