The Minister for Defence Procurement, Lord Drayson, addresses the British Naval Equipment Association (23 November 2005)

Delivering the naval capabilities of the future

Lord Drayson, Minister for Defence Procurement

Good afternoon ladies and gentlemen and thank you for inviting me to speak at your conference.

This is a timely address. Whatever people disagree about in the UK shipbuilding industry today, they agree on one point: the industry is in the midst of a period of profound debate about its future. I want to talk to you plainly today about this debate, the reasons for it and how together we can resolve it. I believe there is a real opportunity for UK shipbuilding now, if we grasp the opportunity.

The design and construction of warships is one of the most complicated weapon system engineering and manufacturing tasks that a country can undertake. Warships require a complex integration of communication, control, weapons and sensors that must work together as a coherent system. They require substantial design, engineering, management, testing and production resources. For even a modest vessel, the engineering and design workforces can peak well in excess of 100 staff, for a class as complex as the future carriers - the biggest warships ever built in Europe - a design workforce of over a thousand may be needed. The design workforce must be highly skilled and educated. Production requires many skills or trades, such as electricians, welders and commissioning engineers, which can require years of training and experience to become proficient.

Naval production also relies on a large, and in many cases sophisticated, vendor base; painting services, modular unit manufacturers, material suppliers and weapon systems providers to name but a few.

The manufacture of warships also requires significant facilities: machine shops, docks, piers and cranes; occupying large areas of land and expensive to build and maintain. Shipbuilding is both a capital and labour intensive business. As such it cannot be developed or expanded without significant resources, planning effort and a long lead time; and such investment needs to take account of the long-term outlook for the business.

Nations that maintain a significant navy have established domestic industries that are specialised in warship production. And the UK is one of the four leading warship builders (by tonnage) in the World, alongside the US, France and Germany. Indeed, 85% of all UK shipbuilding is warship production and the MOD is by far the largest customer for the industry. All serving warships were built in UK yards. One reason why a strong UK domestic shipbuilding capability has been considered necessary in the past is that certain technologies are sensitive and are difficult to obtain from outside sources. A further argument has been security; by maintaining a domestic source of production we are better able to control information about the technologies and capabilities of our warships. Another is that a domestic industry is more willing to tailor a warship to meet our specific needs and to respond to urgent operational requirements. And of course there are the wider employment and economic considerations.

These are all strong arguments for maintaining some capacity onshore, and for nuclear submarines in particular, but the questions that we need to answer together now are: how can the UK shipbuilding industry improve its productivity and offer the best value for money for Defence? How should the industry be transformed to meet the demands of a large complex shipbuilding programme and prepare itself for the longer-term? And which are the key skills, technologies, knowledge and facilities that the UK needs to retain onshore?

These are not just issues for the naval industry alone. The Defence Industrial Strategy that I have asked MOD to work urgently on will set out by Christmas the key capabilities that must be fostered and sustained within the UK to keep the defence industry competitive, innovative, and able to meet our future defence needs. Emerging themes from this work suggest that there will be a need to sustain a limited number of key capabilities on shore – though as the work is still continuing and is commercially sensitive I cannot provide specifics today.

The second theme is the changing approach to buying, maintaining and upgrading equipment throughout its service life with a move towards the provision of, and contracting for, through-life capability – potentially through longer term partnering arrangements.

The third theme is our increasing requirement for systems engineering skills and capabilities as we move towards fewer, more capable, platforms with longer lives and a need to perform an increasing variety of roles. Instead of buying new platforms we will be looking to add capability incrementally, which will help to smooth the historic peaks and troughs and provide a more predictable stream of high value design and engineering work.

As you know the UK is in the midst of one of the largest ship build programme for decades. At its peak this programme could see a number of major programmes in various stages of design and construction at the same time. These include the Astutes, Type 45s, Carriers, and MARS vessels. Not only will there be more ships being built at the same time but these ships will be the largest of their type built in a long time. It has been estimated that at the height of the build programme for Type 45, Astute and the future carriers some 16,000 designers, project managers and shipbuilders may be needed in total.

This level of new build is unprecedented but such a large programme cannot be sustained indefinitely. Put simply, as a customer, we cannot afford it and nor do we need it. That is not to say that we will not need new destroyers, frigates or submarines in the future, or that we will not need to upgrade our ships regularly, responding to new technological opportunities and new threats. But the rate of acquisition of new platforms is likely to be much lower than the upcoming peak. This has implications for both new procurement and the volume of support business required. By the middle of the next decade our plans indicate a return to current levels of shipbuilding activity. After that the new build programme rapidly falls away as we will have replaced all our major platforms with larger and more capable vessels.

In managing through this intense period of activity, I see three major challenges for us. First, meeting the peak demand; second, managing the downturn and transforming the industry to meet the reduced long term steady-state demand; and third improving the performance of the industry - Astute, Type 45 and LSDA have all been subject to cost overruns and delays – this cannot continue.

We need to go into this next phase with a clear idea of how the capacity question is going to be managed so that key programmes are not delayed through a lack of enough engineers and trade specialists, and so that the industry is not left with a workforce and facilities that it cannot sustain into the long-term. We can assist by smoothing the peak as much as possible, and have we are developing with industry a more balanced and potentially more stable industrial demand within affordability and capability constraints, but there will still be a peak and the long-term trend will be the same. One solution might be greater work-sharing between yards – as seen on Type 45 and under consideration for the future carrier. Another might be increased peak outsourcing especially in the technical areas that will see most fluctuation in demand such as steel work and outfitting. It is surely better to have over the long-term a smaller, more secure, more profitable UK shipbuilding industry.

But these are not decisions that I can make for the industry, as a customer I can only set out my future requirements in a clear as manner as possible so that you can make your own informed choices. But you know the facts as well as I do. I said at the start of my address that there is an opportunity to grasp; and this is to increase the productivity of the industry so that it is more competitive and more sustainable. For example, within the UK we currently have four separate design teams, twelve separate ship and dock yards, and eight separate management teams, finance, marketing and HR Departments. These are expensive overheads to bear, reducing profit margins, limiting the potential for investment and depressing market value. From a Defence perspective all this additional overhead adds cost to our projects and reduces the military capability that we can deliver.

I’ve been pleased to see that some shipyards have already got this message and are investing in skills and equipment to become more efficient and are reviewing their processes and working practices to drive improvement. Bringing in new ideas from abroad where needed. For example pressure hull assembly techniques from the US on Astute build. The UK will need to buy warships and submarines for the foreseeable future – but our ability to do so will depend upon the industry and the MOD working together to address the fundamental issue of affordability.

I look forward to working with the industry to do this.

Last Updated: 5 Dec 05