Is BAE and UK manufacturing ready for take off?

http://www.guardian.co.uk/business/2013/feb/01/bae-systems-uk-manufacturing

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On both sides of the giant hanger at Warton in Lancashire, work is underway to slot together the pieces of the Typhoon combat aircraft. Craftsmen and technicians have to ensure that the left wing (made in Italy), the right wing (produced in Spain) and the central fuselage (shipped over from Germany) fit perfectly with the other bits of the Eurofighter (made in Britain). After testing, the planes will be ready for take off.

"Ready for take off". UK manufacturing has been waiting for that moment for the past five years – a period that was more painful in terms of lost output and jobs than it was for the sector at the heart of the crisis: the City. The latest snapshot of manufacturing released on Friday by CIPS/Markit provided some tentative signs that the worst might be over for Britain's factories, with output at its highest level in 16 months and jobs created for the first time since last spring.

Like the sector as a whole, BAE Systems – responsible for the UK's contribution to the Eurofighter – has been through a tough time. Its military air and information division employed 16,000 people two years ago, but the workforce has been trimmed to 13,350 following Whitehall's Strategic Defence and Security Review, a sluggish global economy and spending in austerity-gripped Europe. Warton and its sister plant, Samlesbury, on the other side of the M6 near Blackburn, account for 10,000 of those jobs.

The flat-lining of the economy and the complete absence of the rebalancing towards manufacturing expected by the coalition government has had its compensations, according to Martin Taylor, the company's director for combat air support.

"As the economy has tightened and exports have become more important to the UK government, the significance of our contribution has become more pronounced," he says. "When the economy was City-based our contribution was no different, but it was nowhere near as in-focus as it is now."

Taylor adds that the government was initially suspicious of the company, fearing that its dominance as a supplier to the Ministry of Defence gave it monopoly power. But in the past two years the mood has changed. Vince Cable, the business secretary, was a recent visitor to monitor progress being made by BAE Systems to turn unwanted pieces of land at Warton and Samlesbury into an enterprise zone that will act as a hub for advanced manufacturing. A state-of-the-art apprenticeship scheme in Preston is massively over-subscribed. A total of £150m is being invested at Samlesbury to make it ready for UK production of the world's biggest defence programme: the US-led F-35 joint strike fighter. R&D work is underway on UAVs – unmanned air vehicles – seen as the technology of the future.

While the government is keen to broaden Britain's narrow industrial base, it appears to have recognised that for the moment two sectors of manufacturing in which the UK retains a world-class presence – pharmaceuticals and defence – have both prospered by virtue of the state acting as a main customer. Some tender loving care is now being administered, with David Cameron saying he will exempt defence equipment from further spending cuts and also taking the lead in banging the drum for defence exports, particularly in the Gulf states.

Phil Entwistle has been making military jets for BAE at its Samlesbury plant for 33 years. Despite being a union convenor and Labour party member, he is full of praise for the prime minister's efforts. "David Cameron has done as much as any prime minister has done for many years. He has been our best salesman. He understand's how important the defence manufacturing sector is to the economy and especially the export arena."

Unions at Warton and Samlesbury dismiss ethical objections to defence exports. Entwistle is proud of the planes he helps produce, pointing out that the BAE plants are beacons of high skills, decent pay and strong union power in a part of the country where good jobs are thin on the ground.

"When I started work 33 years ago you could walk out here an get another job straight away. You can't do that now," he adds.

"Manufacturers like us at the jewels in the crown. We get a raw deal because of what we do. But they (the planes) are only deterrents. If everybody in the Middle East has got Typhoons they are not going to use them."

Taylor says he finds nothing anomalous about Cameron trying to drum up export orders for the defence industry in the Middle East while at the same time raising questions about human rights in the region. "Everything we do has to have government approval."

He also says the company has cleaned up its act following long-running and damaging allegations of corruption surrounding sales of military hardware to Saudi Arabia, dating back to the 1980s. "We have come a long way. We wouldn't want to go back to that culture. We have a zero-tolerance policy."

After its third deep recession since the 1980s, manufacturing now accounts for little more than 10% of UK's national output. Taylor says in the future after-sales services are going to be ever more important as a source of profits, but warns against a loss of industrial capability. "We started as a design and build company; we are now a design, build and support company" Taylor says. "But the manufacturing element is vital to the services bit."