HC Deb 18 December 1986 vol 107 cc1351-9 3.30 pm
The Secretary of State for Defence (Mr. George Younger)

With permission, Mr. Speaker, I wish to make a statement on airborne early warning aircraft for the Royal Air Force. I apologise in advance for its length.

The House will recall that in March 1977 the then Government announced their decision to proceed with the Nimrod system to replace the Shackleton in the airborne early warning role. Contracts were placed with what is now British Aerospace plc for the necessary work on the Nimrod airframe, and with GEC Avionics Ltd for the development and production of its mission system avionics. At that time, it was envisaged that the aircraft would be available to the RAF in a training role in May 1982 and for operational service in April 1984.

British Aerospace has delivered the airframes in accordance with its contract. But, as the House knows, serious difficulties have arisen in the development of the avionics system for the aircraft, and these have led to very serious time and cost overruns.

On 26 February last, my right hon. Friend the then Minister of State for Defence Procurement informed the House that the Government had decided to consider all of the available options, both from this country and from overseas, for meeting the RAF's needs before taking a final decision on the way forward. He also announced that for Nimrod itself we had negotiated with GEC revised contractual arrangements involving a sharing of financial risk with the company and giving them adequate incentives for completion.

The intention was that, by the end of an interim period of six months, GEC would provide us with a firm price proposal against a technical specification aimed at fulfilling the needs of the RAF, and would also demonstrate to us the progress it had achieved on the development of the project. Meanwhile, we would explore alternative solutions. On 25 September my noble Friend the Minister of State for Defence Procurement announced that best and final offers were being invited from GEC Avionics for the Nimrod and from the Boeing Aerospace Company for the E3A aircraft. Those offers have now been received and assessed.

GEC's offer for Nimrod has been judged against a cardinal point specification based on the air staff requirement endorsed in 1977, with the addition only of an air-to-air refuelling capability. Since 1977 the air threat against the United Kingdom has increased. But we have not, as they say, moved the 1977 goalposts so far as the Nimrod system is concerned.

GEC's offer covers three levels of attainment. In ascending order, and cumulatively, it has offered three aircraft in the second half of 1987 to the standard of the present trials aircraft; six aircraft between mid-1989 and mid-1990 which would approach the final standard subject to certain exclusions, of which the most important is a vital secure data link to and from the aircraft; and 11 to the final standard between October 1991 and September 1993.

The first of those offers is not of any value, as the system is not now of a standard that could be used for training. The question that I have had to consider is whether, taking account of the work GEC has done since February, and in particular of recent flight trials, together with our knowledge of the results it has achieved during the last nine years, I can have confidence that it could deliver aircraft with the second and third levels of performance in the time scales that it has offered. This is an assessment of the Nimrod programme against the objective standard of the air staff requirement and not against the E3A.

I am sorry to say that the conclusion that I have reached after the most careful consideration is that I cannot have that confidence. GEC has certainly made technical progress in some areas since February, and has also accepted contractual terms which would give it the strongest incentive to achieve success. I pay tribute to it for that.

Nevertheless, there have been technical disappointments as well as progress. The recent flight trials which have been attempted have not produced a consistent and reliable pattern of results. Such results as have been achieved fall well short of the air staff requirement. The company has therefore made proposals for a new programme of work which would improve the system's performance over the next few years. I have considered the proposals very carefully, but the unanimous view of my scientific and military experts is that the required performance is unlikely to be achieved before the mid-1990s at the earliest, if then.

This is a question of scientific and engineering judgment; the likelihood of success does not lend itself to absolute proof one way or the other. I must judge the prospects on the basis of the scientific and service advice available to me. That advice is clear and unanimous.

As I have said, Nimrod AEW should have entered RAF service for training in 1982 and for operations in 1984. Airborne early warning is a vital air defence capability and multiplies the value of other forces. The existing Shackletons, which entered service in this role in 1972, are obsolescent and would be of limited value in hostilities.

Very reluctantly, I have decided that the time has now come to cancel the Nimrod AEW programme, notwithstanding the expenditure of £660 million so far, just over half of which has been spent on the avionics. All existing contracts are therefore being terminated. Subject to satisfactory completion of contractual negotiations, we shall instead be ordering six E3A aircraft from Boeing now, with the option of adding a further two within the next six months. The E3A is already in service with the NATO AEW force as well as with the United States air force. The RAF version will meet or come close to the 1977 operational standard we have set and will, in several respects, significantly exceed it, thus improving the RAF's capability against the military threat. There is plenty of potential for stretching the system to match further developments in the threat. I am confident that the E3A will give excellent service with the RAF.

Allowing for termination costs on the Nimrod contracts, the cost of acquiring the six E3A's with initial support will be £860 million at 1986–87 prices, which is £200 million more than the remaining cost of acquiring 11 Nimrods. Those prices are based on sterling quotations from Boeing. The difference represents value for money given our total confidence in the E3A's ability to perform the operational task in an acceptable time scale. On a through-life cost basis including running costs over 20 years, the difference between the two is marginal. These comparisons are confined to future expenditure and take no account of past expenditure on the Nimrod system. The cost of this purchase will be contained within the planned defence expenditure totals published in my right hon. Friend the Chancellor's autumn statement.

Nevertheless, this is a sad decision to have to take, but I have no doubt that it is the right one. There are lessons for all of us in this outcome, and I do not seek to evade my Department's share of responsibility. Our experience with Nimrod has reminded us of the importance of establishing agreed contractual terms at the earliest possible stage, with clear specifications and agreed acceptance criteria, which place the contractor under an effective discipline. My fellow Defence Ministers and I will be ensuring that these and other lessons are fully absorbed and acted on in our future handling of major projects.

While this must inevitably be a sad day for GEC and its work force, this decision must be seen in its proper context. GEC will remain one of the MOD's biggest equipment suppliers; we spent over £700 million—[Interruption.]

Mr. Speaker

Order. This is a statement of great importance that the entire House is anxious to hear.

Mr. Younger

GEC will remain one of the MOD's biggest equipment suppliers; we spent over £700 million with it last year, even excluding expenditure on Nimrod. It and other British firms will continue to design and manufacture airborne radars despite the present decision. The loss to British defence technology will be solely in this highly specialised field of large and advanced AEW systems, and it is not strategically vital for this capability to be retained in British industry. In any case, Britain will continue to be involved in this technology through the participation of Racal, Plessey and Ferranti in the E3A order for the RAF.

Furthermore, Boeing's proposals for the E3A include a contractual commitment on its part to an extremely high level of offset, amounting to £130 to be spent on work for British companies for every £100 which we spend on the E3A. This commitment has been welcomed by British firms which will be participating in the E3A project. Boeing is publicly committed to placing high technology work with British companies and has an excellent record for honouring undertakings of this kind. Our assessment is that job losses resulting from the cancellation of Nimrod will be equalled if not exceeded by job gains in firms all over the country resulting from Boeing's offset proposals.

As I have said, the decision that I have announced has not been an easy one. I wish very much that it could have been otherwise. However, if the RAF is to have the equipment it urgently needs to defend this country, this is the only decision that can be right. I commend it to the House.

Mr. Denzil Davies (Llanelli)

The Secretary of State's decision is not only sad; it is a bad one. It is a bad decision for Britain's defence interests because ultimately a country can defend itself only on the basis of the strength of its industrial and technological base. The Secretary of State and the Government have dealt a heavy blow to that industrial base in an area of high technology.

The decision will be bad for the economy because jobs will be lost and Britain, yet again, will cease to be a prime contractor producing systems and will become a subcontractor producing components for industries and factories of other countries. It is a bad decision financially because upwards of £900 million in the end will have been wasted completely. Apparently, another £860 million will have to be found from within the defence budget.

I shall seek to catch your eye later, Mr. Speaker, to apply for an emergency debate under Standing Order No. 20, but I wish briefly to ask the Secretary of State the following questions. Will he tell the House why, on 5 December, he stated publicly that both systems work? Is that still his view? Can he tell us—his statement did not say this—when the first Boeing aircraft will come into operation with the Royal Air Force? Are there any plans for hiring from the Pentagon in the meantime other Boeing aircraft, and was that offer available to GEC as well as to Boeing?

Does the right hon. Gentleman agree that jobs will be lost? What will be the penalties if Boeing fails to meet the contractual obligation of, apparently, £130 for every E100 spent? Does the right hon. Gentleman agree also that the Government have handed Boeing a world wide monopoly in early warning systems and dealt a severe blow to GEC's hopes of teaming up with Lockheed and selling their system in other parts of the world?

Since the Secretary of State has said that both systems work, since some of his officials have behaved disgracefully over the past few weeks, and since the right hon. Gentleman now says that it is merely a matter of technical judgment, will he agree to an independent technical evaluation of the two systems before contacts are signed?

Mr. Younger

I am surprised at the right hon. Gentleman's reaction. Of course this decision wil be a great disappointment to GEC and to all those who work for it; I recognise that. To say that this decision has an effect across the whole of the British defence industry is to fly in the face of all the facts and the present outstanding export record of the British defence industry. I said, and I stand by it, that both systems work. I did not spend three hours flying over the North sea fiddling with a system in Nimrod that did not work. The question is how well it works against the stark demand of air staff requirement 400. The answer was given in my statement, which is that, at present, it is agreed by all that it does not work anywhere near that standard. I have had to judge whether the company will successfully make the system work within three years. Regretfully, I decided that that is not credible.

The first aircraft will be delivered by Boeing in 1991. No offer has been made to lease aircraft in the meantime. If an offer is made, of course I shall consider it.

Penalties for non-performance will be in the contract signed with Boeing. Boeing has a good offset record in this country. Indeed, when we purchased Chinook helicopters a considerable time ago, Boeing exceeded the undertakings it had given to provide offsets.

I repudiate absolutely what the right hon. Gentleman said about my officials. My officials have been involved throughout this project. Their whole interest in this matter has been to see a successful conclusion to the planning of the Nimrod aircraft with which they were involved in the early days. None of them would be so foolish as to put into service with the RAF a product that will not do the job that it is required to do.

Sir Ian Gilmour (Chesham and Amersham)

Since, as my right hon. Friend knows technical assessments are seldom just that, but very often much tendentious argument disguised in technical uniform, what steps did the Government take to check the apparently nebulous assessments that were made before this damaging decision was taken?

Mr. Younger

I appreciate my right hon. Friend's point. One of the great difficulties in making assessments is that they are matters of judgment. I disagree with my right hon. Friend that we in any way took a nebulous set of calculations. We have been checking the performance of the Nimrod and, indeed, the other aircraft, the E3A, against the specified requirements of ASR400. It is against that particular requirement that we carefully assessed the performance of the aircraft, and in that respect it was found wanting.

Mr. James Wallace (Orkney and Shetland)

It is no secret that members of the alliance would much rather that the Secretary of State had been able to award the contract to GEC. We have made no bones about it. Defence considerations were paramount. The right hon. Gentleman has given some information about the comparative performance of the two systems. Is he in a position to give the House more information on this matter! There is obvious concern about the jobs that are put at risk and about the offset. What guarantees has the Secretary of State had from Boeing that these offset jobs will be of high tech quality? Is he able to state that the United States will not be able to make a spurious claim of extra-territoriality with regard to the contract terms?

The Secretary of State has said that his Department must accept its share of the responsibility. What is that share of the responsibility? The taxpayer will demand a full explanation of why more than £600 million has gone down the drain on this project.

Mr. Younger

The hon. Gentleman is right in saying that defence requirements are extremely important, although they are not the only considerations, as he will recognise. I stress that, in making this decision, I have not compared the Nimrod with the E3A. I have compared each of them against air staff requirements 400, which is a very different thing. There are, of course, respects in which the E3A exceeds the requirement by quite a long way, because it is an older system. I have not taken that into account in making this decision.

Of course, there are no guarantees about the offset, except for Boeing's very good record in offsets. I suggest that the hon. Gentleman asks some of the firms concerned about the quality of the offsets. He will then find that they are extremely pleased with the quality of the jobs that they will be offered in this work and consider that it will bring them into major international work on a high technology project which will be to the advantage.

As for technology transfers, in spite of the article in one of the newspapers this morning, it is not correct to say that my right hon. and learned Friend the Attorney-General has ruled that United States requirements must not be accepted by British companies. Where company-to-company transfers are concerned, it is a matter of commercial judgment for the United Kingdom company to decide whether to accept United States terms. However, it is not generally the Government's policy for Government officials to give similar undertakings to the United States Government.

Mr. Michael Heseltine (Henley)

Will my right hon. Friend accept that, because this is a sad decision for a major British company and our economy's industrial base, it is a particularly courageous decision by my right hon. Friend? Will he stress to the House that, if he has secured the unanimous support of the Army and the Navy, the budgets of which will be adversely affected by this decision, it is a far more effective check on the rectitude of the decision than any attempt to double guess it by the House?

Mr. Younger

I am grateful to my right hon. Friend for his comments. He will appreciate more than most people how difficult it is to take these decisions and the many considerations that must be taken into account. I agree with him entirely that the support and the unanimous advice of the service people and scientists involved are difficult to overturn. I assure my right hon. Friend that those in the services who are concerned with this matter acted entirely objectively and disinterestedly in the way in which they gave that advice, having solely in their minds the best interests of the RAF's procurement policy.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

Is the Secretary of State aware that for a prime domestic bid for a major weapons system—with all the jobs, exports and high tech involved—to be overlooked in favour of a foreign supplier at this late stage is without precedent in the history of defence procurement? Can the right hon. Gentleman imagine either the French or the United States putting themselves in this subservient role? Is he aware that this is a black day not only for British industry and for GEC Avionics—because the Government have let us down—but for his Department? Why try the House with the right hon. Gentleman's description of the checks that his Department is now to introduce? Why did he not introduce them sooner and achieve a better cost-effective relationship with GEC Avionics?

Mr. Younger

I agree with the hon. Gentleman that one's first reaction is one of extreme disappointment that the British bid was not successful. I think that hon. Members on both sides of the House would have very much hoped that it could be successful. But the hon. Gentleman's memory is extremely selective. It is not in any way unprecedented, unfortunately, for a Government to cancel a large project from a domestic supplier.

Mr. Duffy

Which one?

Mr. Younger

The hon. Gentleman may remember the cancellation of the TSR2, which was also a project which had an aircraft already flying. According to Hansard of 13 April 1965, the Government cancelled it because they felt that further expenditure on the aircraft was not justified militarily. We, too, have conducted an honest review, as I believe did the then Government, to make up our mind on a difficult technological matter. I hope, therefore, that the hon. Gentleman will not say that this decision is unprecedented.

Mr. James Couchman (Gillingham)

Will my right hon. Friend join me in congratulating the airborne display division of GEC Avionics on its recent success in gaining a $70 million export order for the world's first holographic head-up display unit to be supplied to the USAF? Will he acknowledge that today's sad decision, which I am sure has been taken with the greatest reluctance by Cabinet and which I am sure the House will have to endorse in view of the evidence, will be a severe blow to Marconi's prestige in high technology and may prejudice future export orders? Will he therefore take urgent steps to re-establish the Government's confidence in one of our leading avionics firms by considering giving the RAF the same piece of equipment in which the USAF places such confidence?

Mr. Younger

I appreciate my hon. Friend's comments. However, while this project and all that accompanies it has had an unhappy history and those involved in it must feel sad about today's decision, that does not mean that GEC as a whole is not a high quality company producing good technology.

My hon. Friend particularly referred to the selling of the head-up displays to the United States armed services. I understand that some £127 million worth of equipment has been sold by GEC for installation in four aircraft types—the F16, the A7 Corsair, the A4 Skyhawk, and the Viggen. That is a great tribute to the company and something that I hope will be noted.

Mr. Robert C. Brown (Newcastle upon Tyne, North)

Is the Secretary of State aware that of the many dismal statements made from the Dispatch Box in the past few years, this is the worst of all? Does he realise that in 1977 the present Lord Mulley announced the letting of contracts for an AEW system that the RAF was intended to have in service within five years? After four more years, the Secretary of State has today made this deplorable statement. The right hon. Member for Henley (Mr. Heseltine) is laughing. He should hang his head in shame because he, along with the present Secretary of State, fiddled for four years allowing the RAF, at a time of much greater threat to this country, to go without the AEW system that we thought in 1977 was essential for 1982.

The Secretary of State is selling the pass of British industry by selling out to a foreign supplier. Bearing in mind that the Boeing does not meet the full criteria of the RAF, why not give GEC and the British electronics industry a few more months to get their act right?

Mr. Younger

I should have thought that the hon. Gentleman, who is an ex-Defence Minister, would have been the first to recognise that the requirements of the RAF in the vital matter of air defence must have high priority. The hon. Gentleman should have thought back a little further and recalled the form of the contract that he and his right hon. Friend placed. As I have made clear, I do not consider that we are devoid of blame in this matter, but the hon. Gentleman might have been wiser to admit that he and his right hon. and hon. Friends are probably not devoid of blame either. This is not a happy position.

With respect to the conclusion of this matter, I very much doubt whether the hon. Gentleman would have supported us if we had cancelled the project five years ago any more than he has supported us today. We would be taking the wrong decision if we allowed the RAF to receive equipment that did not work properly.

Sir Peter Blaker (Blackpool, South)

What would the Russians have thought of our determination to defend ourselves if we had chosen second best?

Mr. Younger

My right hon. Friend has made a valid point. The Russians would be extremely surprised if, in view of the threats that we face, we did not pick the piece of equipment that could be reliably expected to do the job.

Mr. John Cartwright (Woolwich)

Is the Secretary of State aware of the widespread support for the view that Britain must have the most effective AEW system? If the technical assessments are as clear cut as he suggests, why was the decision delayed so long? Since he accepts that the decision rests on a judgment of technical and engineering factors, will he consider publishing a declassified assessment of those factors so that we can see that justice has been done?

Mr. Younger

I appreciate the tone and common sense of the hon. Gentleman's remarks. On earlier cancellation, I hope that all hon. Members will bear in mind that it is extremely easy to be wise after the event. I cannot think of any applause which would have been forthcoming if the project had been cancelled when the firm concerned could have reliably said that it had not been given a chance to demonstrate how the equipment would work in an aeroplane in real conditions. We have given the firm that chance. That was only fair to those embarked on the project.

Several Hon. Members


Mr. Speaker

Order. I must take account of the fact that the rest of today's business is under a timetable motion which was passed by the House last Friday. I shall allow three more questions from either side.

Sir Geoffrey Johnson Smith (Wealden)

I recognise the practical common sense and courage demonstrated by my right hon. Friend, but will he take an early opportunity to inform the House of the technological opportunities available to the British firms participating in the Boeing E3A project?

Mr. Younger

I shall certainly gladly take an early opportunity to spell out those details further. I am absolutely confident that Boeing is genuine in its determination to provide in full the offset undertakings which it has given. As I have said, its past record gives every confidence that it will again do that.

Mr. Lewis Carter-Jones (Eccles)

Will the Secretary of State take it from me that when I flew Nimrod a fortnight ago the question of clutter was resolved and met air staff requirements? Will he tell the House whether on his flight the interceptions also met the requirements? Will he clarify those two points?

Mr. Younger

We have been testing the equipment against all the requirements of ASR400, one of which is to eliminate the clutter and another is the ability to take up and track targets. In both cases the system at present falls short of ASR400. That is not disputed between the Government and the company. On occasions the equipment meets some of the criteria. The hon. Gentleman is a well-known expert in aviation matters and he will appreciate that if one is in an AEW aircraft at a time of war and liable to be shot down by an enemy, one requires the equipment to work all the time not just occasionally.

Mr. Kenneth Warren (Hastings and Rye)

Does my right hon. Friend accept that over the past nine years there has been appalling mismanagement in the procurement executive of the Ministry of Defence on this project? Therefore, will he assure the House that there will be an inquiry into that and that those responsible, whether officers or officials, will be disciplined or discharged?

Mr. Younger

I certainly agree with my hon. Friend that all concerned would be well advised to try to learn as many lessons as possible from this sorry affair. I agree that we must look into our procedures, both for contracting and the way in which we deal with large contracts, to ensure that such cost and time overruns do not happen in future. In that way at least some good can come out of this business.

Mr. Frank Field (Birkenhead)

Will the compensation formula include or exclude orders already won by British industry? Will the Secretary of State give the House a yes or no answer?

Mr. Younger

I appreciate the hon. Gentleman's point. Boeing will give orders in addition to existing contracts. They will certainly be additional to existing contracts, so I hope that they will be 130 per cent. of the value of the E3A order.

Sir Hector Monro (Dumfries)

With the sad failure of GEC Avionics, is it not good news for the Royal Air Force which will now receive the aircraft and equipment that it wants and feels is absolutely essential for the air defence of the United Kingdom?

Mr. Younger

I agree with my hon. Friend. With his long experience of aviation matters, he will know that the RAF, on the one hand, will want the best equipment and, on the other hand, will feel sad that it was not possible in this case even for it to recommend the British alternative. It has good equipment which will enable it to do its job effectively.

Mr. David Young (Bolton, South-East)

Is not the real tragedy of the decision that British forces will be technically dependent on the United States not only now, but for the foreseeable future? Will the Secretary of State assure us that the RAF assessment was not settling old scores of those who never wanted the Nimrod defence system in the first place?

Mr. Younger

I absolutely reject the hon. Gentleman's assertion that the future of the RAF will depend on the United States. These aircraft will be purchased by the Ministry of Defence and become our property, and we shall operate them in the normal way. If his theory were turned on its head, it would mean that the United States was dependent on us because it buys Harriers. That would not be realistic. I absolutely reject the suggestion of the RAF settling old scores. Many people in the RAF will regret that we could not have the British alternative, but at least they are sure that they have good equipment.

Several Hon. Members


Mr. Speaker

Order. I shall bear in mind those hon. Members whom I have not been able to call when the matter is discussed in future.