European Fighter (Nose Radar Contract) (Hansard, 23 January 1990)

§ Mr. Gavin Strang (Edinburgh, East)
I am grateful for the opportunity to raise this important issue in the House tonight. It is certainly most convenient for the House that we should debate this subject now. First, it follows the important meeting that took place yesterday between the Secretary of State for Defence and his West German counterpart, and I hope that in due course we shall have some indication that the optimistic press reports are likely to be confirmed. I also welcome the fact that we have the chance to refer to the future of the Ferranti operations and, in particular, the announcement this evening that there is an agreement in principle for GEC to acquire Ferranti Defence Systems Limited and some Italian businesses of the Ferranti Defence Systems group for cash.
The House will be aware of my interest in this issue, primarily as an hon. Member from Edinburgh who is concerned about the future of the Ferranti business, about jobs and about the long-term future of the technology possessed by these companies.
A tremendous campaign has been mounted in support of Ferranti; the way things are unfolding is a culmination of that campaign. I pay tribute to all those who have taken part, to the work force, the trade unions, the management, Members of Parliament, the Minister of State, the Secretary of State and the Prime Minister, who have all played an important part in the progress that has been made on this issue.
I refer in the first instance to the argument that has gone on for two years about the nose radar contract for the European fighter aircraft. The Minister of State will probably be inhibited from saying anything beyond the official announcement made yesterday by the two Secretaries of State; but I will assume that the reports are broadly accurate, that there are strong grounds for optimism that they will be endorsed in due course and that within a few weeks we shall have the announcement of formal agreement among the four countries—Britain, West Germany, Italy and Spain—that the ECR90, the Euro-collaborative radar system, will be chosen for the European fighter aircraft.
The system is being chosen for powerful reasons. It is technically superior. There is no doubt that in detection performance for approaching or receding targets the ECR90 system will be a lot better than the MSD-2000 could ever be. There is no doubt about the electronic counter-counter-measures within the proposed ECR90 system to resist jamming. Nor is there any doubt about the importance of this new technology; it is a new generation of radar, and the spare computer power will be useful in the future. It is certainly a user-friendly system.
I believe that we have won the contract because the Government have stood firm, because the system is technically superior and because we owe it to the Royal Air Force and to the forces in West Germany, Spain and Italy to ensure that they have the best when they fly the European fighter aircraft. Taking into acount the major issues, it is also cheaper. Notwithstanding all the argument and the various bids, the total acquisition cost of the ECR90 will be cheaper than the rival MSD-2000.
866 I believe that the Minister will not contradict the statement that the studies show that there is no greater risk with the ECR90 than with the West German system, which is basically a modification of the APG65. For those reasons, it is crucial on military grounds that the radar system that has been developed by the consortium, including Ferranti, goes into the European fighter aircraft.
There are other important reasons why this is in the British interest. We should support British and European technology. It cannot be in the long-term interest of Europe or Britain to abdicate all major technological developments to big multinational companies based in the United States or Japan. There is no question of the enormous importance of that in relation to the radar system and the aeroplane itself. No doubt these are some of the reasons why the Spanish and Italian Governments have been firm on the issue throughout.
There are also trade benefits. Let us be clear about the position. If the ECR90 system is chosen, the four Governments will be in control of sales to third countries. It will not be a question of the attitude of the United States Government or of any other Government on the matter. It will be a decision for the four participating Governments. Whatever view one takes about the sale of aircraft to whatever powers—of course, there is scope for discussion and argument about that—I submit that in principle it is better on balance that the decision should be within the orbit of the countries involved in the manufacture of the plane and not any other country.
The jobs argument is crucial. We are talking about thousands and thousands of jobs. They will be good jobs in Ferranti, which has been a successful company, and also in GEC, which we trust will maintain conditions such as have existed in Ferranti and build on them.
Moving to the European fighter aircraft itself, it will not be a great victory if we win the radar contract and find eventually that the whole EFA project runs into the ground. I welcome the affirmation by the West German and British Governments that they recognise the need for EFA to go ahead. It will be a tremendously important conventional weapon to defend our people, although I hope that we will never use it.
That view has been put consistently over the years by the Ministry of Defence and accepted by the Select Committee on Defence. The Select Committee could have been more explicit, but it stated in a report on the major procurement programme: It is the Ministry's view that the role of EFA could not be performed adequately by additional Tornado F3s and Harrier GR5s, neither of which possesses the performance, mission capability and agility of EFA. Its role and importance cannot be disputed. I know that the Minister will not want to be drawn on this issue, but we can argue whether it might even replace some Tornado F3 fighters.
I do not expect the Minister to develop those issues at great length this evening. However, we need the aircraft because it is in the long-term interests of Britain's defence. Notwithstanding the developments of eastern Europe and the Soviet Union and the progress that we hope will be made in the talks in Vienna on conventional forces in Europe, I do not see how it could be in the interests of our country or of NATO for the EFA programme to be recued or cancelled to meet some agreement.
I support agreement between NATO and the Warsaw pact and want a reduction in conventional forces and, even 867 more, in nuclear forces. When we consider that this is an aeroplane for the 21st century, and recognise its scope in relation to the aging and replacement of existing systems and the importance of this radar, I do not see how it will make sense for Britain, Spain, Italy or West Germany to want to back off from their commitment to the European fighter aircraft.
The issue is inseparable from Ferranti. We are grateful for the meetings that we have had with Ministers—two with the Minister of State, one with the Secretary of State for Defence and one with the Secretary of State for Trade and Industry. The argument, dialogue and discussion in the media have naturally revolved around Ferranti. I do not doubt that the West German Government were seeking to exploit that. I say that because the Ferranti problem—the loss of the £280 million, or whatever, through alleged fraud in the United States—did not reflect on the British technical capability. It could not reasonably be advanced as an argument that the work should not be done by Ferranti Defence Systems Limited in Scotland. But perhaps that argument was being advanced fairly strongly by the West German Government and, therefore, it is important to consider the position of Ferranti in the context of this debate.
Since the announcement of the fraud there have been, and may be more, sales of assets by the company. I hope that there will not be many more such sales. The standby rights issue may not now go ahead. We shall see whether it does by the beginning of next month. Most importantly, we have had the announcement of an agreement in principle between the GEC board and the Ferranti board that GEC will acquire, for £310 million, the Ferranti Defence Systems group—Ferranti Defence Systems Limited in Edinburgh and some smaller Italian businesses owned by Ferranti.
We should support that sale in principle. I believe that that will be the view of the Ferranti management, the workforce and Scotland and Britain generally. I am referring not just to Ferranti Defence Systems, which will probably become part of GEC, but to the other parts of Ferranti. There will still be thousands of jobs in Ferranti in Scotland, including some in Dalkeith, some in Livingston and some in the Edinburgh area. This is not a Scottish versus English issue. Under the agreement, if it takes place, Ferranti will continue in Scotland and England and FDSL will be acquired by GEC.
What conditions need to be met if we are to support the agreement which, I emphasise, is in principle only—nothing has been signed? First, we must be sure that the ECR90 system will be chosen. We must recognise that GEC had an involvement in the rival bid led by Telefunken in West Germany. We must assume, and might guess, that that factor was discussed in yesterday's talks and there may be a link between the two. That is speculation on which the Minister may or may not wish to be drawn.
We assume that GEC will not pay £310 million for FDSL if it does not obtain the radar contract for all the EFA planes. That is why it is essential that the radar contract goes ahead.
The management structure must be right, which means that GEC's other air radar interests must become part of FDSL. After all, its turnover is about twice that of the GEC interests in question. A merger of GEC interests with FDSL interests in Edinburgh could take place, with the 868 management of that combined operation based in Edinburgh but answerable ultimately to GEC's main board.
There must be some commitment by the GEC board to invest heavily in what can reasonably be described as a technological jewel in British industry's crown. I hope that the contract will go to a British firm because of the tremendous technical expertise and capability of Ferranti's Edinburgh work force and management, which was built up over not just a few years but a long period. FDSL has worked on the design of nose radar for two years, its development will take four years, and the contract could provide jobs and other benefits for the next 20 years. GEC must therefore undertake to invest heavily in the company that it may be taking over in the not-too-distant future.
We also need to ensure that the merger has the Government's approval. I shall not speculate on whether the proposed merger will be referred to the Monopolies and Mergers Commission. I am not sure whether the market share situation is such that it will automatically trigger such a reference. I trust that the Government are clear about the interests of British industry and of Britain's defence.
It is true that if the merger goes ahead, GEC will dominate to some extent aspects of the defence industry, but it does so already in relation to some military contracts, as the Government prefer to award them to a British company. However, the defence market is not British but European, and that will be even more true in 1992. In fact, it is a world market—certainly in respect of a nose radar, which will confirm our world lead. It will allow us to sell not only planes using the radar to other countries, but the radar itself for use in planes produced in the future. It is a development of enormous importance, and it cannot be viewed simply as a matter of competition within the British economy. It would be wrong to suggest that it is in the interests either of British defence or of Britain's military forces for the project to be halted by MMC considerations alone.
Right hon. and hon. Members representing Ferranti workers and their families, trade unions, management and everyone else concerned are motivated by the need to maintain Ferranti's British jobs. Some 16,000 to 18,000 jobs exist in the United Kingdom, of which about 8,000 are in Scotland. Good employment will be created, giving areas of the country a real future. We hope that the radar contract will be confirmed and that the West German Government's undertakings probably sought yesterday were met by the British Government. Those thousands of jobs will be more secure, as will the thousands of jobs with subcontractors in Scotland and elsewhere in Britain.
Ferranti is Scotland's most important manufacturing employer. Assuming that Ferranti Defence Systems is sold to GEC, it will still be important. GEC will be even more important to the future of the Scottish economy. That is why I make no apology for asserting that there is an important Scottish interest here. I welcome the fact that hon. Members representing Scottish constituencies are present, and that there is a Scottish Minister on the Government Front Bench, because this is crucial to the Scottish economy.
I believe that we are getting it right, assuming that the radar contract is confirmed. If we get the ECR90 system and the arrangement that I have suggested in relation to GEC, we can go forward and invest in those enterprises, and our considerations will no longer be dominated by the 869 unfortunate fraud. I shall not comment on that. We tend to assume that we can rely on audited accounts. There is no question but that the accounts were phoney. However, we shall hear more about that in future.
I hope that the Minister will confirm the good news that has appeared on the media today, and will give some sign that the Government and everyone else concerned are making progress on the issue.

§ The Minister of State for Defence Procurement (Mr. Alan Clark)
It is fortunate and timely that the hon. Member for Edinburgh, East (Mr. Strang) should be focusing the attention of the House on the question of the airborne radar to be selected for the air superiority fighter for the 2000s—the European fighter aircraft. The hon. Member has been most assiduous in pressing the case for ECR90. I have met him and a number of his colleagues on several occasions. I have listened to the points that he made in his speech this evening, and I am broadly in agreement with everything that he has said.
Ferranti Defence Systems Limited of Edinburgh has a distinguished record as a contractor for the Ministry of Defence in the field of high technology, and I recognise the hon. Member's concern to ensure that the company's proposal in the radar competition is fully recognised. The hon. Member for Edinburgh, Leith (Mr. Brown) and the hon. Member for Livingston (Mr. Cook) have been similarly active, and by their endeavours in support of ECR90 they will have earned the respect of their constituents.
The hon. Gentleman has referred to this evening's announcement of the proposed acquisition by GEC of Ferranti Defence Systems Limited. My Department welcomes a solution which will maintain the future of Ferranti Defence Systems as an important and competent supplier. The companies informed the MOD that discussions were taking place, and of the benefits that they believed should accrue from the bid.
As far as the specific issue of EFA radar is concerned, although no decision has yet been reached, it is the case that the Federal German Ministry of Defence had previously expressed misgivings about placing such a substantial programme with Ferranti, given its then financial difficulties. I believe that today's announcement will provide reassurance to those concerns.
The proposed arrangement is a commercial judgment for the two companies concerned. The Director General of Fair Trading will, of course, consider the implications of the merger and advise my right hon. Friend the Secretary of State for Trade and Industry. He will do so against a background of consultations in which the Department will be closely involved.

§ Mr. Martin O'Neill (Clackmannan)
The EFA programme—

§ Mr. Deputy Speaker (Mr. Harold Walker)
Order. We cannot have two hon. Members on their feet at the same time.

§ Mr. Clark
It is very unusual, but of course I will give way.

§ Mr. O'Neill
This is a very unusual debate, Mr. Deputy Speaker.
We must congratulate the workers in Edinburgh on their efforts to keep faith with the programme when it seemed that all was against them. Can the Minister confirm that all the work in the ECR90 programme that was to go to Edinburgh will go there, and that none will be diverted to GEC-Marconi's subsidiary at Donnybristle, which was part of the Telefunken competition against Ferranti for the programme?

§ Mr. Clark
Employment and the allocation of work schedules are matters for the commercial judgment of the companies concerned, but I believe that those developments are necessarily beneficial and should be welcomed. I have been very pleased hitherto by the welcome that the House has extended to them.

§ Mr. O'Neill
In other words, the Minister does not know the answer to my question.

§ Mr. Clark
I am surprised that the hon. Gentleman should breach the conventions of the House on an occasion such as this, and particularly surprised that he should greet with such ill grace a development that has been widely welcomed. I admit that I do not know where the work will be placed; I can only tell the hon. Gentleman that, if the matter proceeds to the satisfactory conclusion that we all expect and for which we all hope, the jobs will be in Britain and not in Germany.
Much attention has rightly been focused on the radar issue, and it is best considered in the context of the overall EFA programme. It was only just over a year ago—in November 1988—that the memorandum of understanding on the development of EFA came into operation. Since then, the main development contracts for the aircraft and engine have been concluded with the four-nation Eurofighter and Eurojet consortia. Work on the prototype aircraft is proceeding well, as is the development of the engine and the selection of equipment.
The United Kingdom share of one third of the development of the aircraft represents a significant programme of work, and will provide major opportunities for British industry. It guarantees our continuing stake in key areas of advanced technology, as well as providing long-term employment prospects for many companies and their work forces.
The hon. Member for Edinburgh, East characteristically made a number of cogent points, and I am reassured to note that there is much common ground between us. Most important, we both want an early resolution of this long-running problem, and we both want EFA to be an effective aircraft for the defence of the United Kingdom in the 1990s and beyond. We also recognise that the radar is an essential element of the aircraft's weapon system.
The radar is the key to EFA's ability to detect, identify and attack hostile aircraft. Much of any air defence battle would be fought in a hostile electronic environment, with the opposing forces beyond each other's visual range. It would be fought at very high speed, and success would be largely dependent on the ability to hit the attacker first time with air-to-air missiles controlled by the radar. The ability to track multiple targets will be essential. Those considerations demonstrate both the complexity of any future air battle and the immense technical challenge faced by industry when developing the next generation of airborne radar.
871 As hon. Members will see, along with agility in combat and the preformance of its weapons, the radar will be the crucial element in determining EFA's superiority over a modern adversary. The radar chosen must therefore meet demanding specifications that follow from the operational needs of the four collaborating partners. It will come as no surprise, therefore, that competing bids for the contract have been subjected to very rigorous scrutiny. It has taken longer than we would have liked, but that is a measure of the importance that the EFA nations attach to this equipment.
During one of his meetings with me, the hon. Member for Edinburgh, East asked me when I hoped that a decision would be made about the choice of radar for EFA. I seem to remember that I replied that I hoped that it would be made soon, and he reminded me that he had received just such a reply from my predecessor a year earlier.
872 If I could be more precise, I certainly would. I assure the House that it gives me no pleasure to be in the position of having to report at regrettably regular intervals that no decision has yet been made. My right hon. Friend the Secretary of State has met his German counterpart on five occasions for discussions on EFA since coming into office barely five months ago. The last was only yesterday.
I recognise and, to a certain extent, share the frustration of hon. Members over the time that it is taking to decide on the future of the radar for EFA. Collaborative programmes are undoubtedly beneficial in terms of commonality of equipment, spares and support, and produce financial savings from longer production runs. We must also recognise, however, that there is sometimes a price to be paid in terms of the time taken to make decisions. I hope that the hon. Gentleman will accept my assurance that a decision is very close.