Jane's Navy International. Changing landscape: transforming the UK's surface ship sector

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1 Jane's Navy International Changing landscape: transforming the UK's surface ship sector [Content preview Subscribe to Jane s Navy International for full article] In the run-up to the Type 26 Global Combat Ship main investment decision, plans are taking shape for a much modernised complex warship capability on the north bank of the River Clyde. Yet there remains an element of uncertainty ahead of Scotland's forthcoming referendum on independence, reports Richard Scott On 17 July the aircraft carrier Queen Elizabeth was floated out of No.1 dock at Babcock's Rosyth dockyard in Fife to an outfitting berth in the adjacent basin. This key programme milestone, coming just less than two weeks after a ceremonial naming by head of state Her Majesty Queen Elizabeth II, provided the first true impression of how the ship will look at sea when it starts trials in the second half of No.1 dock will not, however, be empty for long. Final assembly of sister ship Prince of Wales will begin in September 2014 from constituent 'blocks' manufactured in facilities around the United Kingdom (UK). The first QEC carrier, Queen Elizabeth, was floated out from its build dock at Rosyth on 17 July. The ship has been assembled from blocks built in shipbuilding and ship repair yards across the UK. (BAE Systems) Page 1 of 9

2 The construction of the two 65,000-tonne Queen Elizabeth Class (QEC) ships - the largest warships ever built for the Royal Navy (RN) - is a hugely challenging engineering endeavour, bringing together hull block and sponson sections fabricated in yards spread nationwide (primarily Govan and Scotstoun on the Clyde, Appledore in Devon, Hebburn on Tyneside, Birkenhead on Merseyside, Portsmouth, and Rosyth). Furthermore, the build programme must also integrate machinery, systems, and components being supplied from the wider supply chain across the UK and beyond. While the QEC programme has stretched the full capacity of the UK naval surface shipbuilding enterprise in recent years, the unnatural 'spike' of activity associated with its delivery tails off steeply from mid The assumption is that from 2020 the UK will produce one complex warship - in the shape of the Type 26 Global Combat Ship - every 12 months, and develop a new ship design every six years. Drivers for change The DIS also provided the catalyst for change in the UK's naval shipbuilding and support sector. It observed at the time: "The UK maritime business is characterised by high and increasing overheads, and has a skills base spread across too many entities. Procurement strategies and commercial arrangements have not adequately incentivised or enabled rationalisation and efficiency improvements. The sector has failed consistently to deliver satisfactory performance, with several high-profile maritime projects encountering delays and cost increases. "The business must be streamlined for greater efficiency and profitability, whilst mirroring UK demand and maximising the opportunity for export. The UK will need to buy warships and submarines for the foreseeable future, but the clear trend is for fewer, more capable platforms, with longer operational lives and increased opportunity for regular upgrades in response to new technologies and threats. The ability to do so will depend upon us working together with industry to address the fundamental issues of affordability and productivity." It continued: "The current situation is unsustainable and places huge pressure on the future programme," adding: "Industry restructuring and consolidation is likely to be a key feature of any improvement programme and fundamental to creating a viable and sustainable business to meet anticipated steady-state demand." What the DIS also did was to enshrine a new operating model for the acquisition of warships in the UK so as to bring military capability, programme affordability, and industrial sustainability into a recognisable equilibrium. Competition, for so long avowed as delivering best value for money, would be replaced by a partnering arrangement with industry designed to sustain key capabilities while at the same time offering scope for savings, and allowing industry to scale its core capacity accordingly. The vehicle by which to effect this transformation was the Maritime Change Programme (MCP): a wide-ranging sector-wide initiative intended to reshape the industrial base, and transform its relationships with both the Ministry of Defence (MoD) customer and the wider supply chain. In essence, the MCP has sought to rebalance and 'right-size' the naval industrial base in order to deliver Page 2 of 9

3 substantial savings, while sustaining key industrial capability commensurate to predicted future workload. In shipbuilding terms, the vehicle to effect this transformation was a Terms of Business Agreement (ToBA) signed by the MoD and BAE Systems in July This 15-year agreement provided guarantees to BAE Systems for a minimum level of surface ship build and support activity of around GBP230 million per year (judged as the minimum level of work possible to sustain a credible warship building industry in the UK). The ToBA was designed to provide an overarching framework for significant naval shipbuilding efficiency improvements in exchange for commitments to fund rationalisation and sustainment of capability in the sector. Under the arrangement the MoD made a commitment to sustain core skills - Key Industrial Capabilities (KICs) - via workload or funding with regard to shipbuilding (design and build), shipbuilding (overhead), and support. However, these KICs represent a minimum baseline to sustain core capability, not an expectation of actual workload. Thus the MoD remained liable to pay for any periods when no shipbuilding was taking place at UK yards. For its part, BAE Systems was obliged to deliver significant efficiency savings. While procurement and process efficiency is a part of that, facilities and people represent by far the largest cost component. In late 2013 approximately 4,500 people were employed in operations across the three sites (with about 1,300 at Portsmouth, the remainder in Scotland); the future workload outlined in the ToBA will probably sustain in the region of 1,500 jobs overall. Part of the problem has been that BAE Systems' shipbuilding footprint and skills base is fragmented, reflecting the legacy of an industrial consolidation going back over a decade. Each of the shipyards was acquired piecemeal through merger or acquisition, and each came to be associated with very different competencies, facilities, and cultures. There was also a need to benchmark business performance. Consultancy group First Marine International (FMI) was in 2011 engaged to assess BAE Systems' shipbuilding operations and then measure performance against that of 34 other yards worldwide. The metrics generated by FMI were then assessed in concert with L.E.K. Consulting, which was hired to provide independent strategic analysis of the options for the Naval Ships business, and to determine the optimum build strategy for the Type 26 programme. By mid-2012 BAE Systems' thinking on the way forward had crystallised. While its Portsmouth facility was modern and efficient, with the additional benefit of adjacent docks for final outfitting, test and integration, it would require significant investment to extend the current assembly hall to enable the consolidation of a Type 26 size vessel. Moreover, the size and skilling of its workforce was inadequate to manage a programme of the complexity of Type 26. Page 3 of 9

4 The new Royal Fleet Auxiliary's four Tide-class fleet tankers are being built by DSME in South Korea to a BMT design. The MoD in 2005 explicitly identified low complexity support vessels as offering potential for offshore build. (BMT) Transformation plan The fulcrum for change in UK complex warship building is the Type 26 programme. Current MoD planning assumes a class of 13 Type 26 ships to provide one-for-one replacement of the existing Type 23 fleet. A Main Gate 2 production investment decision is planned for late 2014, with manufacture to start in Under the restructuring plan agreed with the MoD, BAE Systems has committed to create a 'worldclass' complex warship capability on the Clyde that will rank in the upper quartile across the sector. Far more than just investment in modernised facilities, this effort is underpinned by a wide-ranging business transformation programme intended to fundamentally change the way the company functions across all areas of operations. Page 4 of 9

The forward island of Queen Elizabeth is floated out from BAE Systems' Portsmouth yard. Shipbuilding operations cease at Portsmouth this year with the loss of nearly 1,000 jobs.

5 The forward island of Queen Elizabeth is floated out from BAE Systems' Portsmouth yard. Shipbuilding operations cease at Portsmouth this year with the loss of nearly 1,000 jobs. (BAE Systems) Charlie Blakemore, the company's business and transformation director, is at the helm of this effort. Previously, as managing director of BAE Systems Global Combat Systems' munitions business, Blakemore was instrumental in the turnaround of the company's munitions operations. "We have embarked on a far-reaching transformation approach intended to deliver an affordable Type 26 programme and ensure our long-term competitive position," he told IHS Jane's. "That entails a comprehensive overhaul of our approach to the engineering, design, and manufacture of complex warships so that we can compete with the world's best, deliver on time and on budget, with a guarantee of value for money to our customers. "That has meant going through every aspect of our business, mapping end-to-end process and scrutinising safety, efficiency, quality, and cost. This is being matched by investment in new technology, infrastructure, our people and processes, and out into the supply chain." Alongside the benchmarking exercise performed by FMI, the Naval Ships business has been studying best practice in adjacent industries - notably aerospace and automotive - as part of a wider business design programme embracing improvements. This has seen the company examine the experience of companies like Bentley, Jaguar, and Nissan in tackling similar engineering and manufacturing challenges. Page 5 of 9

6 Other outside agencies have also been brought in to help BAE Systems develop its plans in key focus areas. For example, consultancy group Chaucer was engaged to review and finesse the company's approach to change management; Deloitte Management Consultancy supported a review of engineering data management, data maturity, and process efficiency; and Rhead Group Management Consultancy worked on planning methodologies. More recently, the company has signed a Memorandum of Understanding (MoU) and associated contract with South Korean shipbuilder Daewoo Shipbuilding and Marine Engineering (DSME). "DSME is bringing across a team of 14 subject matter experts to look at all the different transformation areas across our business for a three- to four-week period," Blakemore said. "We will show them our plans. They will critique and identify areas for further improvement. "They are a world-class outfit," he added, "delivering about 70 ships a year to commercial customers, with a superb reputation for quality and on-time delivery." To bridge the Key Industrial Capabilities gap through to the start of Type 26 manufacture, the MoD approved the build in Govan of three new OPVs based on the Amazonas-class design sold to Brazil. (BAE Systems) The transformation effort is focused on eight key business areas: the customer requirement (Type 26); product development; make buy strategy; people; customer focus; cost reduction; facilities; and materials management. "What we have done is design a programme around these areas that will deliver that transformation," said Blakemore. "The plan is to prove out the business improvements on QEC block build [for Prince of Wales ] and the OPVs." A number of new processes, methodologies, and investments are already progressing. For example, Wincanton has completed a successful pilot to demonstrate the benefits of third-party warehousing, logistics, and material management. "We see significant savings and benefits going forward," Blakemore said. "Our plan is to roll this out across the business." Page 6 of 9

7 Another innovation is the introduction of 3-D visualisation technology that projects interactive virtual prototypes of ships in design onto a large screen. According to Blakemore, the idea was picked up from Bentley. "What we're doing is bringing together very mature technology [from Virtalis] with our own design software such that we can generate a fully immersive environment. You can effectively walk through a ship in 3-D." Preferred option The single site option at Scotstoun is strongly favoured by BAE Systems Maritime-Naval Ships for a number of reasons according to Blakemore. "First we own the Scotstoun site, whereas the Govan estate is leased," he told IHS Jane's. "We have our engineering activity already based at Scotstoun and it is advantageous to have these close-coupled to production facilities. And there is more space for redevelopment at Scotstoun, providing us the flexibility to optimise the facility design." He added: "We want to develop a world-class complex warship capability that will deliver value for money for our customers. The single-site option allows two ships to be built concurrently under cover in a tandem dock with significant outfit proceeding alongside in a laydown area. We estimate that this will reduce build time by about a third compared to the two-site option. "There is a very strong business case for the single-site option and this is intrinsic to the Type 26 proposal we are putting forward. The two-site option is never going to deliver world class performance given the overhead and operational ineffectivity." Consolidating all work at Scotsoun would also be fundamental to a Type 26 build strategy that Blakemore sees as game changing. "You will be building under cover in a tandem dock, with the ability to optimise production flow," he said. "We have developed a horizontal build methodology that will allow for much greater levels of pre-build and pre-outfit at the module stage." A decision in favour of the single-site option would see Scotstoun become, de facto, the UK's sole facility for the build and integration of complex surface warships. "Design and planning work has been cognisant of future MoD equipment plans, and has considered facilities and capacity issues attendant to the build of other larger ship types," Blakemore said. "We also want sufficient capacity and flexibility to address export requirements in parallel with MoD needs." The go-ahead for the recapitalisation of BAE Systems' surface shipbuilding facilities on the Clyde awaits the MoD's main investment approval for the Type 26. This is expected towards the end of CONSOLIDATION AND RATIONALISATION: A 25-YEAR JOURNEY A quarter of a century ago, just a few months ahead of the fall of the Berlin Wall and tumultuous change across eastern Europe, the UK still had four major privately-owned shipyards involved in, or bidding for, RN surface ship orders: Swan Hunter Shipbuilders on Tyneside; Vickers Shipbuilding and Page 7 of 9

8 Engineering Ltd (VSEL) in Barrow-in-Furness; Vosper Thornycroft in Southampton; and GEC-owned Yarrow Shipbuilders Ltd in Scotstoun. The end of the Cold War, and the pursuit of a 'peace dividend', made a shakeout of the industry inevitable. There was no longer enough work to sustain all the yards, and the policy of competitive tendering dictated it would be a survival of the fittest. Over time, the number of yards active in the complex warship sector was whittled down. Swan Hunter at Wallsend went into receivership in 1993 after failing to secure a contract to build a helicopter carrier for the RN. The business was later reincarnated as Swan Hunter (Tyneside), only to close again in 2006 after incurring substantial losses on the Bay-class landing ship dock (auxiliary) programme. Richard Scott London APPLEDORE YARD REMAINS AFLOAT FOR NAVAL WORK Outside of BAE Systems there remains one other steel shipyard in the UK still involved in naval construction. Babcock's Appledore facility in southwest England recently delivered the first of two new 90 m offshore patrol vessels (OPVs) to the Irish Naval Service, and has also fabricated sections of the two new QEC aircraft carriers. The Appledore yard is situated on the River Torridge in north Devon, about 50 miles north of Babcock's Devonport site. Appledore was designed as an integrated ship construction facility in the 1970s and has competed successfully in the challenging commercial shipbuilding sector, building more than 120 vessels for a wide variety of customers. The shipyard estate covers about 20,000 m 2, with on-site facilities including a stockyard and plate preparation area; a panel hall; frame assembly area; unit assembly; headwall unit assembly area; building dock; and a machine shop and pipe workshop. Although Appledore's heritage is in mercantile vessels, the yard has built a number of ships for the UK MoD: the oceanographic vessel HMS Scott was constructed at the yard (under subcontract to BAE Systems); as were the two survey vessels HMS Echo and HMS Enterprise (subcontracted by VT Shipbuilding). Richard Scott London Page 8 of 9

9 Copyright IHS Global Limited, 2014 For the full version and more content: IHS Jane's Defence Industry and Markets Intelligence Centre This analysis is taken from IHS Jane s Defence Industry & Markets Intelligence Centre, which provides world-leading analysis of commercial, industrial and technological defence developments, budget and programme forecasts, and insight into new and emerging defence markets around the world. IHS defence industry and markets news and analysis is also available within IHS Jane s Navy International. To learn more and to subscribe to IHS Jane s Navy International online, offline or print visit For advertising solutions contact the IHS Jane s Advertising team Page 9 of 9

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