INTRODUCTION

  1. The report by the previous Defence Committee on Heavy Lift has been carefully considered. The Government's observations on the report's principal points are set out in this memorandum.

SHIPPING ­ SECTION III

Availability (Paragraphs 5 to 9)

  2. The Government notes the Committee's comments concerning the availability of British ships. These relate only to the UK merchant fleet which (for trading vessels over 500 gross registered tonnes) stands at 3.36 million dead­weight tonnes. However, any Red Ensign group tonnage could in principle be requisitioned for defence purposes. Some 4.5 million tonnes is registered in the Crown Dependencies, and a number of vessels registered in the Isle of Man (IOM) has grown significantly recently. Dependent Territory registered tonnage (excluding Hong Kong) has also increased and stands at 6.8 million dead­weight tonnes. The total tonnage theoretically accessible is 14.66 million dead­weight tonnage. The Ministry of Defence's key concern is the element of militarily useful vessels within the total; this has remained stable during the past year. A reduction in UK registrations has been compensated, almost exactly, by additions to the IOM registry.

  3. On a point of detail, the Committee will wish to note that the Shipping Defence Advisory Committee sponsored Scenario Study sessions involve the Department of Transport and not the Department of Trade and Industry.

  4. The Government notes the suggestion by the Committee that paying a small annual retainer to owners would improve the availability of certain ships in times of crisis. This is, of course, an option. But to be of any value in a crisis vessels would have to be capable of being made readily available. This would limit geographically the trading area in which the ships could operate commercially. Coupled with a requirement to "drop everything" when called that would severely restrict the shipowners' freedom when entering into normal contractual arrangements, potentially making the vessel commercially unattractive. Owners may be reluctant to enter into such retainer agreements. The Committee recommended that MOD should not, in future, enter into short term arrangements for guaranteeing the availability of ships. But, on these arrangements, owners are even less likely to enter into lengthy agreements.

  5. The Committee highlighted the fact that few UK flagged ships are chartered by MOD. It must be recognised that British ships are working ships, and increasingly specialised into particular trades. There is no "slack" or spare capacity in the system; the industry is lean and efficient. As mentioned in the MOD memorandum to the Committee submitted on 11 November 1996, British shipping companies have the opportunity to offer vessels and the Department is always willing to charter British ships provided they are competitive and meet our requirements. We find that, in general British shipping companies tend not to put their ships forward as they are already fully committed to regular trading activities.

  6. The statement that MOD uses the Baltic Exchange in chartering merchant vessels needs to be clarified. As mentioned in the Government's reply to the Committee's Report on the Defence Use of Civilian Transport Assets and Personnel, requirements for "wet" and "specialist" ships are arranged through the MOD's procurement organisation and not through the Baltic Exchange.

  7. The Government acknowledges the Committee's recommendation that it should give serious consideration to ways of discouraging British­owned ships from leaving the UK register and to a means of guaranteeing, where appropriate, some level of availability from those that do. Various well­publicised measures have already been introduced to promote the attractiveness of the UK register. Ships which leave the UK register for Crown Dependency or Dependent Territory registers can be requisitioned in the appropriate circumstances. Ships which go elsewhere but remain British­owned could be requisitioned subject to the passage of emergency legislation. The UK has formal arrangements with the State registries of Liberia and the Bahamas whereby they will not impede the requisitioning of British­owned tonnage on their registers.

Chartering Arrangements (Paragraph 10)

  8. The Committee's remark that MOD paid over and above market rates for merchant ships chartered during the Gulf War reflects a comparison with the pre­crisis rate. MOD did not pay in excess of the market rates prevailing at the time.

Seafarers (Paragraphs 15 ­ 17)

  9. The Government notes the Committee's acknowledgement that the number of cadets is now increasing again. Government funding has been made available for the training of British officer cadets and junior officers. A study to establish a more accurate figure for the number of UK seafarers has now commenced and that work will be carried out, partly funded by the London Guildhall University with contributions from MOD, the Department of Transport and the Chamber of Shipping. Initial findings will be reported to the Shipping Defence Advisory Committee (SDAC) in November 1997.

AIRCRAFT ­ SECTION IV

Strategic Requirement (Paragraph 29)

  10. The Government notes the Committee's view that final conclusions on the requirement for strategic lift are taking a long time. This is an important issue for the future effectiveness of the Armed Forces and the Government must be careful to ensure that the right decision is taken. The Committee may have misunderstood the different aims of the previous and current studies. The work referred to in the Government's response to the Committee's 1994­95 report was primarily concerned with reviewing the relative merits of chartering, leasing and owning strategic and tactical lift assets. The current study is far more detailed, drawing on complex operational analysis in seeking to establish precisely what numbers and types of assets, both sea and airlift, could most cost­effectively meet the range of strategic deployment tasks. The latest work takes forward and builds on previous work to define our requirements for both tactical and strategic sea and airlift, and is aimed to assist any subsequent procurement decisions on the Hercules replacement programme, rather than the current question of whether to issue a RFP.

UK Participation in the FLA Programme (Paragraph 32)

  11. The Government notes the Committee's view that the issue of a Request for Proposals (RFP) should not be delayed. In order to provide the information that would be called for in the RFP, it would be necessary for industry to undertake Pre­Launch Activities (PLA) at its own risk. While issuing the RFP would therefore involve no formal commitment to procure the FLA, it would nevertheless involve industry in considerable work at its own risk and expense. The Government believes that such a step should not be taken without a careful consideration of the likely requirement for and affordability of transport aircraft. It is considering the best way ahead.

Industrial Implications (Paragraph 33)

  12. The Government accepts that the Committee's recommendation that careful consideration is given to industrial considerations when reaching a decision on the second tranche of the Hercules replacement programme. All relevant factors, including industrial considerations, will be taken fully into account.

Calculation of Life Time Costs (Paragraph 34)

  13. The Committee's recommendation that the calculation of life time costs should include the extent to which each type of aircraft can be used productively and cost effectively for routine transportation tasks is noted. Clearly, it is necessary to provide an air transport fleet which can perform the range of tasks it may be called upon to undertake. In considering the best way to meet our air transport requirements, therefore, we are taking full account of both peacetime and crisis requirements. We will ensure our fleet is sufficient to meet the range of demands which it is likely to face during its life.

Replacing the Remainder of the Hercules Fleet (Paragraph 35)

  14. The Government shares the Committee's views on the significance of the decisions now being considered.

Invite Airline Representatives (Paragraph 23 and Para 41)

  15. The Government is conscious that MOD's current requisitioning powers are not ideally suited to the post Cold War environment. Instead a more flexible approach is required to match the operational demands in the JRDF era. While planning continues, the work will shortly be sufficiently advanced to allow discussions with the airlines and the DOT. A seminar with the airline industry is planned for September 1997; an initial approach has been made to BA. This will inform the parallel NATO­wide work.

30 June 1997