The following areas are covered within this submission:

1.  The role of Bombardier Aerospace, Shorts in the United Kingdom and Northern Ireland economy;

2.  The Elements of an Effective Inward Investment Policy;

3.  The Effectiveness of the Funding Institutions;

4.  Comparison of Environment in Northern Ireland and Republic of Ireland for Inward Investment;

5.  Comments on the Impact of the Concordat on Financial Assistance on Industry.

1.  THE ROLE OF BOMBARDIER AEROSPACE, SHORTS IN THE UNITED KINGDOM AND NORTHERN IRELAND ECONOMY

Introduction

  After more than 40 years in Government ownership, Short Brothers plc, the oldest aircraft manufacturer in the world, was acquired in October 1989 by Bombardier Inc, a Canadian corporation engaged in the design, development, manufacture and marketing of transportation equipment, recreational products, and aerospace products.

  The Montreal-based corporation operates plants in 12 countries in North America, Europe and Asia, employing 53,000 people and more than 90 per cent of its revenues are generated outside Canada. Bombardier's revenues for its fiscal year ended 31 January 1999, totalled $11.5 billion.

  Bombardier Aerospace is the third largest civil aircraft manufacturer in the world and now comprises four historic companies now integrated as one, including Bombardier Aerospace, Shorts in the United Kingdom.

  Leading the 20 to 70-passenger regional carrier market, Bombardier Aerospace offers complete families of turboprop and regional jet aircraft. It has the industry's widest range of business jets, offering both full and fractional ownership, and also produces firefighting/maritime mission aircraft. It provides technical services, aircraft maintenance and pilot training to business, regional airline and military customers.

  Bombardier Aerospace has manufacturing operations in Northern Ireland, where it is the largest manufacturing company, employing more than 6,000 people. It also owns and operates Belfast City Airport which is currently undergoing major investment following strong growth in passenger numbers during the Nineties.

  Since 1989, the Belfast operation has been transformed through a focused investment programme by Bombardier of over £850 million in plant, machinery, facilities, product development and training. This has extended significantly the Company's design and manufacturing capabilities.

  Bombardier Aerospace, Shorts in Belfast, is now a centre of excellence for the design and manufacture of nacelle systems, fuselages, flight controls, and for processes such as composites, metal bonding, and computer-aided design/manufacture. This investment, combined with a new entrepreneurial management style, in-depth training and total quality programmes, has enabled the company to offer customers competitive prices, high quality, schedule adherence and reduced lead times.

  The company is renowned for the high standards of its products. It has received 16 Queen's Awards to Industry, the 1992 British Quality Award (UK equivalent to the US Baldridge Award), nine National Training Awards, 21 Regional Training Awards, Investor in People, ISO 9001 Quality Assurance Approval, and ISO 14001 Environmental Management Systems Certification.

Financial

  The Belfast operation's aerospace sales turnover has more than doubled since 1988 to £416.8 million in 1998-99.

  A 1988 loss of £47 million has been turned into significant profits before tax in each of the last nine years (£49 million in 1998-99).

  An £850 million investment programme since 1989 in new plant and machinery, new products and training has led to dramatic improvements in performance and results, as well as a significant increase in exports. Bombardier is currently investing £21 million at Belfast City Airport, including a new terminal (airside) and car parking facilities.

Community

  As a result of Bombardier Aerospace, Shorts success, there have been major benefits for the Northern Ireland economy. The investment programme in Belfast has enabled high valued-added machining and other work previously carried out by subcontractors outside Northern Ireland to be repatriated. The Company has a local Supplier Development Programme, and in 1998 awarded several million pounds worth of machining work and other services to local suppliers, which employ in excess of 4,000 people.

  The Company has forged close links with all levels of education within Northern Ireland, from primary school, through secondary and further education to university level.

  It sponsors a Chair in aerospace engineering at the Queen's University of Belfast, and has developed postgraduate and management development courses with Queen's University, the University of Ulster and other universities outside Northern Ireland.

2.  THE ELEMENTS OF AN EFFECTIVE INWARD INVESTMENT POLICY

  As a commercial organisation operating in a very competitive international market, Bombardier Aerospace, Shorts consider the following to be key elements in an effective inward investment policy:

—  Government funding awarded to inward investors should result in a "level playing field" internationally. Financial assistance should not give companies an unfair edge when competing for business;

—  In order to facilitate certainty in planning and allow the speed of reaction necessary in a competitive environment, the investor should be provided with knowledge of the funding criteria and the associated support level that is likely to be awarded. These criteria needs to be applied to funding applications consistently;

—  In the specific Northern Ireland context, the inward investment policy should address issues raised by the significant differences between the tax systems in Northern Ireland and the Republic of Ireland;

—  Given the scale of development expenditure necessary within the Aerospace sector and the length of the programmes over which this cost is recovered, there is a need for a risk sharing partnership approach. This would encourage both parties to take measured commercial risks and make an investment in the economy's future;

—  Statutory procedures, such as the planning process, should be as efficient and of as short a duration as possible. It is vital that there is co-ordination between government departments to ensure that such procedures do not hinder the critical path to project completion;

—  The funding assessment criteria should mirror the objectives of the inward investment policy. To ensure fair and objective decisions, a scoring mechanism should be used which weights the assessment criteria, for example, number of new jobs created, job longevity, skill level of jobs created and the company's track record of meeting or exceeding its commitments. By this method, funding is awarded to those companies most likely to achieve the policy objectives and ensures effective allocation of public funds;

—  An inward investment policy should not deal with new investors more favourably than existing companies when awarding financial assistance;

—  A direct correlation should exist between the company's investment level, the project merits and the funding awarded by the funding institutions. The fact that a company is setting up in Northern Ireland for the first time should not increase its eligibility for increased levels of Government support;

—  The inward investment policy should consider the industry in which a company applying for funding operates and prioritise applications and funding levels accordingly. Shorts operates in the competitive Aerospace industry. In other countries this is classified by Governments as a high-tech industry, bringing long-term jobs and modern technology to the economy and so receives extensive Government assistance, making the market in which we operate more competitive;

—  Recognition should be given to existing investors who have proved to be good corporate citizens and demonstrated commitment and contribution to the local community.

3.  THE EFFECTIVENESS OF FUNDING INSTITUTIONS

  Bombardier Aerospace, Shorts deal with the Industrial Development Board (IDB) in relation to Regional Selective Assistance and with the Department of Trade & Industry (DTI) in relation to Launch Aid.

  The following sections deal with the effectiveness of these institutions on the basis of these experiences:

Issues Relevant to both DTI and IDB

  The speed of response from the institutions needs to increase to allow Bombardier Aerospace, Shorts to prepare accurate bids within increasingly short deadlines (typically four-six weeks).

  In order to incorporate the impact of Government assistance within bid calculations, a degree of certainty as to the level of funding that will materialise is necessary. If not, it will either be totally excluded or included at a reduced level, making the bid less competitive.

  Co-ordination between the DTI and IDB must be improved so that a complete and timely response is made to the project request.

  The assessment criteria applied by the DTI/IDB needs to acknowledge financially (through increased weighting) the attractiveness of additional investment from existing Northern Ireland companies and not be weighted in favour of new inward investors.

  New companies frequently offer a more limited track record in terms of likelihood of success and/or job security.

  In contrast, Bombardier Aerospace, Shorts has been an excellent corporate citizen in Northern Ireland for ten years, continually creating skilled jobs and providing highly paid employment for thousands who, in turn, are now stake holders in the community.

  The additional work which has been generated for local suppliers, together with the Company's links with educational institutions and their yearly charitable contributions of 1 per cent of profit before tax, shows their significant support and contribution to the local economy.

  The funding institutions need to reflect in their assessment the capability of different industries to create jobs in their supply chains. This will vary significantly between industries, for example, a call centre will have minimal impact on the supply chain when compared to a manufacturing industry such as Shorts.

  The DTI use a multiplier to assess the value of an investment in terms of job impact within the supply chain. This needs to form a significant part of the DTI assessment, and Shorts believe that IDB should incorporate this into their assessment criteria. It should be noted that the DTI multiplier does not include the impact of the jobs created on employment outside the supply chain.

The Industrial Development Board

  The level of responsiveness to the projects presented has been generally good and we have an effective working relationship. The IDB are limited in the level of financial assistance that they can offer companies in Northern Ireland by their budget. Even though we generate long-term (generally an average project life is 10 to 20 years) highly skilled jobs, there is real concern over the ability of the IDB to support the significant level of investment required.

  The IDB need to be more pro-active and positive in their attitude to existing investors. The attitude of similar agencies in other countries to Bombardier Aerospace projects has been much more favourable and encouraging.

  In addition the IDB needs to recognise the potential additional benefits generated by working as a team with other agencies such as the IRTU and the T&EA. This would facilitate the development of composite offers incorporating several types of funding, as is the case with other national agencies.

The Department of Trade and Industry

  The DTI were also found to be very receptive to the projects brought before them by Bombardier Aerospace, and were very knowledgeable about the aerospace industry. However, improvements can be made in the following areas:

—  It would be in the interests of both the DTI and Bombardier Aerospace if a list of qualifying criteria and information requirements relative to the Launch Aid application could be supplied;

—  This would ensure that:

  (a)  there was less time wasted on determining whether or not a particular project is eligible;

  (b)  we could plan the overall project with DTI's information requirements as specific deliverables.

—  Certainly as to which party (ie DTI or IDB) assumes responsibility for the overall co-ordination of combined response to the company would be beneficial.

4.  A COMPARISON OF THE ENVIRONMENT IN NORTHERN IRELAND AND REPUBLIC OF IRELAND FOR INWARD INVESTMENT

  The economy in the Republic of Ireland has enjoyed a period of sustained growth in the 1990's, mainly as a result of a significant level of inward investment. Undoubtedly, the Republic of Ireland is a direct competitor for Northern Ireland when the Government is seeking to secure inward investment. The Republic of Ireland has, by direct action and a co-ordinated plan between the unions, industry and government, created an environment which has proved attractive to major investors.

  Taxation is a major consideration for inward investors. The following paragraphs summarise some of the differentials between Northern Ireland and the Republic of Ireland:

Rates of Corporation Tax

  Manufacturing companies such as Bombardier Aerospace, Shorts are chargeable to Corporation Tax in the United Kingdom at 30 per cent. This contrasts with a tax rate of 10 per cent for companies carrying out manufacturing activities in Republic of Ireland (from 1 January 2003, the rate of tax will increase to12.5 per cent).

Capital Allowances

  An incentive for investors in Northern Ireland was introduced whereby 100 per cent capital allowances are available on expenditure on plant and machinery in the period from 12 May 1998 to 11 May 2002.

  However, inward investors are unlikely to benefit from the enhanced allowances. To qualify, the company and, if applicable, the worldwide group of which it is a member, must satisfy the criteria defined in company law for a medium-sized company.

  Consequently, companies such as Bombardier Aerospace, Shorts and similar multi-nationals whom Government wish to attract as investors will not view this as an incentive.

Corporation Tax Payments

  Following recent legislative changes, large United Kingdom companies will ultimately pay their Corporation Tax by equal quarterly instalments. Fifty per cent of the liability will be paid prior to the company's year-end, with the final instalment being due three months after the year-end.

  In the Republic of Ireland, Corporation Tax is not payable until six months after the company's year-end.

  This represents a significant cash flow disadvantage for UK companies.

5.  COMMENTS ON THE IMPACT OF THE CONCORDAT ON FINANCIAL ASSISTANCE TO INDUSTRY

  The suspension of the Northern Ireland Assembly and the current uncertainty surrounding its future are major issues, not least for the industrial sector in Northern Ireland. It is obviously difficult for the IDB to function efficiently and effectively if reporting responsibility changes regularly.

  If and when the devolved administration reassumes responsibility for financial assistance to industry, what will be the impact on the budget allocated to Northern Ireland? What will be the role of the DTI, for example, in relation to Launch Aid? Will this still be available directly or will there be an additional budget allocated to Northern Ireland for this type of project?

  It is crucial that the aim of negotiating flexibly and effectively is achieved so that the business needs are properly addressed.

  Financial assistance to industry is subject to EC state rules and the devolved administrations will abide by these. Is there a policy in place to act on evidence of other countries exceeding this limit? What regulatory powers are in place?

  The concordat states that particular cases can arise "where it is proposed to breach financial limits". Under what circumstances would this occur?

  Local knowledge of the region's current industry and of the economy's needs means time can be spent more efficiently on agreeing financial assistance. When departments outside Northern Ireland are involved, for example DTI, there is a learning curve to allow them to understand the local issues and to learn about the company.

15 March 2000