In November 2018 GE announced it plans to close its Power Conversion plant in Rugby and move operations to France by the end of 2019. What may appear to be just another industrial rationalisation by a multi-national corporation has potentially very serious implications for the Royal Navy and is a situation that demands government intervention.
A unique UK asset
The GE Power Conversion site in Rugby has been manufacturing electrical components for the Royal Navy since the First World War. (Sometimes referred to as the Rotating Machines, Rugby (RMR) Factory). The site has unique manufacturing capabilities needed to produced quiet and shock-resistant electric motors for naval applications. In the recent past they manufactured the Advanced Induction Motors (AIM) for the Type 45 destroyers and the Queen Elizabeth Class aircraft carriers. They have also made the very high specification ultra-quiet motors needed for submarine hunting for the first three Type 26 Frigates. Around 90% of the current Naval Service fleet have GE-made electrical equipment on board.
RMR has the largest air vacuum pressure impregnation (VPI) tank in the world. This tank is used to seal the insulation in high-voltage motors and generators. The VPI process prevents leaks and corrosion while improving heat dissipation making for efficient, reliable long-life motors. Also on the site is a 250-tonne gantry crane and many other facilities that cannot simply be popped on the back of a lorry and moved to France. The factory has been built up over decades with considerable investment in large, complex and highly engineered plant that would cost £millions to relocate or replicate elsewhere. Of course, more valuable even than the plant is the existing workforce of dedicated people with decades of accumulated specialist experience in naval electrical component manufacture.
US corporate giant, GE bought the owners of RMR, Converteam in 2011. Given the importance of the classified naval work involved, as part of the deal, GE had to sign a legal ‘deed pole’ which required any substantial changes to the defence aspects of the business to be agreed by the MoD. Any transfer of classified material outside the UK would also need the written permission of the MoD.
GE has endured turbulent times recently with a collapse in share price and the management in the US is looking to offload assets and restructure the business. The decision to abandon the Swansea Bay tidal lagoon power generation project meant a significant loss of work for GE Power Conversion UK and, together with a downturn in other civilian work, is used as justification to close the GE site and redirect work to Nancy in Eastern France. Although in a lull at present, the naval business has a healthy long term future. The remaining 5 x RN Type 26s, the 12 x Australian Hunter class and 15 x Canadian CSC frigates are all designed to include two motors each that can only be built in Rugby. Besides the Type 26s, the US Navy is also likely to utilise the same motor in considerable numbers in future programmes.
GE executives in the US typically serve for just 3 years and are often not from an engineering background. Concerned only with short term profits, the strategic defence and industrial interests of the UK are not their priority. The Unions say GE management does not fully understand the implications of relocating to France, seeing it as like moving a plant between states in the US rather than a complete change of sovereign jurisdiction. The financial case for the relocation is also hard to justify anyway and there is a suspicion that GE ultimately wants to move manufacturing to cheaper sites in Eastern Europe or back to the US.
Impacts and implications
The GE facility and workforce in France does not have the capability to produce the very high specification compact naval propulsion motors required for the Type 26 frigate. If the Rugby plant is closed it is even possible the Type 26 would need re-design to accommodate larger (and less efficient) motors instead. This could delay the frigate programme and add significant costs. The Australian and Canadian navies would also be impacted by this retrograde step.
There is also a security issue around sensitive Intellectual Property. Although the IP for much of the expensively-developed technology is held by GE it is actually owned by the MoD and was mainly funded by the taxpayer. The Rugby plant is a ‘List-X’ site approved to hold UK government protectively marked information and has security measures in place including a separate IT system approved by MoD for naval work. The French plant does not have this kind of security and is outside of UK jurisdiction anyway. It carries out work for many nations whose engineers have access to the shop floor, including Russia.
GE Engineers are also closely involved in support work for the existing RN fleet, at work in shipyards and naval bases assisting with the maintenance and installation of electrical machinery. GE expertise will be needed by Cammell Laird when they insert the new diesel generator sets into the Integrated Electrical Propulsion system of the Type 45 destroyers as they undergo their propulsion fix.
The loss of the UK-based specialist GE engineers will not only cause problems supporting RN vessels in service but will reduce the technological edge the UK has in developing quiet and efficient electric propulsion systems in the future. Electrical propulsion systems are the way forward for both naval and commercial vessels and it would be irresponsible to lose this expertise. There would also be economic damage detrimental to the UK’s balance of payments from the loss of high-value exports. The skilled engineers at GE would probably find employment elsewhere, possibly overseas but many of the workers and some in the local supply chain in the could lose their jobs, impacting local communities. Potentially the UK would be sending money abroad to purchase equipment made in France while paying benefits to those made unemployed.
If GE persists with their plan to close the RMR site the government has some options to intervene. The 2011 deed poll gives the MoD legal power to restrict the transfer of equipment and IP relating to defence projects abroad. Sustaining the workload is the biggest challenge but this could be done by bringing the order for the long lead items for the second batch of (3?) Type 26 frigates forward. The MoD does not have the funding in place for this but would, as outlined above, have a good case to go to the Treasury and ask for funds now to save extra costs in the future. In the case of the Dreadnought submarine project, the MoD did exactly this last year and drew £600M from contingency funding to place advance orders with critical contractors in the submarine supply chain so that they would remain in business. Unfortunately, beyond the nuclear deterrent project, there is no other contingency funding for such sensible measures and each case must be argued on its merits. The government cannot be expected to intervene in the case of every failing defence enterprise but GE Rugy is of sufficient importance to require decisive action by ministers.
The closure of RMR must be a serious concern to BAE Systems, its biggest defence customer. As a threat to the Type 26 project and a business with a potentially good future, BAES might be compelled to consider purchasing GE’s UK defence division. Tax breaks or a government under-written loan might be used as an encouragement.
You cannot maintain a world class navy while leaving irreplaceable specialist sovereign manufacturing capabilities entirely to the whims of the market. Allowing the closure of the Rugby facility would be a dereliction of duty by government and seriously detrimental to the current and future capabilities of the Royal Navy.