John Chisholm, Chief Executive Of Qinetiq: Battle stations for sale of the 21st century

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The Independent Online

If you make a living out of being an RAF Jaguar pilot or the captain of a Type 42 destroyer, then last month's defence cuts will have been bad news. But if you happen to be Sir John Chisholm, the words which Geoff Hoon spoke will have sounded more like manna from heaven.

As chief executive of Qinetiq (the commercial arm of what used to be called the Defence Evaluation and Research Agency) Sir John, 57, thrives in the brave new world of "smart procurement" and "network enabled warfare" and that is precisely what the cutbacks in front-line forces will help to pay for. Out goes a battalion or three, in comes the whizz-bang technology needed to fight "asymmetric" wars - the ones where we have overwhelming military might if only we could locate the enemy.

"The UK defence market is still a huge one," Sir John says. "It is worth some £30bn a year and we are very much in the sweet spot of that, bringing technology out of the laboratory and on to the battlefield in a way that makes soldiers, sailors and airmen more effective. The market for testing and evaluation alone is worth about £2bn a year and we are really the only player. In the US, the market is worth £20bn but there are 1,000 competitors fighting for the work.

"Everywhere you go you will find interesting technology, all of which came out of the military world. Armed forces need first-rate technology. You have to be best, if you are not then you are dead."

If Sir John sounds like a salesman, then that is precisely what he has become, selling Qinetiq not only to a worldwide customer base but also to would-be investors.

Eighteen months ago, Qinetiq became a Public-Private Partnership after the American private equity firm Carlyle paid £150m for a 32 per cent stake. More recently, the Government has begun preparations for the stock market flotation of the business by appointing Morgan Stanley as its investment banking advisers.

"We were an organisation formed 50 years ago to fight the Cold War," says Sir John. "We have since become a huge repository of British scientific know-how. The PPP has made it easier for us to tap that knowhow and unlock it for the benefit of the country as a whole."

And for Qinetiq's shareholders, technology transfer has become very big business. The company's turnover has already reached £800m and by the time it floats (officially any time in the next two to four years but unofficially more likely to be 2005) Sir John says it will comfortably exceed £1bn.

Qinetiq has an illustrious past. Its predecessor invented liquid crystal displays, carbon fibre, flat panel speakers, infra-red sensors, microwave radar and Chobham armour, to name just a few inventions which have revolutionised everyday life.

Sir John is intent on making its future just as bountiful. "I see this as a classic 21st-century company. It is wholly dependent on what lies between the ears of its employees," he says.

Those employees constitute one of the biggest concentrations of science and engineering graduates to be found anywhere in the UK. Of Qinetiq's 9,000 staff, less than 1,500 are what Sir John describes as "boring accountants and the like". The rest are front-line staff, divided into 120 specialist teams all searching for the next carbon fibre or LCD.

Crucially, the flotation will provide Qinetiq with the currency to recruit and retain the best brains. "It is going to be very important for us, particularly in the US, to be able to offer staff shares," he says. "The US operates very much on an equity culture and it is one of our three key growth areas. The US is the biggest market in the world but as a UK government agency we were not allowed to operate there in any significant way. That has only changed in the last year or so."

But isn't there a danger that investors will recall the disaster that befell AEA Technology, the last government research agency to be privatised, and run a mile from Qinetiq?

"We are different from AEA in lots of ways," says Sir John. "For a start, we cover a very broad spectrum of technologies across aerospace and defence and a great many of those have alternate uses. AEA Technology's base was in nuclear technology and there are not huge markets for that.

"Second, the process of commercialising ideas started much earlier for us. We have been exploiting defence technology since the start of the 1990s [when Dera was formed] so we have developed the business model over a much longer period."

Sir John himself is an engineer who came into Dera in the early 1990s after a career with the software company Sema. "Software is an industry where you are always looking for new products," he says. "Qinetiq is at the other end of the scale. We are awash with products. The job is choosing which of them to develop. There are cleverer people here than me to do that." His job, he says, is to create an environment which "empowers" his staff to perform to the peak of their ability.

Right now, the technologies that are exciting Qinetiq include millimetre wave technology. This has already found a commercial application in the "Border Watch" machines which Eurotunnel uses to scan lorries for illegal immigrants. The technology has also been used for whole body scanning of airline passengers at Gatwick and Qinetiq expects full commercial application to begin in about a year.

Where Qinetiq goes from here depends on the supply of raw material from schools and universities. "From a narrow perspective, it is not a problem for us because we have a good image and a good presence in universities," he says. "But longer-term, if I could choose one thing I would like the Government to do, then it would be to pay science teachers more than other teachers."

The same worries about skills shortages and support for research and technology apply at industry level. "It is inevitable that government has a role to play. In the US and France, there is a recognition of that in a big way. If we do not increase the level of support, then eventually aerospace manufacturing will decline in this country and Qinetiq will have to move its centre of gravity to where the markets are," he says.