7 January 2008
Boeing’s Integrated Defence Systems sector
has opened an office in the U.S. to help Australian
companies
compete for contracts to supply components and services
across the Boeing Company. The
two-man Office of Australian Industry Capability (OAIC)
will be located in Kent,
Wash. It will work
closely with the Australian Department of Defence’s
Canberra-based procurement agency, the Defence Materiel
Organisation (DMO), to identify opportunities on both
civil and military programs for pre-qualified Australian
defence and aerospace companies.
“We expect the OAIC to develop opportunities
for Australian industry as well as bring value to our
global customers,” according to its head, Joel
Gray, Australia/New Zealand Industrial Participation
manager for Boeing Integrated Defence Systems. The
OAIC is scheduled initially to run for two years, he
said, “however we would hope to continue beyond
that should the office prove to be successful.” The
staff of the OAIC will be all American, but they will
coordinate with Boeing’s subsidiaries in Australia
as in-country resources.
The OAIC has three main goals:
to provide Australian companies with timely notice
of future opportunities
in enough time for essential ITAR Technical Assistance
Agreements and other procedures to be completed; to
match Australian firms with the most appropriate opportunities;
and to help train and mentor Australian companies,
especially Small to Medium Enterprises (SMEs), in dealing
with US prime contractors and negotiating the U.S.
government’s complex ITAR regime.
Boeing’s assistance in negotiating
the ITAR maze could be very important for Australian
firms.
Rumour Control understand there have already been examples
of Boeing helping expedite delayed Technical Assistance
Agreements (TAA) for Australian SMEs.
As well as opportunities within
Boeing itself, the OAIC will help Australian firms
address opportunities
among Boeing’s U.S. suppliers and sub-contractors.
It is an extension of Boeing IDS’s Industrial
Participation Organization in St Louis, which has existed
for more than 20 years. This is “chartered to
develop and manage Industrial Participation programs
for specific international programs. The OAIC is different
in that it does not focus on a specific program and
will seek opportunities for Australian industry across
all Boeing's business units,” Gray told Rumour
Control.
According to Gray the OAIC is a
direct response to the Australian government’s March 2007 Defence
and Industry Policy Statement, which states Australia’s
strategic and commercial imperatives: first, an industry
base that’s able to sustain and support the Australian
Defence Force; and secondly, a business environment
that enables this industry base to survive and flourish
on a commercially sustainable basis, so far as possible.
That means creating more and better
opportunities for Australian companies to compete
for work both locally
and overseas, according to Dominic Zaal, director general
of the DMO’s Industry Capability Branch. It also
means an end to the old, inefficient industrial offsets
regime which used to characterize major defence purchases
in Australia.
Industrial offsets, where a prime
contractor places a parcel of work in a customer’s country to offset
the cost of new defence equipment, rarely delivers
long-term value and doesn’t create internationally
competitive industries.
Furthermore, the value of the offsets
is dictated largely by the value of the original
defence purchase:
the amount of work placed with local companies tends
to be directly proportionate to the number of items
ordered, or the dollar value of the contract. Once
this work is completed the skills and facilities created
to carry it out frequently fall idle. The disruption
to the prime contractor’s production process,
and the resulting inefficiencies caused by sourcing
a limited number of components or sub-assemblies from
a local supplier, not to mention the cost of tooling
up and training a workforce to produce them, can add
significantly to the cost of the equipment being acquired.
Instead, the DMO is developing
a strategic approach designed to strengthen Australia’s
industry base without requiring the ADF and Australian
taxpayers
to pay a premium for local industry content, except
in a few areas of strategic importance.
The ADF plans to spend over AUD$10
billion acquiring products and services from Boeing
alone over the next
few years, including Wedgetail early warning aircraft,
C-17 Globemaster II airlifters and F/A-18F Super Hornet
fighters. However, Australia’s project-by-project
acquisition approach doesn’t always deliver local
industry opportunities and benefits in a coherent,
efficient and, above all, sustainable way.
Whereas Boeing’s AUD$2.9 billion contract in
December 2000 to build the Wedgetail Airborne Early
Warning & Control (AEW&C) aircraft for the
RAAF included a AUD$1.2 billion offset commitment,
future Australian defence programs will not include
offset targets, according to Zaal. Instead, prime contractors
will be required to develop a fully costed Australian
Industry Capability (AIC) plan which spells out genuine
opportunities for local companies, and any additional
costs associated with carrying out certain strategically
important activities in Australia.
The intent is to provide access
to opportunities which, if secured, will help sustain
and grow key sectors
of the Australian defence industry. These opportunities
need not be related directly to the equipment being
acquired, but must be relevant to the skills and capabilities
which defence requires of Australia’s defence
industry, and could be in both Australian programs
and the global supply chains of foreign companies.
“This will ensure that Defence has access to
the skills and capabilities, across a broad industry
base, required to support ADF operational capability,” according
to the Defence Industry Policy Statement.
The DMO’s AIC Manual currently exists in draft
form on the DMO web site (http://aic.defenceandindustry.gov.au/index.php)
and is due for release in early-2008. When it is released
it will require prime contractors (especially foreign
ones) “to establish clearly defined processes
and industry engagement programs to identify and manage
opportunities for local industry to compete for work.
If local firms are found to offer best value for money
solutions, Defence would expect those firms to be engaged
to supply the nominated goods or services.”
Boeing is the first foreign prime contractor in Australia
to respond to this emerging policy environment, and
other US and European companies may follow its lead.
Dominic Zaal notes, however, that Raytheon has also
been active, though in a more informal way, in trying
to facilitate access to a broader market for its Australian
partners, suppliers and sub-contractors. So also have
companies such as Saab Systems and BAE Systems.
EADS has worked closely with another
Federal government body, the Australian Trade Commission
(AUSTRADE), to
open a similar office in Munich; however, this pre-dates
the Defence Industry Policy Statement and was set up
to support the ADF’s major helicopter rationalization
and acquisition project, Air 9000. The “Selling
to EADS” initiative is not confined to the rotary
wing sector so is in many ways analogous to Boeing’s
OAIC.
Initiatives like the OAIC are expected
to work very well in an environment where Australia
is buying lots
of equipment under US Foreign Military Sales (FMS)
agreements, because it is not directly program-related:
FMS regulations can restrict industrial offset proposals.
It will help Australian companies identify sub-contractor
and supplier opportunities across Boeing’s civil
and military businesses, and not just in areas where
the ADF is buying equipment.
Both the DMO’s Dominic Zaal and Boeing’s
Joel Gray emphasise that Australian companies will
only win contracts if they are competitive and offer
value for money. “This is all about creating
opportunities, and winning business on a best value
basis in open and transparent business dealings,” according
to Zaal. Potential opportunities accessible through
the OAIC could run into tens of millions of Australian
dollars, he estimates. It should be noted also that
this still represents a very small percentage of the
money Boeing currently spends through its US and global
supply chains.
A team from Boeing IDS visited Australia in early-December
2007 to meet and interview 20 local companies. Boeing
executives were impressed by the quality, capability
and capacity of the Australian firms they encountered,
and the company now has a database of 150 potential
Australian suppliers.
That month Boeing signed a contract worth some AUD$2
million with an undisclosed SME in Melbourne. Further
requests for proposal (RFP) are expected to be issued
to local firms starting from January 2008.
The DMO’s approach to the OAIC is based on the
successful ‘Team Australia’ strategy it
developed with the Australian Department of Industry,
Trade and Resources (DTIR) for the Joint Strike Fighter
program. Some 12 of those first 20 companies the DMO
introduced to Boeing were successful JSF veterans such
as Melbourne-based Production Parts, GKN Aerospace
Engineering Services and Marand Precision Engineering.
These firms are already ‘export ready’ -
attuned to the demands of the US and international
defence market, have the necessary security clearances
and experience with the ITAR regime.
Marand’s managing director, Tony Ellul, told
Rumour Control in January, “They [Boeing] are
generally surprised at our capabilities. We’re
hoping that something very positive will come out of
it.” Marand has won several contracts to provide
automated manufacturing and assembly tooling for the
F-35 Joint Strike Fighter, along with the F-35 Engine
Removal and Installation Trailer and Adaptor.
Ellul told Rumour Control the OAIC
proposal emulates Lockheed Martin’s JSF global supply chain initiative,
but takes it even further: “JSF is program-specific,
this [the OAIC] is right across the Boeing production
plan, except for some [sensitive] defence programs,
of course.”
Just as success on the JSF program
has made it easier for Australian companies to impress
potential new customers
such as Boeing, there’s reason to hope that programs
such as the JSF and OAIC will help Australian firms
establish their credibility in the global aerospace
and defence markets and lower existing barriers to
exports.
The DMO’s Industry Division is the Australian ‘portal’ for
access to the OAIC. The DMO’s new Defence Export
Unit (DEU) in Canberra is also involved as this is
explicitly an export-related activity; the DEU’s
forward strategy will encompass the OAIC, and, it is
to be hoped, similar initiatives by other companies
in the future.
The joint aim of Boeing and the
DMO in establishing the OAIC is a win-win, according
to DMO’s Dominic
Zaal: increased exports (and so growth) for Australian
companies and a sound local supply base for Boeing,
based on competitive suppliers offering genuine value
for money.
© Rumour Control 2008 ENDS
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