Interview-George Stuart

A: When the new board and management took over, the Government came to an arrangement about costs that would be incurred or expected to arise because policies and procedures of the Government Aircraft Factories, which was operated along government departmental lines, were not normal commercial practice. It wanted GAF restructured into a commercial undertaking – to turn it into a commercial entity which did not depend on the government for support. It had to be restructured into a company, which is a commercial undertaking under the Companies Act.

These changes required a special kind of accounting. Not just dollars and cents. We have given regular reports to the shareholder who seems to be happy about the way the accounts are presented. We have discussed the format with the Commonwealth Auditor who approves. In fact, in a situation like this it’s very difficult to define what a loss is.

We had to restructure the business. Previously it was a functional organisation with a military form. It tried to assume that the military format was appropriate for the work it was trying to do.

The important thing is to have a business put in place of one which was not really operated for commercial reasons. There are residual elements of these attitudes remaining.

Q: Have you been able to change these?

A: We reached the conclusion that the functional organisation was not the sort of organisation for an aerospace industry in Australia in the future. To have a future it has to be part of the global aerospace industry. The restructuring had to fit it to this role.

In some cases we had to downsize the business in those areas where it was out of balance with the opportunities available. We also sought to utilise the physical assets and get the maximum benefit from them. Where the assets were outdated and inefficient we had to decide what to do. There were three options: we could move out of that business, we could replace the assets or we could subcontract the work.

All this was so we could establish a presence in that global market and write the contracts that would underpin our future. We could capitalise on our strengths, such as in composites. That brought us work such as the 757 and 777 rudders for Boeing and the contracts we also have with Airbus for the A330/340. The overseas manufacturers would not have placed work here under the old structure of the Government Aircraft Factories. But when they saw we were changing, it was heartening the way they supported and encouraged us. It really became a partnership in many ways.

If we had stayed the way things were, we wouldn’t have had any future. So we had to change our work practices towards becoming more world competitive. We could not stay with only the domestic situation – the old situation where we depended on military work. It is obvious defence budgets are being scaled down and we can no longer hope automatically to get the work because we were part of the Department of Defence. If we depended on Australia we would plainly have no future. We still need to perform in some areas as a competitive supplier to the Australian defence forces. But most of our sales would be in the world aerospace environment.

This was rather disturbing for our traditional organisation and many of our people. But we had to ensure there was recognition that our only future lay in the world market.

Q: It must have been painful for many . . .

A: The first change that was necessary was one of philosophy – the recognition of that necessity to become part of the global industry. Our assets must have work to do to give them some value, to give us a future. We had to focus on the assets which had some potential for the future. Not the least, we had to let the ADF know that some of the skills and facilities we had traditionally supported might now no longer be supportable because they were too specialised. However, by going for the world market we could ensure the maintenance of fundamental skills that also would be of value to this traditional customer.

When we began the transformation, we found there were some problems such as in quality control. The measures that were appropriate when GAF was part of a government department were no longer suitable when we were contracting to the big overseas manufacturers. There were distinct shortcomings in documentation and controlling quality. We could discern frailties within the way things were done.

It became clear to some of the people working for GAF that the new environment was one they would not be happy working in, so gradually they moved out.

Q: How many have gone?

A: If we except the new business units such as ASTA Aircraft Services, which we have started up, and Pacific Aerospace which we acquired, out of approximately 2,000 workers in the old GAF, we now have about 1,200 in the traditional areas. We moved in on 1 June 1987 and took effective control on 8 October of the same year. By then about 500 people had already moved out.

Despite that, group sales have increased about 67%. In those traditional areas, sales are up 50% while manning is down 40%. Our objective is to triple sales within five years and to remain at roughly the same staffing. So that is a big increase in productivity.

We always said it would take us about five years to complete the first phase of the reconstruction. Sure, we’ll need another year or so. We have to encourage the changes taking place and also allow the people to feel comfortable about the rate of this change. It’s heartening that many of our people welcome the changes and see them as opportunities.

We have made clear our intention of promoting restructuring until the end of this five year period and will continue to work changes in the organisation after this time if we find a new situation is arising.

Q: Five years in business seems like forever?

A: You can change by revolution as they did over at Williamstown (shipyards). And that’s a legitimate way to go to achieve that objective. But in our case we had to maintain a continuity of work and preserve skills which the defence force and our customers needed. So we had to do it by evolution. The Williamstown option was not available to us.

We don’t want interruptions because we have become the sole source of supply to many of our customers. And doing change this way is beneficial to our suppliers as well in the longer term. We have a responsibility to them as well as to our staff and share holder. We have had to foster an interaction between people. We depend on results for people on the shop floor to change as well. I can’t make the difference myself. I am set the environment in which we had to change. I can’t produce the product from the top down.

In the previous public service environment, people never had to face up to commercial reality. We had to set about unlearning a lot of the style of the people we had. Their style related to the styles of the public service.

Some inevitably feel as if they have been betrayed. I have a high respect for our professionals. But they cannot perpetuate a style that belonged to the public service. If that is the only style they are comfortable with, then they won’t fit in with what we are becoming and that’s a commercial organisation working with commercial values. They positively welcome the opportunities which have become available to them. But a lot of our people have found it a challenge to read- just. The establishment of what we would recognise as normal business attitudes without doubt has been of the utmost importance. The focus of today is to develop business. If you continue with the old public service style, you have the difficulty that the run of work produces peaks and troughs. With a business attitude, you go and find work to fill those troughs. To maintain a capability, you have to go out and get work for it.

We as management provide a focus and set targets for achievement of out-puts. The establishment of these targets provides a motivation to achieve them. It’s an interactive process. If people say they can’t meet the targets, they have to realise they must either do so or adjust the target. And if that achievable target is too low to produce a profit on the assets involved, we have to look at putting the work out to contract.

Q: What were some of the changes you had to bring about?

A: There are some concepts that are unusual in the mind of the public service. Profit is essential to support a work force of a given size. Their concept is to work to a budget. And if that budget isn’t used up it disappears on 1 July. I like to stress business is a continuum that 1 July is just another day. But you can’t have ad hoc slashing. The value of the assets decides what the final result has to be. You have to concentrate all the time on the total business and the implications of not achieving objectives. I’m not saying we’re there yet. But it’s a matter of continuous discussion.

The concept of the value of a physical asset. If it’s there we have to use it. If we can’t use it efficiently and profitably we have to look at selling it. That’s why getting contracts for the composites facility is so important to us. It’s one of our biggest assets and it uses a third of our floor space.

Also it’s important to see whether an asset- equipment or machinery- fits into our cellular work groups. In the tool room, for instance, we found the old equipment is beneficial. But if we can’t use the assets we have, the option is to contract the work out and dispose of them. I can’t see in the next five years any justification to maintain capabilities where there are world competitive capabilities already existing in Australia or New Zealand.

Q: Canyou in fact see ASTA succeeding in the civilian components field?

A: At the moment we’re one or two major contracts short of full productivity on this site extending out for many years. We’re in an industry where there are long time horizons and long runs. If I look forward to 1994/95, the majority of the work we will then be doing has already been contracted. We must think in term of those long term contracts. The A330/340 work, for instance, was contracted in 1988 but the first aircraft won’t be delivered until late next year.

There has been a revolution in the aerospace business. Some of the people here have yet to accept the fact. There are people out there outside ASTA with the technical capability to do the work. They will realise that these long term contracts are very attractive. They will inevitably go to the trouble of getting quality accreditation and bidding for the work so they can become part of this global aerospace industry. There is a ten to fourteen year time horizon on many of these contracts.

Q: Will component work dominate your future?

A: Don’t ask me to say what proportions our work load will take in the years to come. Much depends on the outcome of the Defence Force Structure review. If, as expected, the military will really put out much of the maintenance it has traditionally carried out, we will obviously be one of the bidders for the work because we can work closely with the military.

The 747 business is also very attractive and we would like to be able to support one more hangar at Avalon. Also we would like to begin to make it into a commercial airport entity as well. With another hangar and the work for it we could have 1,000 people out there. But we must watch out we don’t raise hopes too highly. There is tremendous interest in what we are doing at Avalon because we are expanding and everyone else is contracting. It is a good area for us because of the manufacturing experience there We believe there is a big future for our maintenance work because the heavy overhauls are a different sort of work for the normal airline line maintenance organisation. It is much closer to manufacturing than the traditional sort of work airlines do. Our partners HAECO believe this too.

Ageing aircraft support is presently an embryonic business that must expand and we will have the facilities out at Avalon and plenty of space to expand into if we have to. But I don’t think Avalon will be the epicentre of our activities.

If you think about it, airlines do routine line maintenance and they do C and D checks. It takes different skills to move into heavy maintenance. And then to go beyond that to maintaining ageing aeroplanes, where you have to literally rebuild the jets.

Also airlines tend to have all the facilities available in a hangar. A machine shop over there. An electrical shop there. We want to put that work out. We don’t want to do engines either – we’ll put that out. We’re just interested in airframes and we want to do them very well.

We’re sure it will be a most attractive business. We’re most pleasantly satisfied with the way we are progressing. We are learning the business – these special skills.