Qantas’s defence arm looks for new opportunities

Glenn Brown was recruited into Qantas from his position as President of US-based Stevens Aviation, a large MRO operation which had a roughly 50:50 market share of business and military customers. The military work included the US Army’s large fleet of C-12 (King Air derivatives) depot heavy maintenances and rebuilds of these aircraft. Brown has a financial background, having previously been group financial controller for Lucas Aerospace before stepping across into customer service as VP customer service for Lucas and then as VP of Rolls-Royce’s small engine group serving large corporate and regional airline customers worldwide.

Programs

Perhaps the best known military support contract held by QDS is the support of the RAAF’s fleet of C-130 Hercules transports, although all work on the C-130J models it has done up to now will shortly transfer over to Australian Aerospace and Lockheed Martin. “Our biggest program by far is the C-130 program, “said Brown. “Our view is the C-130H is a great platform and a good asset which could keep flying for a number of years. It’s much easier particularly in the current budgetary environment to extend old aircraft life than it is to go down to Canberra and get money for new platforms.”

Another long term support contract held by QDS is that for the RAAF’s VIP fleet run by 34SQN at Canberra. “We currently do the two BBJs – that’s a terrific program for us,” said Brown. “We provide all the heavy and line maintenance, logistics management and program management for the VIP fleet and we’ve been on that program for a number of years now, and it includes the Challengers as well.”

Brown added that, while Qantas does all the heavy maintenance on the 737-700-based BBJs at its 737 maintenance facility in Melbourne, the heavy maintenance work on the three Challenger 604s is sub-contracted out as Qantas is not set up or licenced to do heavy maintenance on these aircraft.

“We look at the BBJ as the perfect launch platform to extend and do maintenance on other Boeing derivatives as well, and we believe there are huge economies of scale in doing that and trying to put it together.”

Another large program QDS is heavily involved in is the RAAF’s A330 to KC-30A MRTT tanker conversion program at Brisbane Airport. “That’s a huge and multi-faceted program for us,” Brown explained. “The first facet is the massive conversion of four of the ‘green’ A330 aircraft on a sub-contract from Airbus in Spain. The complexity is that it is a significant conversion and in that the aircraft will operate as a tanker, a receiver and a troop transport – they really are getting an amazing capability with this aircraft.”

Actually, the original conversion contract was with Qantas Engineering but as it was a defence project and QDS is to provide the through life support (TLS) for these aircraft once in service, it was transferred to QDS control in late 2008.

“So we’ve made that transition and have developed what I think is an extraordinary capability to do commercial to military conversion work, and we think that capability has a tremendous future ahead of it because nobody in Asia does this kind of work. After the delays with aircraft two, I feel good about our ability to do aircraft three thru five without a ‘net’, and we’re looking for follow on work beyond the fifth aircraft for the RAAF. Today we have production ready data and a production ready workforce, and it looks like a production program.”

Aircraft number two is now ready to fly and work has already commenced on aircraft three. “The second facet of this program for us is in the acquisition of all the fitout that goes into the aircraft. As an airline, when you go to Airbus or Boeing and say ‘I’ll have one of those’, essentially they sell you a tube with wings. The airline then makes its own decisions about what they want for the interior. The RAAF has contracted Qantas to go out and buy all the equipment to fit it out internally the same way we would with one of our own aircraft – we do this literally every day of the week here at QF.

“And of course, the third contractural aspect is the TLS program which is a 20 year contract for logistics support of the five aircraft at Amberley when they enter service, and that contract is directly with DMO.”

Brown says he is also in discussions with Airbus about the possibility of QDS working on a number of overseas MRTT programs, as the MRTT has also been ordered by Saudi Arabia, the UAE, the UK, and has been down-selected by India. “We are clearly interested in that type of work,” he explained. “The risk you have is, there’s a pretty big difference between commercial airline maintenance and performing a military conversion. There are very few large-scale military conversion houses in the world, so it’s a pretty rare and unique skill. I don’t think anybody in this point in the game would want to put conversion centres at various points around the world – it’s difficult, and Airbus has to feel very comfortable that whoever you want to be your conversion house is capable of working with them as a sub-contractor.”

QDS also has an engine shop in the Sydney suburb of Villawood where it overhauls all of the RAAF’s Rolls-Royce/Allison T56 (C-130H, AP-3C) and Rolls Royce Adour (Hawk 127) engines, numbering some 160 engines in total.

Core Business

In the lead up to and through the tough economic times in recent years, Qantas had been looking to divest itself of non-core businesses such as Frequent Flyer, catering and other business units, and has also relinquished several ‘other’ airline support deals at Sydney and other major ports in Australia. Brown says QDS was also considered for sale during this process.

“I would say it was looked at, as were all the pieces. I think when the airline was going through the difficult patch earlier this year, every bit of the business from wall to wall was being looked at to see if it is streamlined, is it operating properly, is it core, is it non core, should we sell it etc. But when you look at the portfolio of assets inside a company, there’s a risk if you start stripping things down to the core airline, you start losing the benefit of what happens when the airline is struggling – the other assets can contribute and help keep the airline afloat.

“There was a decision made to hold on to Frequent Flyer etc and retain it, and the same decision’s been made regarding QDS. They’re good assets to have, they’re contract-cyclical, and when the airline business is struggling defence tends to do well. We’ve certainly had a good year this year.

“QDS operates almost as a stand alone subsidiary and as such, brings business to the airline, but not business that’s disruptive or takes away from day-to-day operations. When we do reach in for maintenance it’s at a heavy depot level, and it has no impact to speak of on day-to-day turn time. It’s not a disruption and we don’t take away from the airline so it’s a symbiotic relationship, not a parasitic one.”

Future Opportunities

Under Glenn Brown, QDS is involved in discussions with the DMO and with various industry stakeholders with a view to expanding its footprint into new ADF programs as they mature.

Two of these are the Air 5077 Wedgetail AEW&C and the Air 7000 manned replacement for the AP-3C Orion, both of which are or are likely to be 737 based solutions.

“Nobody in Australia maintains more 737s than we do, and we’ve been doing it a long time. We think that’s a tremendous capability and were in discussions with DMO about how do we partner up and try to provide the heavy maintenance for those aircraft going forward.”

Brown says the aircraft could slot into Qantas’s 737 heavy maintenance line at Melbourne’s Tullamarine Airport with little trouble. “The program on the BBJs has gone quite well and there are substantial savings to be had there, so we look at both those programs as significant long term opportunities for us,” he explained. “We’re going to be doing 737 maintenance for decades to come, we run three lines of 737 commercial maintenance every day of the week at Tullamarine, so slotting in an occasional aircraft here and there is pretty easy. There’s nobody in the region who could touch us in terms of costs, so the opportunity to save the Commonwealth significant money there is absolutely crystal clear in our mind.”

Brown also cites the Air 8000 Caribou replacement as a potential opportunity. “Our relationship with ALSPO is a real strength there, and we’re very well positioned with people who understand medium sized turboprop aircraft from our C-130 and the airline’s Dash 8 programs to do that, so labour would not be a problem.”

Astute

Brown says QDS has developed a strong culture: “One of the things that’s nice in QDS is that all of the managers coming up become very commercially astute because they’re running their own P&L, they’re responsible to customers for service, and they have to deliver results. They do very well in that business model, so they make good candidates for management roles elsewhere in the company.
“That’s really the magic of QDS – it’s not just the storefront and our own operations, but also the ability to be able to reach back into the company and access the capabilities of Qantas that are absolutely prodigious, and there’s nobody in the region who can touch us in terms of that sort of depth and capability.”