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ELECTION 2013 – FMS not without cost

written by australianaviation.com.au | September 5, 2013
The C-17 was acquired under FMS. (Defence)

Guest editorial by Senator David Fawcett – 

Modern airpower and the Peace of Westphalia (signed in 1648) may be centuries apart, but they share a common link – the concept of sovereignty. For a nation state to be sovereign, it needs to be capable of choosing a course of action that is in the best interests of its own people.

As a superpower, the USA sits at one end of a broad spectrum of sovereignty in respect to airpower, having the ability to design, construct, maintain, repair and modify all of the aircraft it requires for military and commercial operations. Moving across the spectrum, nations including Russia, China, the UK, France, Sweden, Switzerland, Brazil, Canada, Spain, Germany, Italy and India form a band of nations that design and manufacture aircraft to various extents. At the other extreme, a third world nation has no option but to accept the level of capability someone else is prepared to sell them, and they generally need ongoing support to sustain what they have.

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While Australia has no pretence to be an aerospace superpower, neither do we want to be at the third world end of the spectrum. At the very least, we have always aspired to be a ‘smart customer’.

The synergy between Australia’s military and commercial engineering capability has for many years provided the opportunity to make key decisions about our aerospace capabilities that have firmly placed Australia mid-point along the spectrum of sovereignty. In more recent years, the relationship between defence and industry has become even more interdependent with outsourcing to the commercial sector of many ‘uniformed’ functions such as design assurance, fabrication and maintenance.

This capability has not only provided Australia with a measure of freedom to act in our national interest, but has added value to both our US, Canadian and UK allies. Addressing fatigue issues in the classic Hornet, the Black Hawk helicopter and other ageing aircraft has extended the life of these capabilities for many years, both here and abroad, at a much reduced cost. The ability of Defence to certify an Australian company’s innovative use of supersonic particle deposition to restore helicopter gearbox facings has saved the nation considerable time and money, as there is normally a long lead time to source these expensive items from overseas. Test, research, and development of the seeker capabilities of the ASRAAM missile, acquired for the Hornet, have not only provided Australia and the UK with a better missile, they have provided the US with a better suite of tools for testing heat-seeking weapons. There are many other examples of sovereign capability adding value in areas such as electronic warfare, visionics, and armaments (such as JDAM-ER).

The ability to contribute as a technology peer has for many years secured Australia deep access to an exclusive network comprising the USA, Canada and the UK. This access, and the cost and capability benefits to our nation and our allies, would be at risk if Australia’s engineering capability were to move further towards the third world end of the spectrum. Quietly and unintentionally, that movement has already started and is accelerating.

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With Defence budgets at their lowest levels since the 1930s (as a percentage of GDP), there is significant pressure to choose equipment options with the lowest short-term cost and perceived risk. Procurement reviews such as Mortimer and Kinnaird have been used to justify a far greater emphasis on ‘off-the-shelf’ acquisition, and so it is perhaps no surprise to see a dramatic increase in the number of aircraft purchased under Foreign Military Sales (FMS) arrangements from the USA. There have been some much lauded ‘on-time and on-budget’ success stories that are held up as good models for future acquisition. From a sustainment perspective, FMS also makes good sense in some respects – obtaining a proven product backed up by a major power that will provide the engineering and support infrastructure that ensures a spiral upgrade path throughout the life of type.

In the medium term, however, the unintended consequences are not so positive.

Under FMS, the US Department of Defense provides the engineering services that underpin design assurance, certification, repair, and modification. Part of the value-for-money argument is that Australia therefore no longer has to maintain a workforce to conduct these functions. It follows that there are fewer places where Australian engineering graduates can work and develop competence as engineers, whether in uniform or industry.

This is already having an impact on the ability of Defence to manage the professional development of the officers who would normally become project engineers (the smart customers), design authorities, chief engineers, or eventually the Director General of Technical Airworthiness. This affects DSTO scientists and Defence T&E agencies as well – the weapons roadmap for the F-35 JSF (albeit not technically an FMS acquisition) does not appear to provide much opportunity to retain or develop the significant Australian capabilities that currently exist in the area of weapons test and integration. This reduction in the capacity and competence of the aerospace engineering sector has a flow-on effect to other areas of Defence capability, given that numbers of industry and defence engineers working in significant maritime and land projects have developed their skills in the aerospace sector.

The decrease in engineering capability would not be such an issue for our nation if we could safely assume that every ‘off-the-shelf’ purchase was in fact going to be fit-for-purpose in the Australian context. Recent history shows that this is not always the case. A contemporary example of where sovereign capability mattered was the modifications required to the off-the-shelf CH-47D helicopter prior to deployment to the Middle East.

With almost all current and planned aerospace acquisitions being FMS, the opportunities to retain and develop the Defence-related engineering workforce are declining. The commercial sector of the aviation industry can no longer be relied on to provide a backstop in capability either. Exchange rates, global competition, and the decreasing maintenance requirements of modern aircraft have resulted in the closure of two out of three heavy maintenance facilities by a major airline. Australia’s aviation engineering workforce contracted by nearly 20 per cent from 2011-2012, according to the 2013 Manufacturing Sector Report.

Addressing this decrease in sovereignty requires, as a minimum, that the combined engineering capability of defence and industry be recognised as a key part of what Defence calls the “fundamental inputs to capability (FIC)”. Government must therefore consider the impact on Australia’s engineering capability of both the individual project and the cumulative effect of other procurement activities. Short-term value-for-money considerations for individual projects must be balanced with an appreciation of the longer-term consequences of FMS as a procurement approach. A military off-the-shelf (MOTS) procurement, for example, with increased Australian involvement in design support and maintenance may prove to be a better investment over time than FMS.

This value is derived from the fact that the competence of individuals to provide an engineering capability is a combination of qualification and experience, which cannot be gained overnight. If we are not to drift towards the third world end of the spectrum, the government must ensure that there is ongoing, relevant, value-adding engineering work. This will enable graduates to put qualifications into practice and to develop the experience that underpins engineering capability, so that it is available when required for sovereign purposes.

Capability development for national defence is such a long-term undertaking that a relatively stable planning and procurement environment (free from political cycles and partisan priorities) is required for both Defence and industry to have any hope of increasing capital productivity. Both sides of politics could learn from the multi-party approach of the Danish parliament, which sees seven of the eight parties in its parliament sign a binding defence agreement every five years outlining funding and procurement priorities.

Political leaders must take every opportunity to engage with allies, especially the USA, in discussion about ways to preserve opportunities for Australians to participate in relevant design, test and evaluation (T&E), and research and development. Defence efforts to place Australians in the USA with an engineering role in the JSF support team are welcome, but should receive active support at a political level to broaden the scope and numbers involved.

Negotiations around increased use of Australian bases as part of the US pivot to the Asia Pacific, should include steps to create opportunities for Australian industry to provide a regional engineering support hub for ADF and US aircraft.

Australia is not a third world nation, but as the Rizzo Report (into the collapse of the Navy amphibious fleet) highlighted, poor materiel practices can catastrophically undermine critical engineering capabilities.

Informed political leadership is required to prevent short-term budget pressures driving a repeat of Rizzo, which would undermine Australia’s sovereign ability to use airpower in the interests of the Australian people.

This guest editorial first appeared in the August-September issue of sister magazine Australian Defence Business Review.

David Fawcett was elected to Federal Parliament as a Liberal Senator for South Australia in August 2010, and has been a member of the Joint Standing Committee on Foreign Affairs, Defence and Trade. A 22-year career in the Australian Army as a pilot culminated in his appointment as commanding officer of the Royal Australian Air Force’s Aircraft Research and Development Unit (ARDU). After leaving the military in 2004 he was elected to the House of Representatives as the Member for Wakefield. Between 2007 and 2010 he was the director and principal consultant of Fawcett Consulting Pty Ltd, providing professional services to the defence and aerospace sectors.

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4 Comments

  • John Baker

    says:

    David,
    An excellent piece and so susinctly put. I agree with all of your points and your conclusion and wish to add to the “evidence” .
    I attended the Australian Aircraft Airworthiness and Sustainment Conference, Bris, Jul 13 and spoke to the Super Hornet Programme Manager and I understand from him that the Super Hornet is being managed like the C-17: just another US Armed Forces Squadron.

    I am interested as I represent a US/UK firm marketing smart technology to illiminate intermittent faults: the capability locates intermittent faults in cables, connectors and chassis, acts as a poor mans ATE and locates the exact position along the loom of the intermittent fault fr repair. It is analogue and therefre tests all of the cables all of the time!

    There is a clause in the Boeng/DoD contract to share the benefits of improvements. I offered this as an improvement to Glen; his answer was that we follow the US publication and any deviation leaves us as orphans.

    I have vectored the US arm of the Company [United Synaptics] onto the USN and they have a sample of the capability to trial: Mohammed and the mountain.

    This is one example where our current poilicy is starving Aus of technological benefits as you outline.

    I come to Adselaide on some occasions and would like to catch up. Conversely, I can make myself available if you are in Melbourne though I understand the constarints on your time.

    Our thoughts are with you and your family. All of the very best my friend.

    Warm regards

    John Baker

    P.S. Have a look at the Video Demonstartion:
    http://www.copernicustechnology.com/index.php/products/ncompass-test-equipment

  • John N

    says:

    Senator Fawcett,

    A very interesting, articulate and thought provoking article.

    If I can be so bold, this article has been written from a position of being in opposition in the lead up to the Federal Election, but as appears very likely you will be part of the new LNP Government after this coming Saturday, maybe you can provide a follow up on what your Government’s solution to this issue is? What is it that your party intends to do?

    I don’t pretend for one minute that I have any knowledge of the complexity of this issue or how to solve it, but maybe a good start would be for a clear and concise ‘Industry Participation / Offset’ policy that requires the foreign aerospace companies that we very regularly spend many Billions of dollars with, to place a ‘set’ percentage of the value of the order here in Australia or in ways that will benefit Australia.

    We appear to have a policy (from both side of politics) that the majority of naval assets for the RAN are built here in Australia, for example, in the recent past the ANZAC Frigates, currently the AWD’s and into the future the replacement Submarines and Future Frigates, there are more examples, but I’m sure you get the picture.

    Aerospace projects are certainly a more complex issue, it is obviously not worth setting up manufacturing facilities for when we procure small numbers of aircraft such as the 6 C-17A’s, 7 CH-47F’s, 24 F/A-18F’s, etc, especially when there will be no follow on order (a good example was the recent shutting down of the KC-30A conversion facility).

    So maybe an Industry Participation and Offset Policy that was set at, say 30% for example, regardless of the purchase being a US FMS purchase, a Direct Commercial (eg, business to Government) purchase, and regardless of if the purchase is from a US or European aerospace company.

    Depending on the size of the contract, benefits could include:
    * Assembly in Australia – yes this is a difficult and not always cost effective solution
    * Component manufacture – especially high technology manufacture that has broader general industry benefits
    * Technology transfers – again technologies that have a broader application
    * And to address your point, the placement and training of engineering teams with that aerospace manufacturer in either the US or Europe.

    Of that ‘30%’ level I am suggesting we set, the value of it can be made up of any percentage of the above four area’s of benefit that I have suggested, and with an emphasis on the last point, training of engineering teams, a percentage of the value of the contract must include the last point.

    When we spend the many 10’s of Billions of dollars directly overseas on the aerospace equipment that the ADF needs (by default the Australian taxpayer is keeping foreign workers employed), why shouldn’t we be more demanding of a beneficial return to Australian industry, and by default the country as a whole?

    Anyway, that my 2 cents worth!!

    Good luck at the Election tomorrow, I look forward to you and the new Government producing a solution, and a lasting solution, to the issue you have raised.

    Cheers,

    John N

  • Random

    says:

    This article provides interesting insight into why we continue to choose a procurement path that provides lemons on certain key projects.

    I understand that government uses a multi-criteria system to scale and rate all potential procurement options for other than FMS projects, but that no individual criteria has primacy or weighting. The above piece by the Senator effectively explains why.

    Until the criteria “fit for purpose, deliverable on time, within budget, with proven training” can be given absolute primacy BEFORE the fulfilment of other criteria, then we will continue to generate lemons for projects. Likewise first generation equipment should be given a “handicap” in the weighting as it very clearly, more often than not fails to meet initial expectations in a workable timeframe, and comes with aspirations but no proven track record.

    Whilst the Senator discusses the problems with maintaining an engineering workforce, what he fails to address is the impacts on the wider workforce of failed and delayed procurements. There are very many good, highly trained people (who are an unacknowledged, critical and expensive asset) who leave the service after their careers have stalled waiting for equipment to be “made right”.

    Whilst sovereignty of skill is important it also has to be both value for money, and generating of additional wealth. In that respect, spending $36 billion domestically on purpose built subs should be weighed against $18 billion for a foreign sourced MOTS sub, where the remaining $18 billion goes directly to supporting and establishing manufacturing and industry that is self-generating with respect to wealth, particularly export sales. Supporting domestic manufacturing of procurement very rarely has the critical mass to allow the generation of wealth creating foreign sales.

  • Guy Adams

    says:

    Dave,

    Whilst I agree with the majority of sentiment provided in your article, I felt that FMS as a concept was perhaps a little demonised, and maybe should have been used more as an example.

    Two points:
    1. FMS has been used in the past to good effect. The Classic hornet is a case in point. That capability was procured through an FMS case with the USN, and support has continued effectively throughout the life of the platform. Australia has been able ‘value add’ to this capability through local engineering arrangements.
    2.. It is not just FMS cases that place Australia / the ADF in the position you refer to. Commercial acquisitions such as the Hawk (BAe) and Tiger (Eurocopter / AA) place far greater responsibility on the commercial operators to provide those engineering and / or maintenance functions previously almost exclusively the remit of Commonwealth employees.

    All that being said, the sentiment is correct. I just think the focus on FMS being the cause is a little off the mark. FMS cases can be structured that allow us beneficial access to technology and engineering processes. The classic Hornet is a good example.

    Cheers,

    Guy

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