Ramping Up

Industry participation is certainly a significant element of Australia’s involvement with the F-35. To date, 30 Australian companies have secured work worth about $355 million on the JSF program, according to figures supplied by Defence. Of those, there are 17 companies that are currently working on the program.

Lockheed Martin has stated that contracts awarded to Australian companies could be worth US$6. 3 billion by the time the program ends in 2039. “The total worth of the program to Australian industry is dependent on Australian industry remaining competitive, retaining their quality accreditations and winning further opportunities,” a Defence spokesperson said. “Australia expects Lockheed Martin to offer further significant opportunities to Australian industry. ” Australia completed negotiations for entry into the development phase of the JSF program in October 2002, committing to an investment of up to US$150 million over 10 years.

“Joining as a partner gives Australian industry the opportunity to compete for a proportion ofwork,” the Defence spokesperson explained. “There is no contractual commitment by Lockheed Martin to award a certain amount of work.

However, there is an Industry Participation Plan, which has details of the opportunities that will be available for Australian industry. ” And if Australia had decided to acquire the F-35 under the US government’s Foreign Military Sales (FMS) program – instead of joining as a partner – any JSF industrial participation would have been negotiated as part of that FMS agreement.

According to Lockheed Martin, the Australian government actually stands to recoup its System Development and Demonstration (SDD) phase investment through receiving fees paid by non-partner customers as they purchase aircraft.

Questioned about the likelihood of Australia recovering its US$150 million through these royalty payments, the Defence spokesperson stated that details of the SDD memorandum of understanding cannot be released, but confirmed that the extent to which the investment can be recouped is dependent on the number of aircraft acquired by non-partner countries.

So rather than being assigned a guaranteed share of F-35 production work, industry has been presented with opportunities that are proportional to the Australian contribution to the program. “The amount of work won by Australian companies is then dependent on them meeting best-value criteria – which include meeting quality standards, schedule and competitive prices,” the Defence spokesperson said.

Given that framework, has Australia been getting its ‘fair share’ of industrial participation, considering the government’s investment in the program and the

If we decrease our commitment it’s not going to enhance our chances to get more work. PHILIPPE ODOUARD

amount of work being undertaken by other partners? “Australian industry has been challenged by delays in JSF production, and more recently by the higher Australian dollar,” the Defence spokesperson responded.

“DMO continues to work closely with industry and the prime manufacturers to maximise opportunities for Australia. ”

Increasing production

Quickstep announced in July last year that it had delivered its 100th carbon fibre composite part for the F-35, manufactured under contract to Northrop Grumman. From its facility at Bankstown Airport in Sydney, Quickstep is set to produce 21 different parts for the program.

Managing director Philippe Odouard said that production is ramping up, with the 200th part produced in January this year. The company intends to be manufacturing parts at a rate of about 1,800 annually in the next four years or so.

And while Quickstep currentlyhas 15 employees working directly on parts for the F-35 program, its workforce is expected to grow in the next few years as the number of aircraft being delivered by Lockheed Martin increases, Odouard said. “The health of the program technically speaking is very good,” he declared. “We see a confirmation of the growth and the ramp-up that we need to go through, and it’s really good news in terms of business. ” Recent movement in the US dollar exchange rate has also provided some good news. “When we went up to $1. 05 it was a major disaster in the making, but now we are a lot more comfortable,” Odouard said. “We’re within the parameters of what we’ve quoted so it’s much better, and if it goes any further down that should help even further. But I can tell you the dollar above parity [was] decimating our industry. ” Odouard sees involvement with the F-35 program as the bestpossible reference when seeking further aerospace work. Following an international competition, the company was awarded the tender to produce wing flaps for the C-130J Super Hercules in March 2012.

Quickstep announced that it had delivered the first shipset of flaps to Lockheed Martin in February this year.

Quickstep is not only using advanced manufacturing techniques, the company is also developing its own technology that it intends to profit from through licensing agreements. “We believe we constitute a really good model for the [federal] government to look at, because what we create here is a sustainable, competitive industry at the highest level of technology,” Odouard stated.

Government support

Quickstep announced in December that it had been awarded a grant worth $1 million through the New Air Combat Capability Industry Support Program to fund qualification of its patented manufacturing process for the production of F-35 vertical tail spars. While the company currently produces spars using autoclave systems, Quickstep’s liquid-based process could be faster and more cost-effective. The company will work with BAE Systems and Lockheed Martin to develop the case for adopting the new technology.

Defence launched this industrial support program in 2011, providing $8. 2 million for Australian companies and research organisations to help develop domestic capabilities with a view to winning more contracts and creating more jobs in Australia.

Compared to other aerospaceacquisition programs involving Australia, Odouard believes consideration of Australian companies as part of the F-35 supply chain has been taken much more seriously. Questioned about whether he is concerned that work for Australian companies could be put at risk if Australia ends up ordering fewer than the expected 100 aircraft, Odouard said: “There’s always that possibility, and so that’s why it’s important to try and make sure that we buy the right quantities. ” He stated that he is not sure Australian companies are getting their fair share of work on the program, but added: “If we decrease our commitment it’s not going to enhance our chances to get more work, or even to keep the work that we already have, so absolutely there’s a definite connection between the two. ” And although Odouard believes there is scope for more work to begiven to Australia, he emphasised that potential suppliers must be willing to invest and be capable of delivering the level of quality required for contracts to be awarded. He said that in order to be successful, Australian companies need to strive to meet the “extreme” requirements for quality and on-time delivery that are demanded elsewhere in the world.

Manufacturing capacity

BAE Systems opened a new aerospace manufacturing facility at Edinburgh Parks in December last year. The titanium machining facility is part of a project involving the South Australian government and Rosebank Engineering, which is establishing a metal processing and finishing facility in Wingfield.

Involvement in supplying parts for the F-35 provided the catalyst for investing in the expansion of BAESystems Australia’s manufacturing capability, according to chief executive David Allott.

The company delivered its first shipset of parts to the F-35 vertical tail fin assembly line run by Marand in Victoria earlier in 2013. Under a 20-year contract, BAE Systems is set to provide parts for 722 shipsets of vertical tail fins for the aircraft.

Brisbane-based company Micreo, which designs and manufactures radio frequency and photonic products for radar and electronic warfare systems, has been involved in the F-35 program since 2008 as a second source supplier of assemblies for the aircraft’s onboard electronics systems.

Micreo business development manager Mark Pezaro said that he is not worried about any possible reduction in work that might result from Australia deciding to acquire fewer aircraft. And he believes that Australian industry actually has secured its fair share of work on the program, supported by a drive from Defence to promote participation.

“A reduction in the number of aircraft required by Australia is unlikely to affect our future work on the program, as long as we can continue to deliver quality product on time and within budget,” he said. “Our customer base and product base today is diversified enough to cope with the rises and falls in production rates that may be encountered on the F-35 program. ”

Currency relief

Given that Micreo exports more than it sells in the domestic market, Pezaro said he is pleased to have seen a drop in the US dollar exchange rate. “Of course, this action adds to some of our imported raw material costs, but overall a falling dollar is a relief after such a prolonged period with a high exchange rate,” he said. “The design innovations, capital investments and productivity improvements that we have put in place in recent years can now start to pay some dividends,” he added. Micreo has embarked on an expansion program under which its manufacturing area is almost doubling in size, ahead of forecast production growth in coming years.

Pezaro is evidently keeping a close eye on developments in the US, and is wary of the possibility that some international customers might consider delaying or reducing their commitments to buy aircraft. Looking on the bright side, any potential delays could present Australian companies with opportunities to work on aircraft upgrade programs, he said.

Melbourne-based Lovitt Technologies Australia announced in mid-2013 that it had been awarded a contract worth about US$2. 9 million to deliver titanium parts for F-35 wings over three years. The company won the order for more than 300 parts following a global competition. In December, Lovitt announced that it had acquired aerospace processing business Electromold, which has worked with other JSF suppliers including Ferra Engineering, Levett Engineering and Marand.

“Electromold has been a key element in the success of the Australian aerospace manufacturing community over recent years by providing these critical aerospace and defence capabilities in-country, minimising risk and time for Australian manufacturers,” Lovitt managing director Marcus Ramsay stated at the time.

“With a wide variety of aerospace treatments. . . they are a valuable addition to the manufacturing capabilities at Lovitt. This additional capability will allow Lovitt to offer a more comprehensive range of servicesto its customers, whilst at the same time having far greater control and certainty in its supply chain. ” TAE increased its production of F-35 components during 2013, expanding the range of products it supplies to Harris Corporation and starting production for Cobham Defence Electronics. “In both of these cases the components produced are vacuum-brazed, liquid-cooled electronics chassis,” explained Greg Twiner, business development and manufacturing division manager.

The company works closely with other Australian companies to support their production activities, Twiner said. “Such support includes not only TAE’s aluminium vacuum-brazing capability but also various aerospace processing, manufacturing and testing capabilities,” he said. “TAE is continuing to engage with a number of other international companies and expects to continue to expand its manufacturing again this year. ”

Future opportunities

Twiner stated that the Brisbanebased company is seeking further work through discussions with BAE Systems, Moog, Northrop Grumman and UTC Aerospace Systems, among others. And TAE is also keen to capture work derived from sustainment of the F135 propulsion system, the F-35’s engine. The company is diversified in its product offerings and market sectors, he added, manufacturing components for multiple military platforms and producing parts for the automotive industry, for example.

TAE is another beneficiary of the New Air Combat Capability Industry Support Program, having received a grant last year to support its endeavour to qualify production of multiple electronics enclosures.

Successful completion of the process meant the company wasdeemed qualified to produce all of the Harris chassis in the aircraft.

“TAE has already received production contracts for some of these items and stands to be awarded further multi-year production orders for them in the near future,” Twiner said. “The NACC-ISP support was pivotal in assisting this effort. ” The company does not believethere is a direct link between its F-35 program manufacturing prospects and the size of the Australian fleet.

“For instance, TAE has already been producing 100 per cent of the total global F-35 requirements for some components for a number of years, even though Australia’s nominal aircraft commitment has been relatively small to date,”Twiner said. “Because of the combination of quality of service and price, we believe this will continue to be the case. ” But for sustainment activities, it is a different story. “Often there are tipping points that come with larger quantities, whereby greater investments in capability and capacity – including workforce – are able to be justified,” heexplained. “Ordering fewer aircraft can potentially jeopardise these. ” While acknowledging that the high Australian dollar has caused “heartache” in recent times, Twiner pointed out that on the plus side industry has been forced to seek efficiency gains in order to remain competitive in the global marketplace.

“Now that the Australian dollar is returning to more historically normal levels, this has placed those companies in a far stronger, more robust position,” he said. “Provided the Australian dollar continues its current trend, this will certainly result in Australian companies being more competitive and thus able to win more contracts, not only in the F-35 program. ” TAE is “cautiously optimistic” about the outlook for the production program – despite political uncertainty in the US – and remains confident that aircraft development work is progressing, Twiner said. Questioned about whether Australian companies have received their fair share of the work, he said it would be difficult for one company to judge.

“TAE, like many companies involved in this program, has its fair share of ups and downs, with some opportunities being shining lights and others causing much frustration,” Twiner said.

Slow build-up

Chemring Australia, which is part of a global group specialising in energetic material products and decoy countermeasures, has been designated as the second source manufacturer for one of the countermeasure flares for the F-35.

Although the company’s work on the JSF program has not yet started, Chemring currently produces countermeasure flares for use aboard F/A-18 Hornet and C-130 Hercules aircraft. Mark Hender, managing director of Chemring Australia, said that manufacturing countermeasures has been a core part of the company’s business since it established its production facility in Lara, Victoria.

“This $35 million, state-of-the-art facility has been producing flares for the RAAF since 2012 under a long-term contract with the Commonwealth,” he said.

But production for the JSF program has not ramped up as planned. “As the countermeasure flares are sustainment items – rather than airframe components – the slower ramp-up of aircraft production has meant a delay in bringing F-35 production at the Lara facility on line, when compared to the original plans,” Hender said.

Chemring initially expected to be producing countermeasure flares for the F-35 by 2013. The company now anticipates starting production in the 2016/17 timeframe.

Even so, with the Australian government set to remain the company’s principal customer for the foreseeable future, Chemring is sufficiently diversified to cope with whatever happens in the US. “Whilst we would like to see the program progress as quickly as possible, it has not had a significant impact on our business at this stage,” Hender commented.

Questioned about Australian government support for companies seeking to secure work on the program, Hender said that Chemring has benefited through being assisted in its efforts to gain access to contractors and the US government.

“We have received significant and invaluable support from the Australian government for several years now,” he said. “This support has not necessarily been in the form of direct monetary support, but it has been very important in activities such as navigating the complexities of US [InternationalTraffic in Arms Regulations]. ” Unlike other companies that AA has spoken to, Chemring is not benefiting from the falling dollar, given that it has not yet started manufacturing its countermeasure flares for the F-35. “The decline in value of the Australian dollar should make us more competitive in tendering for the second source supply of the JSF flares, but in other areas of our business it has increased the cost of raw materials, components and products that we purchase from overseas,” Hender explained.

Export success

Levett Engineering, which is based in Adelaide, manufactures aluminium and titanium components for the F-35 airframe, and parts for the engine and landing gear, as well as producing various electronics housings for the aircraft. Pratt & Whitney announced in early 2013 that Levett Engineering had delivered its first components for the F135 engine.

The company’s chief executive officer Paul Levett said that export work, which is mainly for the F-35 program, accounts for 52 per cent of total revenue. “We expect this to continue to grow as the build rate of the aircraft increases,” he said on February 18.

When asked about possible concerns relating to progress on the aircraft development program and political developments in the US, Levett characterised past delays as providing an opportunity to better prepare his company for F-35 production. “Had the aircraft developed at the original expected rate, the increase in the volume of work would have swamped our shop and we may not have been able to deliver on time as expected,” Levett said.

“Whilst volume is good, you need to be well-placed to be able to deliver 100 per cent on time and

Australia’s participation means there will be Australian parts in every F-35 that is produced.

100 per cent quality. The delay in progress of the aircraft has enabled our company to fine-tune and expand on the capabilities and capacity we originally had, thus being better in the long run. We now of course wait in anticipation for volumes to increase. ” Levett described how over the past year the company has been working to increase efficiency, reduce waste and drive out costs through its involvement with the government’s Supplier Continuous Improvement Program. “This is a three-year journey and one necessary to position Levett Engineering ready for full-rate production,” he said.

“We are currently seeking and expect to win new work in the coming months as a result of further business development trips to the US and UK. This will enable Levett to increase its staffing levels due to the new work won. ”

Industry engagement

Levett said he appreciates the support provided by the Australian government for companies involved in the F-35 program, citing facilitating introductions to potential customers in the US and the New Air Combat Capability Industry Support Program as being particularly helpful. But he also has a suggestion for a new initiative.

“One area that could be introduced is a scheme to help companies with non-recurring expenditure, which is often not able to be recovered from customers,” he said. “This expenditure is required right at the start of production, when the development of components is needed to be done prior to any production runs. . . this supportwould go a long way to helping stay competitive against international competitors, as many of them receive support of this type from their governments. ” Questioned about whether he believes that Australian companies like Levett Engineering could end up with less work on the program if Australia orders fewer aircraft, he commented: “We feel confident that the contracts we have delivered to date have demonstrated that Levett can compete in a global environment and we see no reason that we would receive less work due to fewer aircraft being ordered by Australia. Having said that, if Australia cancelled the F-35 that would then be a different story. ” Levett pointed out that participation in the JSF program allowed the company to enter the aerospace industry and gave it credibility in the sector, which has in turn enabled Levett Engineering to seek commercial aerospace work.

Australia’s participation means there will be Australian parts in every F-35 that is produced, which seems to be a good outcome for the domestic aerospace industry.

“Australian industry has the opportunity to support a major aircraft production line, as well as developing new capabilities that have the potential to be marketed beyond the JSF program,” the Defence spokesperson concluded.

Delays in achieving higher rates of aircraft production have certainly affected Australian companies.

But as production ramps up, the industrial benefits for Australia should become clearer.