industry should look to through-life support

[Calum]

This is what is happening/has happening in Australia in a lot of instances.

From Janes Internation Defence Review Mar 2006

New Zealand's industry should look to through-life support for the future
PHILIP MCKINNON
Emphasis lies on industry providing through-life support rather than manufacturing. The government does not stipulate offsets against major purchases.
Given the small size of the New Zealand Defence Force (NZDF) and the relative size of New Zealand's supporting industry in comparison to the defence industry on a global scale, it is surprising that New Zealand has a defence industry at all.

New Zealand's industrial base is essentially built around supporting the country's primary agricultural, forestry and fishing industries. Thus it is even more surprising that New Zealand has a dynamic, innovative defence industry that serves the country's defence force well.

As with the defence industries of many similar sized nations, in New Zealand a very small number of companies count defence contracting as their prime activity and no organisation is solely dependent on defence contracts for survival. One result of this is to see a wide diversity of expertise from a range of industries brought to bear on the needs of the NZDF.

The advantage of this situation is that the industry is well placed to weather the cyclical ups and downs that typify the acquisition programmes of small defence forces. A down side is that industry finds it hard to maintain the hard-won capabilities that can accrue from participation in major defence programmes. This also has an effect on local industry's ability to undertake through-life support at the completion of the acquisition phase.

After a period of national 'fiscal restraint' during the 1970s and 1980s that saw defence spending in real terms steadily decrease from an already modest 2.5 per cent of GDP (gross domestic product) to somewhere around 1.5 per cent of GDP, the improving economic conditions in the late 1980s and into the 1990s led the then New Zealand government to consider re-equipping and modernising the NZDF. At the same time, the NZDF was involved in its biggest overseas deployment since the Korean War with an infantry battalion stationed in East Timor for more than two years. This deployment, perhaps more than anything else, highlighted the need for modernisation.

With the collapse of the Australia, New Zealand and US security treaty (ANZUS) New Zealand had lost allied status with the US and with that went much of New Zealand's support in Washington. This meant that when the New Zealand government began the process of re-equipping the NZDF, Washington offered very little of the assistance that might have been forthcoming if ANZUS was still in place. Given this, and with the NZDF still structured much as it had been since the end of the Second World War, there was possibly more scope during the 1990s for local New Zealand industry to participate in major defence programmes than at any time since the 1940s.

Reviewing needs
The major watershed for New Zealand's defence industry came with the election of Helen Clark's coalition government in 1999. The previous government had already started a process of reviewing the needs of the NZDF and had made the first moves to replace or modernise much of the Vietnam-era equipment then in service. The process was slow and limited to essentially replacing old with new. On election, the new government embarked on a comprehensive review of the NZDF. For some time before the election the new government had signalled that a move to what they termed a 'whole-of-government' approach to defence would be their preferred approach to defence capital expenditure. As a guideline to the government's intentions, the Defence Long Term Development Plan was released, which outlined a capital expenditure NZD3 billion (USD2 billion) over 10 years.

The outcome of this process was a reshaped NZDF built around an army that was combat trained, but focused on peace-support operations and supported by the Royal New Zealand Navy (RNZN) and Royal New Zealand Air Force (RNZAF). A key element of this reorganisation was the formation of a joint operational headquarters and the appointment of a Commander Joint Forces New Zealand to assume operational-level command and control of all assigned forces.

For the RNZAF this saw the disbanding of the Air Combat Force, whose maritime strike and close-support capability the government considered unaffordable and irrelevant, and the upgrade of the RNZAF's P-3K Orion and C-130H Hercules fleets.

There is now a project under way to replace the RNZAF's UH-1H Iroquois fleet with an undisclosed number of MRH 90 helicopters.

The New Zealand Army has received 105 General Dynamics LAV III armoured personnel carriers (APCs), enough to fully equip both New Zealand's regular battalions, to become what is essentially a mechanised force. To support the new infantry mobility more than 300 Pinzgauer Light Operational Vehicles have been delivered. Planning is also under way to acquire new anti-armour and direct fire-support weapons.

The RNZN has received two ANZAC-class frigates and, under the NZD500 million Project Protector is awaiting delivery of a multirole vessel to provide a limited tactical sealift capacity for disaster relief, humanitarian-relief operations, peace-support operations, military-support activities and development-assistance support in New Zealand's exclusive economic zone (EEZ) and the Pacific and Asia regions. Also under construction for the RNZN are two helicopter-capable offshore patrol vessels (OPVs) and four inshore patrol vessels.

In addition to these major projects there are a raft of smaller supporting projects currently under way to modernise the NZDF's communications, command and control, and infrastructure.

Local industry support
The programme to replace the RNZN's four ageing Leander-class frigates was the first major programme to be undertaken during this re-equipment phase and has come to typify major acquisition programmes in New Zealand. This saw the award of a contract to an international prime contractor, with the seeking of subcontract support from local industry.

With no local shipbuilding industry capable of undertaking either the design or construction of a major warship, New Zealand was forced to turn to the international market for a solution. There was a strong desire to involve local industry where possible. This desire was set against the background of the New Zealand government's procurement policy that does not require offsets against major capital purchases. According to the New Zealand defence ministry this policy is based on:

·best value for money over whole of life;
·open and effective competition;
·full and fair opportunity for domestic New Zealand suppliers;
·improving business capabilities, including e-commerce capability;
·recognition of bilateral obligations to Australia (CER - closer economic relations) and Singapore (CEP - closer economic partnership) and New Zealand's trade policy interests in open and transparent government procurement markets; and

·offsets (measures used to encourage local development by requiring domestic content) will not be imposed, sought or considered as a factor in the qualification, selection, evaluation or award of the contract. Commercially viable offsets that are freely offered may be accepted.

Under New Zealand's free-market treaties with Australia (CER) and Singapore (CEP), both are treated as local domestic markets, as New Zealand is by both countries. As such, companies from all three nations have equal and automatic right to participate as local industry in any country.

This is with the proviso that any procurement programme involving local industry is voluntary, must be commercially sustainable and not increase the price of the project. Companies are however encouraged to examine opportunities for local industry participation within the Ministry of Defence's (MoD's) guidelines, which are:

·participation by local industry has the potential to reduce the cost of the procurement; and
·participation by local industry has the potential to reduce the through-life cost of the ownership of the equipment purchased.

The New Zealand government's commitment to local industry participation in all aspects of defence capital expenditure was again reinforced in 2004 by the then defence minister, Mark Burton, who said in a speech to the New Zealand Defence Industry Association: "Government remains committed to promoting opportunities for strong industry involvement, both in the acquisition and through-life operating and maintenance phases of many of our proposed procurements".

Working under these guidelines the ANZAC ship programme was created to build 10 ANZAC-class frigates, eight for the Royal Australian Navy and two for the RNZN. Based on a modified MEKO design the ANZAC's modular construction gave New Zealand industry an opportunity that more conventional shipbuilding techniques did not. It was an opportunity local companies were quick to recognise and act on.

The prime contractor for the programme was Australia-based Tenix shipbuilding and the frigates will be assembled and launched at its Melbourne shipyard. While it was inevitable that most of the ANZAC project was undertaken off shore, New Zealand industry made a major contribution to the programme. Several ship modules for all 10 ships were built in New Zealand as were the main gearboxes. Numerous small New Zealand companies found that their size, and ability to adapt and learn quickly, made them ideally suited to undertaking some of the niche work required on the project that did not appeal to major organisations.

The success of the ANZAC ship programme has been mirrored in several other acquisition programmes; notably with the purchase of five Kaman SH-2G (NZ) Seasprite helicopters and Project Protector.

There have been several other major acquisitions that have not featured any significant local industry involvement, such as the purchase of the LAV III and Pinzgauer vehicles and the cargo-door modification of the RNZAF's Boeing 757, none of which - without obligatory industrial offsets or local industry participation requirements - involved any local industry participation.

New Zealand has established two industry groups to represent the interests of the local defence industry, both locally and internationally.

DICNZ/NZDIA
The Defence Industry Committee of New Zealand (DICNZ) was formed in 1994 to improve communication between the MoD and New Zealand industry. The committee reports directly to the defence minister and has a wide brief to:

·act as a conduit between the minister and industry on matters of defence policy and other issues as the minister may wish;

·provide the minister with advice relating to developments, issues, opportunities and sustainability in the national and international defence industry; and

·encourage strategic relationships between the Crown and New Zealand industry to maximise the benefits for defence and the country of local industry capability, product developments and services.

DICNZ membership consists of seven industry members appointed by the defence minister and includes representatives from the NZDF and the MoD.

New Zealand's second defence industry group is the New Zealand Defence Industry Association (NZDIA). Formed in 1993 to foster and co-ordinate interest by New Zealand companies wishing to participate in the ANZAC frigate project, the group has since widened its activities to promote general defence opportunities, as well as specific projects. Membership is by subscription with more than 35 members from New Zealand and internationally.

The NZDIA's major annual event is the New Zealand Defence Seminar, generally held in October or November in Wellington. The seminar brings Australian and New Zealand commercial companies; and Asian, Australian and New Zealand defence purchasing interests together with high-level New Zealand government involvement for a two-day seminar.

Through-life support
While the last 10 years have been good for the local defence industry, they have not been without problems. In 2004, DICNZ commissioned the New Zealand Institute of Economic Research (NZIER) to undertake research into the effects of government procurement policy on the defence industry.

A key finding of this research was New Zealand industry's perceived disadvantage in gaining through-life-support work due to its non-involvement at the initial acquisition stage.

With most of the procurement budget now spent, local industry attention is increasingly focused on the matter of through-life support and how it might participate. While there is widespread support for the government procurement policy within the local defence industry, it is not hard to find criticism on the way the policy is applied when it comes to through-life support. There is a feeling in some areas of industry that opportunities were being missed where local through-life support made sense.

There have also been several court cases involving overseas suppliers and the New Zealand government over the elimination at an early stage of these companies from major programmes.

Their argument was that New Zealand's procurement policy did not give the companies an opportunity to fairly represent their proposal. In all cases the challenges were dismissed, however, there remains the perception in some quarters that New Zealand's procurement policy sometimes does not provide the best equipment at the best price on a through-life basis.

The increasing move to commercial outsourcing of support functions has been welcomed by local industry. This has seen the commercialisation of the RNZAF No 1 Repair Depot by Air New Zealand subsidiary SAFE Air Ltd and a partnership between UK company VT Plc and New Zealand company Fitzroy Engineering Ltd, awarded a management contract for the RNZN's dockyard.

The army also utilises commercial local provider Serco Project Engineering Ltd for much of its weapon deep-maintenance requirements. Likewise, almost all NZDF infrastructure is now commercially maintained. The RNZAF has taken this one step further in leasing their entire fixed-wing training fleet from local company Aeromotive Ltd.

In common with other small nations, the New Zealand defence industry is dominated by a few big players surrounded by numerous other organisations that contribute as and when the opportunity arises.

Life-extension programmes
Among the major projects being undertaken by New Zealand industry, SAFE Air, as subcontractor to L-3 Communications Spar Aerospace of Canada, is

carrying out a life-extension programme for the RNZAF's C-130H Hercules and P-3K Orions.
The NZD226 million Hercules project will see the replacement of specific mechanical, avionic and structural components, and the design and installation of flight-deck communications and navigation improvements to meet evolving air-traffic management regulations to give the Hercules another 15 years of life.

Under a NZD352 million systems upgrade SAFE Air, again as subcontractor, but in this case to L-3 Communications Integrated Systems of the US, is carrying out a system upgrade of the RNZAF's six-strong P-3K Orion fleet. SAFE Air has also undertaken a management contract for the RNZAF's No 1 Repair Depot that carried out deep maintenance for all RNZAF aircraft.

One of the few New Zealand companies that has achieved success exporting military equipment is PAC Ltd, which has exported its CT4 series basic flight trainer to Australia and Thailand. In addition to these export orders, subsidiary company Aeromotive lease the RNZAF's 14 CT4E Airtrainers and three Beech King Airs.

As part of the Australian Tenix group and in the model of the ANZAC ship programme, Tenix Shipbuilding NZ Ltd is manufacturing modular components for the two OPVs that are being built in Melbourne under Project Protector. They are also responsible for building and delivering the four inshore patrol vessels to be delivered under the same project