From: 7/13/99 3:06 PM Subject: [mil-corp] Privatizing the Network members: Privatization is occurring in all government departments - including the military. Increasingly, corporations are being handed over the responsibility to run national militaries. This article from Jane's looks at the privatization of pilot training, especially in Britain and Canada. Steve _______________________________________ Copyright 1998 Jane's Information Group Limited, All Rights Reserved Jane's Defence Industry Report December 1, 1998 The changing face of contractor services by Pamela Pohling-Brown Pamela Pohling-Brown looks at the depth of service provided by civilcompanies contracted to supply air-training packages to the military Contracting-out services has become a key means of cost- cutting for military forces. It has now moved on from 'manpower substitution' to selling comprehensive service packages. Recent air-training contracts have called for the civil contractor to buy the aircraft or helicopters needed as well as provide the training involved. For example, Bombardier Services of Bournemouth, England, which was selected earlier this year as preferred bidder for the UK Light Aircraft Flying Task (LAFT) programme will buy and own the Grob trainers to replace the Royal Air Force's (RAF's) 25-year-old Bulldogs, as Richard Beasley, the company's vice-president defence services, explains. Beasley said at the time of the LAFT selection that "this Private Finance Initiative1 project offers the RAF highly cost-effective flying training on a very capable modern military training aircraft". Under the anticipated 10-year contract, Bombardier will also provide all engineering, maintenance, logistic and services support as well as use of the aircraft by the RAF at an hourly rate - supplying a package dubbed "power by the hour" (PBTH). By contrast, the Bulldog fleet is owned by the RAF, and four different contractors provide engineering and maintenance support only. The RAF Bulldog fleet comprises 115 aircraft, which will be phased out over two years from receipt of the first order, and replaced by the Grob G115E. The LAFT programme will provide elementary flying training at 13 University Air Squadrons (UASs) and Air Experience Flights (AEFs) at locations throughout the UK. Around 70% of RAF pilots receive elementary flying training from a UAS, and the AEFs provide relevant air experience for air cadets. In a PBTH arrangement, the industrial partner must contribute a major investment upfront (a fleet of modern basic trainer aircraft could cost a fifth of what industry observers estimate to equate to a nine-figure overall sum), and it also bears all the responsibility for spares supply and aircraft maintenance. In an interview with Jane's Defence Industry Review, Beasley said that more PBTH contracts can be expected, and agrees that this represents a "significant shift of risk" from the customer to contractor. When turnkey programmes are set up for a new aircraft purchase, he says, a PBTH arrangement may be the most cost-effective solution for the customer. With the LAFT programme, the RAF predicts it will get 50,000 flying hours per year at a saving "in excess of Pds30 million [$49.6 million] over the next 10 years". A PBTH contract mimics what a civil trainee pilot gets in buying flying lessons. However, when a military customer already owns its aircraft, some kind of halfway house can be arranged, says Beasley, with spares and support supplied either on an hourly basis or under a more traditional arrangement, such as a Multiactivity Contract (MAC). Managing spares supply is an art in itself, as a company executive comments, and there is a great advantage to the customer in not having to deal with either storage or with managing its own just-in-time set-up. A PBTH arrangement has been agreed for the NATO Flying Training in Canada (NFTC) programme which offers all phases of flying training subsequent to the elementary stage to NATO member countries. Canada-based Bombardier Inc is partnered with the Canadian government for the NFTC, and its Bombardier Services Defence division in Canada is setting up operation of the programme. It will use British Aerospace Hawk 100 and Raytheon T6 Texan II aircraft, which will be owned by a Canadian company created for this project. The new-style PBTH contracts represent a change in thought processes for most defence ministries. Beasley says that trust in any civil contractor remains an issue in the UK, while the relationship for civil contractors with the US Department of Defense (DoD) is usually far more mature. ( Bombardier Services has a joint-venture project in the Middle East and Gulf region to preposition equipment for the US Air Force, USAF.) The DoD recognises that the art is to "maximise resources for the amount of cake available", accepting that different weighting must be given to areas of the contract such as transportation, information technology, and if the contractor falls short of the target in one area, that segment's weighting is reassessed and resources reassigned. The confidence and trust issue cuts both ways, after all: in a PBTH arrangement, the contractor owns aircraft that he cannot use elsewhere. The benefit to the customer is greater if it trusts the contractor and does not dictate day-to-day details, says Beasley. Manpower substitution is a form of contractorisation that service chiefs find easier to accept than the whole-package method as in PBTH, he says. This may be because in the case of manpower substitution, the actual individuals doing the job may be the same following contractorisation, he adds. The contractor wisely snaps up service personnel whose military jobs disappear with contractorisation. Because of this, civil contractors will soon have to face a much larger training bill for their operatives. Beasley says that companies like his "recognise that we are using the experience of ex-service personnel, and that this will soon be changing as ministries cut back on their training activities. Soon there will be no surplus for civil contractors to snap up". In manpower substitution and comprehensive- package contractorisation, fewer personnel are usually employed than when the military runs the show, although those that do find jobs with the contractor will be paid more. The contractor rationalises by means of dual and triple skilling, and by not over-servicing certain platforms, although appropriate levels of servicing must be agreed, Beasley emphasises, pointing out that his company is qualified to IS09001 quality-control standards. In the UK, Bombardier Services (Bournemouth) already runs the Royal Navy Flying Grading Flight at Plymouth, under a contract which requires the company to provide the aircraft (in this case the Grob G115D with 160hp engine, instead of the G115E's 180hp AVCO Lycoming AEIO-360 BIF) and the flying instructors for initial pilot training before assessment of the suitability of students for further training. It is also completely responsible for aircraft maintenance. However, this is a more traditional MAC, and not a PBTH contract. Similarly, Bombardier maintains to first and second-line levels the Gazelle helicopters of both No 12 and No 3 Flights of the British Army Air Corps, based at RAF Bruggen, Germany and RAF Leuchars, Scotland, respectively. The company provides all levels of maintenance and spares supply for the RAF's 128 TMK1 Tucanos, which were manufactured by Short Brothers, now also part of Bombardier. It manages all engineering workshops and specialist electrical/avionics bays and provides logistic support covering provision of staff, services and equipment, spares replenishment and replacement/repair of equipment, the last- named on a PBTH basis which allows forward budgeting by the customer against the flying task and shares the risk between the two parties. The company fulfils its part by "meeting the PBTH logistic requirements, and the RAF [its part] through funding fixed costs irrespective of the actual flying effort," according to company literature. This is an example of "halfway-house" PBTH referred to by Beasley for cases where the aircraft are already owned by the customer. Bombardier Services (Bournemouth) has a range of experience in contracting services in a number of countries. It currently maintains to all levels the Kuwait Air Force's (KAF's) MK52 Tucanos in a joint venture with BAe which also covers KAF MK64 Hawk aircraft. One military observer commented that "it would have been better for the Kuwaitis if they had had a power-by-the-hour contract with Shorts during the 1991 Gulf War, as they lost most of the spares that had been delivered in advance of the aircraft during the Iraqi invasion", illustrating one benefit of a shift of risk from customer to contractor. The company also trains KAF personnel. It maintains a variety of fixed-wing aircraft and helicopters for the Royal Air Force of Oman and communications equipment for the country's army, also providing technical, engineering, supply and training support for Oman's armed forces. It maintains and supports Hawks MK63 and MK102 for the United Arab Emirates (UAE) Air Force. A joint venture has been set up in the UAE to provide maintenance for various types of aircraft in the Middle East and Gulf area. Bombardier Services is organised into three divisions: Defence (Canada and the UK); Commercial Aviation Services (USA) and Utility Vehicles (Canada). The two arms of the defence division are more properly known as Bombardier Services - Defence (Bournemouth) and Bombardier Services - Defence (Mirabel), but in some parts of the Middle East and Gulf region, and the Far East, the UK arm operates as Airwork, for contractual reasons. Airwork was founded in 1928. Bombardier Inc bought Short Brothers of Northern Ireland in 1989 and in 1993 absorbed Airwork, which for a while traded as Shorts Support Services Division. While still known as Airwork in the UK (and before it was bought by Bombardier, as the company points out), the company was involved in a dispute with the RAF over maintenance of Tornado aircraft at St Athan during which airframes were damaged. Any civil contractor faces the disadvantage that mistakes and accidents receive much greater publicity than if they happen under a military-servicing arrangement (partly because there are usually opponents of contractorisation among senior officers), whereas steps taken to remedy errors receive little or no publicity. In general, it is fair to say that there are different standards for civil contractors and military personnel, but it is also true that it is hard for some senior officers to see their service give up certain levels of technology in order to buy it back. 1 The Private Finance Initiative (PFI) is a UK financing arrangement under which the private contractor raises the money required and is responsible for repayments, although the government offers reassurance to the financing house that the contractor will receive the means to effect payment. It is suitable for contractorisation where a whole package is offered on a turnkey project, and is designed to hold future chancellors of the exchequer to an agreement which may have been conceived to last, say 20 years. GRAPHIC: Photograph 1, Beasley: supplying power by the hour. Photo: Bombardier Services; Photograph 2, Management of spares supply by a contractor means the customer no longer has to consider storage or management of just-in-time supply systems. Photo: Bombardier Services ____________________________________________________________________