Firm expects 10% margin and hopes success will pave way for leading role in market consolidation
BAE Systems Australia hopes an expected profit margin of around 10% this year will help convince the Australian government to let it lead further consolidation of the Australian defence market.
The company, part of BAE's Customer Solutions & Support division, broke even last year on turnover of around A$600 million ($460 million), reversing a five-year period of decline, says BAE Systems Australia executive director for military air support Harry Bradford.
BAE Australia was restructured in 2003, moving from being primarily a marketing arm of the UK-headquartered company to one focused on airframe and systems support and upgrade contracts, including providing support for the Royal Australian Air Force's BAE Hawk lead-in fighter trainers.
In 2002 the company had to compensate the RAAF for missing its target of 28 flight-ready Hawks a day out of the total fleet of 33. Bradford says: "The Hawk was a difficult journey for us. We were short of some areas of expertise, such as radar simulation and emulation, but these issues are solved now."
The company shed many para-public contracts as part of its 2003 strategic restructuring to focus on military aircraft support, information architecture, force awareness and protection and early warning systems, he says. The result is that "we've gone from a loss-making company to one that is breaking even to one that will make industry-standard profit levels this year", says Bradford.
He says the success of the recovery plan may help overcome the Australian government's reluctance to sanction further mergers in the defence industry. "It's a much smaller market [than the USA or UK], so the customer is reluctant to fund redundant capability," he says.
Further growth of the company is limited by decisions taken by the government, which is the company's sole customer, with growth by acquisition ruled out in the short term by Canberra's insistence on competition for all contracts.
BAE Systems says future support contracts could include an outsourced pilot training programme, using "new equipment, a higher use of synthetic environments and a restructuring of system design". Bradford believes that in any future multi-stage requirement the RAAF would retain some training capabilities in-house, but that the "economics of involving an industry partner would be compelling".
JUSTIN WASTNAGE/RAAF WILLIAMSTOWN
Source: Flight International
