Helen massy-beresford in London
As Boeing’s 34-year logistics-support contract with the UK Ministry of Defence for the Royal Air Force’s Chinook CH-47 helicopter fleet kicks off, the US-based company is tapping into a lucrative and growing market.
Boeing says the Through Life Customer Support (TLCS) programme will be worth around $360 million in its first five years, and is likely to generate almost $295 million in savings for the UK MoD.
But according to industry experts, this is just the tip of the iceberg. A report by consultants Frost & Sullivan – The UK Defence Logistics Market 2006-2015 – says the UK’s defence logistics market will grow steadily over the next 10 years (see graph), “as the UK government increasingly outsources the majority of its support functions and develops new systems to optimise its logistic capabilities”.
Cost savings are the key motivation behind the move towards outsourcing of defence logistics, according to Graham Cushway, a research analyst with Frost & Sullivan. “These developments will be a result of reduced military budgets coupled with increasing military commitments and a change of priority from conventional warfighting to operations other than warfare.”
Cushway adds: “The trend towards increased outsourcing is all down to military budgets.” In some cases, he adds, outsourcing allows the services to increase their fleet sizes while still cutting costs.
He says it makes sense for the MoD to outsource to commercial organisations because the way businesses operate is more efficient and competitive. “Outsourcing allows the MoD to take advantage of all the best practices of commercial organisations.”
In the Boeing deal, its Support Systems unit, part of the Integrated Defense Systems (IDS) sector, will carry out most of the maintenance activities – excluding engine, UK common avionics maintenance and training activities – on the fleet of 40 Chinooks.
“Military personnel will continue to perform first-line, in-field maintenance, but Boeing will oversee all other, more intensive work,” the company says, with much of the work being done at the Defence Aviation Repair Agency (DARA) Fleetlands facility near Portsmouth and creating employment opportunities.
The deal will give the manufacturer a valuable boost in the UK market as well as fitting in with the UK government’s Defence Industrial Strategy (DIS), which was published in December. One of its key recommendations was to preserve and augment technological skills within the UK.
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Boeing says UK industry will benefit from involvement via long-term partnerships introducing new supply chain management, distribution, safety, business and programme management processes. And the TLCS could eventually grow to include engines, avionics and possibly more Chinooks.
Of course, Boeing is not the only company to benefit from the UK MoD’s drive towards integrated logistics support contracts. AgustaWestland recently got a boost when it won a long-term contract – potentially worth £2.2 billion ($1.18 billion) – to support Royal Air Force and Royal Navy EH101 Merlins until 2030.
Worth £450 million over its first five years, the Integrated Merlin Operational Support (IMOS) contract will guarantee aircraft availability and serviceability rates and training system operations.
The deal is expected to generate savings for the MoD of around £1 billion over 25 years, and secure 1,200 jobs, mostly at the helicopter manufacturer’s Yeovil site.
Frost & Sullivan says key areas of defence logistics set for growth during the year will include asset tracking systems, integrated logistics systems (ILS), availability contracting and support services.
The support service segment is set to see rapid growth “due to increasing pressure on the MoD to reduce support services across the nation,” the consultancy says. “The outsourcing of support services to private contractors is seen as the best way to achieve large savings.”
In addition, contracting based on availability “is poised to become the most important method of procurement in the UK since this model allows the MoD a more predictable level of service while saving money on manpower and facilities”, Frost & Sullivan adds.
The shift towards outsourcing complete responsibility for an entire area of capability is not all plain sailing, however. Cushway cites “cultural challenges, entrenched practices and legacy thinking” as “the greatest obstacle to the adoption of new logistics practices and technologies”.
He adds that “security issues will also inhibit the progress of logistics technologies”.
But whatever the potential pitfalls, the increased outsourcing of defence logistics looks set to continue. BAE is seeking to negotiate support deals on the Eurofighter Typhoon and Nimrod MRA4. The MoD is expected to negotiate a similar deal for the Lockheed Martin Hercules aircraft in the near future too.
Cushway agrees that outsourcing is the way forward and the savings it generates will free up funds for investment in important future programmes: “It’s the only way the MoD will be able to afford to invest in the CVF.”
He adds that on the CVF future aircraft carrier programme, the involvement of players including Babcock which specialise in outsourced work will mean the concept is also likely to form “a key part of the process”.
Source: Flight International
