THE DRAFT DEFENCE AVIATION REPAIR AGENCY
TRADING FUND ORDER 2001
Conclusions
49. Trends are converging to dictate a significantly
different approach to meeting the MoD's aviation repair and overhaul
requirements. The MoD has fewer aircraft to maintain after
a series of post-Cold War fleet reductions, most recently in the
Strategic Defence Review. Engines and avionics need less frequent
servicing and repair, which means that repair facilities—in
the MoD and outside—are not fully loaded. Competition
for available work has therefore become more intense, in a market
where a more flexible and integrated approach to aviation maintenance
is needed to win contracts. With defence budgets now generally
steady, it is right that the MoD, like its civil counterparts,
should seek to take advantage of these new more favourable conditions,
to generate savings for reinvestment in front-line equipment.
50. Although allowing DARA to operate on a more
commercial footing should help the MoD to reap these benefits,
there are important safeguards that the Department will have to
keep in place. First, while we accept that the strategic requirement
for maintaining in-house repair capabilities is not as high as
it was in the Cold War, there is still a need for assured access
to repair capabilities and a capacity for surge workloads in times
of crisis (as the Kosovo campaign demonstrated). That continuing
requirement must be protected in DARA. Second, partnerships with
private sector repair firms and original equipment manufacturers
must not be allowed to remove the MoD's ability to run effective
competitions for its repair and overhaul requirements.
51. DARA's rationalisation plans will help put
it on the more efficient foundation needed to be able to compete
with private industry. They should proceed only after thorough
investment appraisal and consultation with those affected by any
changes. They should not be driven by an overriding aim of reducing
the Agency's capabilities. Staff potentially affected by the
rationalisations are understandably anxious about their future.
We therefore welcome the MoD's assurances that the already decided
relocation of engine repair work from St Athan to Fleetlands will
not entail compulsory redundancies, and its expectation that any
manpower reductions as a result of a relocation of St Athan's
aircraft work will be achieved through natural wastage. The same
approach should be used for any other rationalisations still under
consideration, and a concerted effort will be needed to carry
DARA's staff along with the changes in prospect.
52. We welcome the management focus now being given
to improving unacceptably long turnround times for aviation repairs.
DARA will no doubt have to provide satisfactory performance in
this area to win work once it is no longer protected by its guaranteed
MoD order book. The Agency's principal targets as a trading fund,
however, will no longer include standards for turnround times
(paragraph 42). The MoD should therefore introduce alternative
measures to monitor DARA's ability to control the Agency's progress
in improving turnaround times. Any future poor performance will
be felt in the unavailability of front-line aircraft.
53. It is not just those of cynical disposition who
might be wary of the MoD's motives in creating trading funds,
seeing it as a possible stepping stone to privatisation or as
a way of reducing expenditure on the capability in question. The
experience of the Defence Evaluation and Research Agency, three-quarters
of which is to be transformed from a successful trading fund into
a private company, might be held up as a warning. There is room
for more optimism, however, in the case of DARA. The Department
does indeed anticipate reductions in its aviation repair expenditure[117]
but the scope for these will no doubt be limited by the readily
discernible impact on aircraft availability (the effect of reductions
in defence research expenditure, on the other hand, often only
become apparent decades later). As for privatisation, we have
heard evidence from the MoD in this inquiry that this is not on
the agenda. It should remain off it.
54. The Agency's Chief Executive told us that—
The benefits of a trading
fund are a significantly greater discipline compared to an on-Vote
agency, significant increased transparency of prices, a very much
closer and direct relationship between customer and supplier ...
We will ...have the freedom to invest profits into the business,
to be able to provide and upgrade facilities for the long-term.
We come off the system of annuality which has an artificiality
that does not help when you are looking at capital projects. There
will be a much sharper performance focus and that will be matched
by new key targets which will measure our performance much more
robustly. Very importantly, we will have pay and grading freedoms
within Treasury limits, which will enable us to recruit and retain
... high quality people by paying market rates of pay —
something that we have not been able to do within the constraints
of the central MoD system. Also important is the access to wider
markets. We will be free to invest in those [markets], or bid
into them. As a trading fund, we will be able to enter into joint
venture arrangements with industrial partners.[118]
The MoD sees benefits from converting DARA to
a trading fund, which will develop a competitive alternative to
its commercial sources of repair work, saving money for other
more pressing defence requirements. For DARA, the change of status
will challenge its previously sheltered relationship with the
Department, but it will, we are persuaded, also bring benefits
to the Agency. But if as a result DARA cannot deliver reduced
prices and better performance, the MoD might be increasingly driven
to place more of its repair work directly with industry, which
would effectively leave DARA to wither on the vine. The Agency
should become a trading fund on 1 April 2001, as planned. It should
continue to have that status for the foreseeable future.
117 Ev p18, para A80 Back
118 Q51 Back
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