FIFTH SPECIAL REPORT
The Defence Committee has agreed to the following
GOVERNMENT OBSERVATIONS ON THE FOURTH
FROM THE COMMITTEE, SESSION 2000-01
The Committee published its Fourth Report of Session
2000-01, on The Draft Defence Aviation Repair Agency Trading Fund
Order 2001, on 13 March 2001. The government's response to this
report was received on 3 May 2001 and is published as an Annex
to this Special Report.
1. The Government is grateful to the House of Commons
Defence Committee for its report on the Defence Aviation Repair
Agency (DARA). The report was produced as a result of the Agency's
change of status as a Trading Fund on 1 April 2001 and because
DARA's rationalisation plans had been attracting some parliamentary
and local public comment. The Government's response to the report's
main conclusions is as follows:
The Rationale for Trading Fund Status (Para 43)
Trends are converging to dictate a significantly
different approach to meeting the MoD's aviation repair and overhaul
2. The Government fully supports the Committee's
rationale for DARA's Trading Fund Status and the particular factors
driving such a move. The Committee rightly acknowledges that the
demand for aviation repair services is falling, both in industry
and in the MoD, which is increasing competition between suppliers
of these services. The distinction between maintenance work that
would once have been allocated between the various locations or
'lines' of maintenance is likely to become blurred, as contractors
increasingly offer a package of maintenance support services to
keep equipment and aircraft serviceable. Such packages offer the
MoD customer potentially attractive alternative sources for its
repair requirements, again adding to the competitive opportunities.
3. The Committee is also right to highlight the fact
that there is less need for the MoD to maintain in-house deep
repair capabilities (such as those provided at its St Athan site
in South Wales) simply to provide reinforcement and surge capacity
for military operations, although this requirement has not entirely
disappeared. The Government agrees that the MoD, like its civil
counterparts, should seek to take advantage of these new factors,
to generate savings for re-investment in front-line equipment.
DARA's Strategies For Winning Work (Para 43-44)
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.
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.
4. Although allowing DARA to operate on a more commercial
footing should help the MoD reap some of the above benefits, the
Government supports the Committee's view that there must be important
safeguards that the MoD will keep in place. In particular the
requirement to ensure that there is assured access to repair capabilities
and a capacity for surge workloads in times of crisis (as the
Kosovo campaign in 1999 demonstrated). That continuing requirement
must be protected in DARA.
5. The Government also agrees with the Committee's
view that DARA's partnership arrangements 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.
DARA's Rationalisation Plans (Para 45)
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.
6. The Government believes that the Committee rightly
recognises that DARA needs to become competitive if it is to win
new work. The existing rationalisation programme of identifying
and eradicating duplication of work and unnecessary tasks will
continue. The Committee's report focuses on DARA's current rationalisation
plans, particularly at its St Athan site, which has recently been
the subject of much media interest and parliamentary debate.
7. The Government agrees with the Committee's view
that DARA's rationalisation plans will help put it on a more efficient
and competitive foundation, but that it should only proceed with
rationalisation after thorough investment appraisals and formal
consultation with those affected by any changes. The rationalisation
plans should certainly not be driven at the expense of reducing
the Agency's overall capabilities.
8. The Government welcomes the assurances provided
by DARA to the Committee that there will be no compulsory redundancies
as a result of the current engines rationalisation programme and
agrees with the Committee that a similar approach should be taken
for those other rationalisation plans still under current consideration.
The Committee is right to highlight that a concerted effort will
be required by DARA if it is to carry its workforce along with
the rationalisation changes in prospect.
Improving Turnaround Times (Para 46)
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.
9. The Government recognises that improving unacceptably
long turnaround times for aviation repairs will require significant
management focus and be crucial if DARA is to win new work. The
Government fully agrees with the Committee's recommendation that
the MoD should introduce alternative measures to monitor DARA's
ability to control the Agency's progress in improving turnaround
DARA's early operation as a Trading Fund (Para
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.
10. The Government notes the Committee's findings
on the changes towards the conventional approach to support and
the new hybrid approach exemplified in the MoD's planning for
the in-service maintenance support for the RAF's Eurofighter.
The Committee is right, in our opinion to suggest that the MoD
should continue to monitor the level of Eurofighter repair work
for signs that the new hybrid approach criteria is being fulfilled.
11. It is reassuring to read in the Committee's report
that the prices DARA charges to its customers will be vetted by
the MoD's Specialist Procurement Services to ensure that they
are fair and follow Treasury guidelines.
12. The Government is pleased to note that the Defence
Logistics Organisation is making a firm commitment to making DARA
a successful Trading Fund and will be making investments and ensuring
that DARA continues to be an integral part of the capability available
to the MoD.
13. The Government welcomes the fact that DARA's
Key Targets are being revised to reflect its Trading Fund Status.
14. The Government welcomes the Committee's support
for Trading Fund status for the DARA, which recognises the excellent
work by both the DARA and the Ministry of Defence in transforming
the management of our aircraft repair and maintenance business.
15. The Government is satisfied that Trading Fund
status will lead to further efficiencies, generating savings,
which can be reinvested in the front line. Finally Trading Fund
status will provide the right commercial environment for the DARA
Chief Executive to build a successful new enterprise.
Ministry of Defence
3 May 2001