1. My name is Steve Hill, and I am an aerospace
engineer by profession with experience in both the public and
private sectors. I served for 23 years in the RAF leaving in the
rank of Air Commodore. During my time in the RAF, I served at
home and overseas in a wide variety of appointments including
as an engineer on Front Line squadrons, Chief Engineer on a fast
jet base, and in staff positions covering policy, R&D, and
Fleet Management. After my career in the RAF, I joined BAE Systems
Military Aircraft Division in 1990 to work on International projects
for a period of five years, before joining Serco to lead the team
on the establishment of the Defence Helicopter Flying School.
In 1996, I became the Chief Executive of the Naval Aircraft Repair
Organisation (NARO), an Executive Agency responsible for the deep
maintenance of military helicopters and their supporting equipments.
This work was carried out on two bases—Fleetlands in Gosport
and Almondbank in Perth.
2. In 1998, I was asked to take on the additional
responsibility of leading the Defence Aviation Repair Agency (DARA)
Implementation team, and then won the competition to become Chief
Executive of the DARA. DARA merged the RAF's Maintenance Group
Defence Agency with the NARO to bring all deep maintenance into
a single organization across 4 sites at St Athan, Sealand, Fleetlands,
and Almondbank. I left the DARA in December 2003 at the end of
my extended fixed term appointment.
3. In 1998, there was considerable debate over
whether or not to form the DARA, with, at that time, the RAF being
the greatest protagonists for its creation, and the RN having
reservations that it was the right way forward. After circulation
of papers recommending the formation of the DARA, the, then, Minister
(Armed Forces), the Right Honorable Dr John Reid held a meeting
that was attended by the three Service Chiefs, the PUS, other
senior MoD officials, and myself. This meeting agreed unanimously
to the formation of the DARA and charged me, the CEO, with merging
the RAF MGDA and the NARO into a single organization on 1 April
1999, and then leading it to become a Trading Fund by April 2001.
The rationale for forming as a Trading Fund was to:
(a) Provide a benchmark and competitive alternative
to industry.
(b) Deliver a more competitive service and better
value for money support to the Front Line. Concentration of all
deep maintenance into centralized facilities was considered the
best vehicle for achieving economies of scale.
(c) Expand into wider markets, and, by increasing
overall volume of business, reduce prices to the MoD.
PREPARATION FOR
TRADING FUND
4. After vesting as an Executive Agency, the
top priority was to rationalize the business and eliminate the
considerable duplication by creating single centres of excellence
for each production workstream. At the same time, an Activity
Based Management programme was introduced to help identify all
non value-added activity and to re-engineer business processes.
Inevitably, there was a legacy of enormous duplication stemming
from the two separate Agencies, and, to shake out cost, we rationalized,
for example, from three avionic centres to one, from two engine
facilities to one, three plating facilities to one, and three
mechanical workshops to one. Additionally, the four site-based
finance centres were re-brigaded into a single shared service
centre at Fleetlands, and four human resource centres into one
at Sealand. On formation, the Agency inherited 52 separate IT
systems that were completely unconnected, and the team embarked
on the introduction of an Enterprise Resource Planning system
that would embrace all business functions and link with external
customers in a co-ordinated way. All this was aimed at driving
costs out of the business to enable a better value for money service
to be delivered to the military front line, and to prepare the
Trading Fund as a competitive service provider to both the military
and wider markets.
IMPACT ON
EMPLOYEE
5. The change programme placed great demands
on the workforce, and enormous effort was expended to communicate
the vision, achieve buy-in, and train people in new skills and
ways of working—especially in commercial practices. Initially,
the stresses of the radical change programme led to conflict between
management and trade unions, and we therefore entered into a partnership
agreement that broke new ground in Public Sector Industrial Relations.
This was characterized by TU representation on the Executive Board,
and TU involvement in all change projects. This was a significant
commitment by our TU representatives, and, without it, we could
never have delivered the change programme successfully in the
challenging timescales we faced. In 2002, the DARA won the AnuMan
award for the best partnership between Management and TUs in the
UK. To get to a competitive position, the DARA shed nearly 4,000
posts in the first three years of Trading Fund, of which over
1,500 were military personnel who the RAF no longer required in
deep maintenance, and the balance were civil servants who were
shed by natural wastage or though voluntary redundancy. This was
borne by the workforce stoically because we promised those that
remained long term job security through making the business competitive
as a Trading Fund.
SITE RATIONALISATION
6. DARA inherited four sites from the RN and
RAF, and took three of them, Sealand, Almondbank, and Fleetlands
onto the balance sheet. The St Athan site, however, had 1,000
acres, and 1,000 buildings (including married quarters) most of
which were 1938 vintage and in a very poor state of repair and
its condition represented a major risk to DARAs competitiveness.
The DARA therefore leased the facilities whilst it developed a
long term strategy for the site, since the overhead associated
with the infrastructure was unsustainable in a competitive Trading
Fund. In particular, the aircraft hangars were in very poor condition,
with leaking roofs, structural problems with the doors, and most
piped in services broken. During vesting as an Executive Agency,
and whilst on the vote, the DARA negotiated £17 million for
hangar refurbishment from the RAF, and £5 million for runway
repairs.
7. On formation of the DLO, the £17 million
was stripped from the budget as a saving measure, and the £5
million for runway repairs was also lost as a saving to RAF Personnel
and Training Command. Faced with a major threat to the largest
slice of its business on Fixed Wing aircraft, the Agency embarked
on the Red Dragon project which aimed to provide a new super-hangar
at St Athan that would accommodate all fast jet work in a single
facility. At the same time, in conjunction with the MoD Centre,
we negotiated the sale of the site to the Welsh Development Agency
(WDA), and planned to lease back only 10% of the real estate for
the fixed wing business. Since no money was available for the
project from the MoD, we arranged a PFI type programme, and the
Red Dragon facility was completed, on time, in 2004. It is the
best military aircraft Repair and Overhaul facility in Europe,
and embraces state of the art facilities in every respect. Moreover,
it took in excess of £20 million out of the annual overhead
for the site, and delivered charging rates that were significantly
more competitive. The Business Case for the facility was based
on agreed projections of future volumes of work from the RAF and
was fully endorsed by the Ministerial Advisory Board. It was hoped
that the DARA would build on the core RAF business by jointly
marketing the site with the WDA to capture commercial aircraft
work.
DELIVERING RESULTS
8. Within three years of becoming a Trading Fund,
the DARA had halved operating costs, halved the workforce, significantly
improved quality and timeliness, and increased productivity. In
the first serious competition, the DARA won the Hawk aircraft
major servicing programme against stiff international competition
based on the new Red Dragon overhead. In 2002, the Agency won
the CIPD prize that year for being the best company in the UK
for people and change management. In the same year, it won the
Best Business award in Wales, and was the first public sector
organization to do so.
PARTNERSHIP WITH
INDUSTRY
9. The NARO pioneered a number of partnering
agreements with industry, and, when the DLO was formed, this strategy
was actively supported and encouraged by the Chief of Defence
Logistics (CDL). The DARA achieved considerable success in this
respect by brokering long term agreements with organizations such
as BAE SYSTEMS, Boeing, Agusta Westland, Rolls Royce, Honeywell,
and Northrop Grumman. A very significant partnership was being
explored with another company that works in the military and civil
sector that could have brought more work to the Agency, and especially
at St Athan, but the End to End Review destroyed confidence in
the DARA in Industry generally, and many opportunities evaporated
as a result. Moreover, the wider markets strategy was totally
undermined by progressively increasing challenges and numerous
studies into the Agency's future, which constantly haemorrhaged
top level resource and time on simply trying to protect the Trading
Fund's position. In addition, DARA was increasingly engaged in
competing for its business both against industry and with its
prime customer, the RAF. These competitions were invariably spares
inclusive, and frequently the only source of spares was from industry—which
was also the prime competitor. On a number of occasions, the DARA
was unable to obtain spares prices, and the margins are so high
on spares, in any event, that industry has enormous flexibility
to ensure it wins such competitions. The End to End Study unquestionably
undermined fair competition in this respect as industry saw the
opportunity to capture DARA's work.
END TO
END REVIEW
10. In 2002, the DLO initiated the End to End
Review which aimed at looking at all maintenance support in the
RAF and Army. Regrettably, DARA was not engaged in this study
until, after many protests, it became involved in 2003, by which
time many key decisions had been taken that directly affected
its future. In terms of deep maintenance, the review recommended
all fast jet deep maintenance be rolled forward to front line
bases. Harrier was the first to be rolled forward, to be followed
by the Tornado. For helicopters, exactly the reverse was to be
applied with programmes being rolled back into DARA Fleetlands.
Removal of the fast jet programmes completely undermines the viability
of the St Athan site, and, had the DARA known the RAF's intentions,
it would never have embarked on Project Red Dragon. In 2003, I
tried to negotiate an arrangement with the DLO and RAF, to exchange
the fast jet work with large aircraft maintenance such as Hercules,
C17, and VC10. Only the VC10 was agreed for roll back, but that
programme alone offers insufficient volume to sustain viability.
With the planned closure of RAF Lyneham, there appeared to be
no reason why all Hercules operations and maintenance could not
be carried out at St Athan. In that event, the St Athan site could
have remained viable, and, indeed, the opportunity to migrate
to civil aircraft work would have been greatly enhanced. Sadly,
this deal was not agreed, but, in my view, it could still be made
to happen—if there was a will. There is also a confused
logic, from my perspective, in rolling back RAF Chinook helicopters
into Fleetlands whilst rolling forward fast jets. Having served
on RAF helicopter squadrons, I understand the high pressures on
personnel and a vital need for extra people due to the many and
frequent detachments around the world. What applies to helicopters,
therefore, mirrors the situation on fast jets.
RAF SERVICE MANPOWER
11. When the DARA first formed, there was a large
number of RAF personnel in the Agency, and they were being employed
there predominantly for Crisis Manning Reinforcement (CMR) based
on Cold War predictions. However, there was a high premium cost
to holding service personnel in the Agency, and it could not compete
using RAF tradesmen. We attempted to negotiate an agreement whereby
the MoD paid the premium for the service personnel, but this was
not achieved. Additionally, Service personnel have, necessarily,
many levels of expensive supervision, but, to compete on a level
playing field with industry, the DARA needed to move to create
self directed work teams and a leaner, flatter structure. We therefore
worked in conjunction with the RAF authorities to progressively
reduce the level of RAF personnel, and this was largely achieved
by the end of 2002. (For the senior management posts, however,
we always ran competitions that were open to Service personnel,
civil servants, or civilians, and a number of top positions were
held in the DARA by RN and RAF officers, based on best person
for the job.)
12. Part of the rationale for rolling fast jets
forward to front line bases was to more efficiently utilize the
RAF personnel that need to be employed in Time of Tension or War
(TTW). However, there is no reason why such manpower could not
be employed and accommodated at DARA St Athan, and that offer
was made repeatedly—and, equally, rejected repeatedly. Additionally,
when RAF personnel have been deployed forward from front line
bases for operations overseas, bases cannot easily ramp up extra
effort to generate more aircraft from deep maintenance for operations.
In the past, the DARA ramped up to 24 x 7 support to generate
aircraft for operations in the Gulf and Kosovo. By having a number
of aircraft types at St Athan, the Agency was able to offer great
flexibility in utilization of manpower by transferring people
from low priority programmes to high priority generation of airframes.
For example, during the Kosovo campaign, seven Tornados and one
VC 10 were rapidly generated in less than seven days for deployment
on operations. During my time in the RAF as an Air Commodore,
I was involved in the decision to transfer VC10 deep maintenance
from Brize Norton to St Athan, because the fleet had been consistently
overflown, and, as a direct result, the condition of the aircraft
had deteriorated significantly with major corrosion problems arising
and consequent impact on availability. The reason the fleet had
reached this state was the pressure on the technical staff on
the front line base to produce aircraft for the flight line. There
is a very compelling reason to take aircraft away from front line
pressures to a separate site for upgrade and deep maintenance,
to ensure that planned maintenance is properly carried out and
delivered to schedule. Additionally, aircraft involved in intensive
operations or training programmes, invariably generate large numbers
of deferred defects and limitations between majors that are cleared
thoroughly during major servicing and upgrade programmes away
from the pressures of main base operations.
13. Sadly, aircraft have been moved recently
from St Athan to front line bases, but, instead of all the work
being done by RAF personnel, much of it is being done in industry
or by civilian contractors. Thus DARA personnel have, I understand,
been made redundant, and their jobs passed to civilians elsewhere
in the UK.
14. Moreover, the decentralized maintenance on
separate bases is certain to cost more compared to the centralized
facilities at St Athan, and the original business case for the
formation of the DARA proved this. It is ironic too that aircraft
will now move from modern state of the art facilities at St Athan
back to WW2 hangars on front line bases with all the ensuing maintenance
costs. There is also the added cost of providing several modern
aircraft paint and other facilities on the front line bases that
are fully available now at St Athan. Additionally, the centralized
machine shops and expensive machine tools at St Athan and Almondbank
offer the front line the capability to manufacture urgent spares
and carry out complex component repairs both rapidly and cost-effectively.
Replication of this capability on several front line bases can
hardly be cost-effective, and industry always charges exorbitant
rates for this type of one-off work.
CONCLUSIONS
15. The DARA workforce delivered all that Ministers
charged them with in forming and shaping a successful Trading
Fund that could be a competitive alternative to industry. However,
if a Trading Fund is expected to compete against its prime customer
(or with industry that is charged with running competitions),
it cannot survive, and this should be an important lesson for
Ministers and the Treasury in respect of any future Trading Fund
plans for Government agencies. When the customer is both decider
and provider—and runs the competitions itself or in partnership
with industry—then relationships are certain to be conflict-ridden,
and that was very much the case between the DARA and its prime
customer during the last year of my time as CEO. The DARA workforce
has been betrayed by its Ministers and the RAF customer, and,
ultimately, it is the taxpayer that pays from this inability to
have a clear vision and supporting strategies. If the DARA had
been properly supported as a Trading Fund, it could have been
a huge success for the long term for both the MoD customer and
the Taxpayer.
November 2005
