Select Committee on Defence Fifth Special Report


FIFTH SPECIAL REPORT

The Defence Committee has agreed to the following Special Report:—

GOVERNMENT OBSERVATIONS ON THE FOURTH REPORT

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.

ANNEX

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 requirements.

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 times.

DARA's early operation as a Trading Fund (Para 48)

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.

Conclusion

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


 
previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 14 May 2001