Further Memorandum from the Ministry of
Defence (19 February 2001)
ASSESSMENT ON THE FUTURE SIZE OF MARKETS
AND LIKELY COMPETITORS
DARA's markets are currently split into Aircraft,
Engines and Components and Electronics segments. 49% of our current
business is Aircraft, 22% Engines and Components and 29% Electronics.
The following key market changes have been identified:
Reduction in MoD revenue (DLO 20%
Significant over-capacity in the repair and maintenance
Competition is increasing significantly.
Aircraft and related components are becoming more
SMART procurement is leading to the acquisition of
incremental upgrades during total life cycle.
Integrated Project Teams (IPTs) are increasingly requiring
service-based contracts, ie `power-by-the-hour', based on longer
periods of time.
Turn round times will be reduced to cut the number
of assets in the repair loop.
Spares inclusive contracts will increase.
2nd, 3rd and 4th line logistics are converging with
opportunities to re-define boundaries.
This will include:
Extending arrangements with OEMs
to cover new product ranges.
Generating long-term customer commitment through Prime
Increasing the focus on Integrated Product Teams.
Partnering is essential if the Defence Logistics
Organisation (DLO) is to access the benefits of integrating spares
and technical support into the repair and overhaul capabilities
of DARA. The planned introduction by DLO of long-term gain sharing
arrangements with prime contractors and OEMs is expected to incentivise
contractors to invest in design and reliability improvements.
This promises to deliver substantial benefit. The new aircraft
that are being introduced over the next 10 years, such as Eurofighter,
Apache and Merlin, will require different approaches to supply
and whole-of-life support from both OEMs and maintenance organisations.
DARA recognises that partnering can offer considerable scope for
optimising overall service delivery to its customers. It has established
partnering agreements that are now delivering improved performance
at reduced cost levels, and which provide the basis for DARA to
secure access to these future markets.
Agreements have been developed with BAE Systems,
Rolls Royce, Honeywell and Agusta Westland, and expressions of
intent have been signed with Boeing, and Eurocopter. The establishment
of such partnering relationships will continue. By fully integrating
itself in to these arrangements (in particular, through benchmarking
and cementing fair and open commercial relationships), DARA will
secure longer-term order book commitments from its customers.
To meet these challenges, DARA must:
Provide value for money and competitive
prices for components.
Secure New-to-Service Front Line Aircraft programmes.
Improve our relationships with our MoD customers to
ensure our strategic capability for Front Line Aircraft is maintained.
Increase our market share of total non-deployable
maintenance, upgrade/modification programmes.
Develop our supply chain logistics operations to `state-of-the-art'
Improve turn round times for On-aircraft and Off-aircraft
DARA's competitors can be broken down as follows:
F R Aviation
Large Numbers too large to list
DARA has been working closely with BAE Systems
over the past year to establish potential projects for integrating
the air environment's Logistic Support Chain in order to reduce
the MoD's costs of ownership.
The parties have signed a Memorandum of Intent
and have requested Min (AF) approval to publicise the project.
DARA and BAE Systems propose the creation of
an equity based Joint Venture Company (JVC) in which DARA will
have the majority of the issued share capital. The JVC will manage
its owners' current and planned interests in the repair of defence
aviation repairable spares, adding value by improving efficiency
in the management of existing support chain logistics. Its objectives
are to reduce the turn round time of unserviceable assets through
the repair loop from Operating Base, maximising value and minimising
The JVC will have no repair capabilities of
its own, but will focus on the deployment of new, more effective
distribution and information systems. It plans to transact most
of its business using `e-commerce' and progressively track assets
on a dedicated secure web-site. It will develop its own contracting
processes using competition and benchmarking techniques to buy
the most rapid and cost effective repair and overhaul services
available on the open market. The JVC will offer new standards
of service to all contractors and MoD customers seeking to improve
repair logistics as part of their own programmes.
The JVC will have the critical mass, competencies
and commercial focus to rapidly join up, streamline and modernise
existing 3rd and 4th line off-aircraft repair and overhaul processes.
It aims to deliver significant improvements in logistic process
velocities, thus facilitating major reductions in spare parts
inventories with no loss in the delivery of defence outputs. The
JVC will also drive down repair costs and provide a significant
impetus for the rationalisation of excess capacity.
The JVC will be majority owned by Secretary
of State for Defence and will apply best practice acquisition
principles to foster competition. Indeed it will be obliged to
seek the most competitive repair/supply source.