Air Power: Training - Flying training system - still a PPP option? | ADM Mar 2009
Tom Muir
Defence had always envisaged that a close partnership would need to be formed with industry, such that the system could retain its military identity, but at the same time leveraging industry expertise in support and operations.
Industry had also been invited to propose methodologies for analysis as part of the capability development process.
One outcome of this process was the completion of the Private Public Partnership (PPP) Study whose focus was firmly on qualitative aspects of arrangements with industry in the management of what will be a major undertaking.
ADM suspected at the time that while the PPP Study offered guidance it was not going to be prescriptive and industry contenders would be encouraged to propose meaningful long-term partnership arrangements with Defence.
Now in light of the dire global economic picture, and prior to finalising the PPP requirements, Defence has sought feedback from industry on whether there are any features of the two projects which could impact negatively on the feasibility or value for money implications of the PPP delivery model.
While the possibility of procuring these projects as PPPs has previously been mooted with industry, it seems Defence now seeks reassurance about the viability of what will surely be expensive undertakings and the availability and cost of funding from the financial sector.
The 2006-2016 DCP estimated the cost of each project at some $750 million, a figure which is sure to be overtaken during the 25 year life of the two projects.
And, as may have been expected the numbers of those attending the Pre-RFT Market Sounding industry briefing, late last year, were swelled by bankers, financial brokers and accounting firms.
They included ANZ Bank, ABM AMRO (a partner with Leighton in the HQJOC PPP project, see box), Deloitte Touche Tohmatsu, Ernst & Young, Hastings, KPMG Finance, Macquarie Capital, RB Scotland, SKM and WestPac.
Pilot Training System (Air 5428 Phase 1)
This project will provide the Navy, Army and Air Force with a new fixed wing pilot training system (PTS) capable of adopting new approaches to selection and training.
The PTS will provide platforms for flight screening and cover all aspects of pilot training from basic flying, up to entry into RAAF lead-in fighter (LIF) and operational conversion units (OCU).
The system will also provide candidates for the Joint Helicopter School (Air 9000/Phase 7) and the initial training of qualified flying instructors (QFI) to support the PTS.
The airborne platforms selected for pilot training will also be used by the Central Flying School for non PTS flying activities, including pilot refresher courses, instructor refresher courses, the delivery of pre-FIC training, delivery of Wings evaluation for foreign military pilot transfers to the RAAF (if required) and the Roulettes formation aerobatic display team.
The Forward Air Control Development Unit (FACDU) and the Aircraft Research and Development Unit (ARDU) may also use them.
It should be noted that additional aircraft may be acquired under this project for these purposes.
The PTS will include a range of classroom based, computer based and synthetic training devices to be used in conjunction with airborne training.
Defence will advise on the balance of airborne and synthetic training based on training needs analysis and many other factors.
The PTS will comprise Flight Screening, Basic Flying Training, Advanced Flying Training (at 2FTS), Flying Instructors Course (at CFS) and Non PTS flying at CFS.
The required capacity for the PTS will be approximately 111 student pilot graduates annually, consisting of 14 Navy, 49 Army and 48 Air Force.
Based on a 65 per cent success rate overall, this suggests an annual intake of approximately 171 students.
CFS will graduate approximately 40 QFIs annually with an annual intake of approximately 43 students.
ADM understands that while the release of a request for expressions of interest (EOI) will precede the RFT, this will not necessarily preclude the release of an open RFT for both projects.
If the PPP proposal goes ahead, the timing of the RFT release has yet to be determined but we assume it will be mid-2010 or later.
Current plans are for contract signature in early 2012, ISD by Qtr 2, 2014 and FOC Qtr 3, 2016.
Joint Helicopter School (Air 9000 Phase 7)
This project will introduce a Joint Helicopter School (JHS), evolved from the present system, to provide rotary wing training to prepare Navy and Army aircrew, that is pilots, observers and aircrewman, for conversion onto current and future operational helicopter types.
Due to the limitations of current training helicopters, the Navy and the Army have to rely on operational aircraft for significant elements of their aircrew training.
This represents a heavy demand on Defence in terms of cost and lack of aircraft availability for operations.
The JHS will provide ab-initio helicopter training to pilots who will have graduated from pilot training, observers who will have graduated from the School of Air Warfare at East Sale, and aircrewman who will be streamed from other branches/corps within Defence.
The JHS is also required to support the training of aircrew instructors through the provision of aircraft, a synthetic training environment (STE) and a constructive training environment (CTE) as well as JHS specific courseware.
Defence will provide the instructors to deliver the airborne instruction to the instructor trainees while the contractor will be responsible for the training of civilian aircrew instructors.
The JHS will include a range of classroom based, computer based and synthetic training devices for use together with airborne training.
As with pilot training, Defence will determine the balance between airborne and synthetic training.
The required annual capacity for the JHS will be approximately 97 student graduates total, consisting of 13 Navy pilots, 44 Army pilots, 12 Navy observers and 8 Navy and 20 Army aircrewman.
Based on expected pass rates, this would indicate an intake of approximately 110 students annually, consisting of 14 Navy pilots, 49 Army pilots, 13 observers and 10 Navy and 24 Army aircrewman.
Having received First Pass approval this project is a little ahead of Air 5428/Phase 1 which is reflected in the timing of the EOI later this year.
This suggests that an RFT, closed or open, will be released in early to mid-2010, with contract signature in mid-2012, ISD early 2014 and FOC Qtr 3, 2016.
PPP delivery model
Under each PPP, the private contractor's obligation will be to provide a service capable of training a specified number of aircrew personnel per year.
To meet this primary obligation, the private contractor will be required to:
• develop the training system, ie determine the number of aircraft, STE and other assets required to provide a training system as specified;
• procure and commission the aircraft, STEs, Training Management Information System (TMIS), facilities and other assets;
• operate the training system;
• maintain the aircraft, systems and other assets;
• decommission and dispose of, or transfer to Defence, the system assets at the end of the contract term; and
• finance all of these activities.
Defence says it will be more prescriptive in relation to the content of the curriculum for Air 5428/1 than it will be for Air 9000/7.
In return, Defence will pay the private contractor a performance based service charge based predominantly on the availability of the training system (as an exemplar).
The payment structure is still to be determined and would be subject to further discussion with industry.
Payments of the service charge will commence following the service commencement date.
PPP procurement strategy
As noted at the beginning, Defence had previously engaged with industry on the procurement strategy for these two projects.
Based on the industry feedback received at the time, Defence decided that it would procure each project using privately financed PPP as the model, unless industry feedback suggests there are features of the projects which have significant negative impact on the feasibility or value for money implications of that model.
Of particular concern is the ability to obtain finance and respondents have been asked to comment on the availability of private finance for the two programs in light of current financial market conditions.
In particular, respondents have been asked to provide feedback on the anticipated period which they would be able to hold their financing proposals open for acceptance by Defence and whether respondents believe there would be benefit in:
• conducting separate debt funding competitions following the appointment of the preferred bidder for each project; or
• each tenderer submitting the technical and commercial aspects of their tenders for evaluation by Defence in advance of its financing proposal.
Under this approach Defence would be able to progress its evaluation of each tender before finance proposals are submitted and thus reduce the time tenderers would need to hold their debt funding proposals open.
In this case tenderers would need to incorporate financier input in the technical and commercial aspects of their proposal prior to the submission of their tender.
Respondents were also asked to provide feedback on their ability to provide/procure equity funding on a short and long term basis, and whether they believe there are other strategies available to overcome any difficulties in obtaining private finance for the two projects.
Interestingly while respondents were requested to provide feedback on whether the period proposed for each project between contract signature and service commencement was adequate, their concerns about the short period for the submission of responses, that is between 10 and 28 November last year, went unheeded!
Defence says it is yet to determine whether the private contractor would be entitled to use the PTS/JHS and its aircraft and facilities to generate third party revenue.
Respondents have been asked to indicate whether they believe there is scope to generate such revenue from third party use of the PTS/JHS and its aircraft and facilities without adversely affecting the provision of the training service.
Conclusion
There is a general view that private finance projects that are still pending tender may well escape the worst of the economic downturn.
More advanced projects (at contract award or preferred bidder) that are waiting to reach financial close have been hit overseas as the bond market has all but disappeared.
According to one source in the UK banks are unwilling to fund more than £30 million (AUD$64 million) and have to club together.
For large projects, such as Defence, this will undoubtedly cause substantial delays to contract signature and possible cancellation.
However, if this training project is not going to tender until later next year (2010) it could have a better chance.
Although we can't predict what will happen in the banking markets we would hope that in three plus years they may have started lending again.
And let's hope that by then the Aussie dollar once again rides high against the Greenback otherwise those training aircraft are going to be awfully expensive.