AADI-ing leverage to R&D

A new company launched at the Avalon air show aims to link Australian defence and aerospace R&D and manufacturing.
A business idea spawned by the Joint Strike Fighter (JSF) project in 2002 came to fruition at this year's Australian International Air Show at Avalon in March when the Chief Defence Scientist, Dr Roger Lough, helped launch Australian Aerospace & Defence Innovations Ltd (AADI).

Set up with seed funding from the Victorian government and incubated initially by DSTO at its Fishermans Bend site in Melbourne, AADI has been set up to arrest and reverse a well-established trend in Australian high-technology innovation. According to founding CEO Mark Hodge, Australia consistently delivers excellence in its scientific research but has been less successful in translating this success into business opportunities. And this is particularly true of the defence and aerospace sectors, he said.

AADI's overall objective is to "facilitate the transfer and amalgamation of innovative intellectual property into large projects, civil as well as defence, from IP producers and SMEs", he told ADM. It has three simple guiding principles:

* market pull

* a national focus

* innovation

A key target is to enable, and to maximise, Australian industry participation in high technology global supply chains. "We are going to be placing a strong emphasis on partnerships, and AADI has been set up to respond to industry need for science and technology, driving wealth creation from Australian defence and aerospace innovations," Hodge says.

AADI is designed to give Australian industry a competitive edge by getting innovations generated by the SMEs and IP producers such as DSTO, the CRCs and CSIRO into production more efficiently and effectively.

But unlike some university and public sector R&D commercialisation agencies, the "demand pull" imperative means its customer is the end-user of the technology. Rather than taking a good idea and looking for a market, it will let the market identify its own needs and then source the IP which will satisfy those needs. "Everyone has a war story about a great piece of IP whose time had not quite come", says Hodge, "by starting with the end-user, we think we have a key point-of-difference to many of the groups out there. We only get involved if there is a defined market opportunity".

But even with a market-pull focus, knowing where the really good IP and capability is will be critical to the success of AADI, and to this end strong relationships with IP providers are a cornerstone of the company's focus. "AADI will seek to source innovative solutions to the technical problems of large defence and civil projects," AADI strategic advisor Dr Bill Schofield told ADM. A former director of DSTO's Aeronautical and Maritime Research Laboratory (AMRL), Schofield has been involved from the outset and explained, "AADI's role will be to know where the technology and/or capability exists, and how IP from various sources can be combined to solve the problem."

Its broad objectives are to:

* assist SMEs to compete in major defence and aerospace contracts (e.g. JSF, Boeing 787, Air 7000, Sea 4000, etc) through the adoption of innovative technology

* Encourage the entry of new, technology-receptive SMEs into the defence/aerospace sector

* Facilitate better integration of Commonwealth and State support of innovation in the Australian defence/aerospace industry

* Assist industry to win high-technology defence contracts in local and international procurement programs by enhanced application of innovation

* Act as a commercial entity to facilitate commercial exploitation of Australia's aerospace & defence technology innovations

* Assist industry to better support the capabilities needed to defend Australia and in so doing, contribute to national wealth and high technology exports

According to Schofield and Hodge AADI will also help SMEs team with primes. And it will broker interactions in the innovation space between the SMEs, primes and government agencies such as DMO, DSTO and, in the USA, DARPA and the US Military. Hodge told ADM that AADI's intention is to work with existing groups, such as AIDN and the Defence Teaming Centre in South Australia. "We think DTC has a great model and we've been talking to them to make sure our innovation focus is something they can use"

And the company will help industry to access DSTO & other R&D organisations' IP, technical advice, and T&E equipment and facilities. It will also:

* provide project management advice for Defence's CTD program and international defence industry research projects (such as the US SBIR program)

* develop market intelligence, networks & marketing plans

* facilitate cost-effective access to financial, legal and commercial services

* get involved in deal making, setting up Joint Ventures, collaborative arrangements, Venture capital and debt financing

What AADI will not do, Schofield told ADM, is bid directly for defence contracts, work in a simple coordination role where there is no innovation focus, indulge in "technology push", work for overseas companies without the involvement of local companies or IP providers, conduct R&D (although it may guide and assist focused R&D programs on behalf of paying clients), and restrict its operations to any single state or territory.

AADI has Memoranda of Understanding in place with DSTO, Melbourne-based MNT Innovations and the Queensland-based Australian Institute for Commercialisation (AIC) and is in negotiation with NSW, WA and Queensland authorities, the DTC in South Australia and the NZ Defence Industry Association. "Defence and aerospace is a global business and we need critical mass to compete," emphasises Schofield. "There will always be the opportunity for robust competition and the occasional bunfight, but the Australian aerospace/defence sector is really too small for interstate competition, we have to co-operate to get the most out of our limited pool of technical innovation." The Victorian Government agreed, and is not taking a seat on the board of directors. Victorian Treasurer & Minister for Innovation John Brumby has fully endorsed AADI's national approach, a commitment that Hodge sees as critical. "I think the Victorian Government is to be congratulated for responding so strongly to the call. We hope to have other States on board soon, but this initiative would not have been possible without the seed funding from Victoria".

DSTO's head, Dr Roger Lough, was part of the genesis of AADI. In 2002, while still Director of AMRL, he hosted a meeting of Defence, industry and other stakeholders at Fishermans Bend to examine how Australia could harness the potential of aerospace and defence R&D and manufacturing sectors to seize the opportunities offered by the JSF program.

"AADI is timely for three reasons," Lough said at the company's launch. "Firstly, the opportunities first identified 18 months ago for JSF are still there - indeed, they have expanded. Secondly, the JSF is really only the bow wave of opportunity fast coming down the pike. Following on are major opportunities in defence capital equipment program - aircraft and ships - and if I can stray not too far into politics - the opportunities are there wherever the steel is cut and assembled."

The third reason why AADI is timely, Lough says is that it coincides with DSTO's push to engage SMEs more closely.

Australia's defence SMEs have traditionally been one of the main engines of defence innovation, though these are dwarfed by the R&D heavyweights, particularly DSTO. But exploiting the fruits of their creativity has traditionally been a challenge.

The Victorian government commissioned Mark Hodge in 2002 to identify how to get the maximum payback, in terms of high-technology investment and jobs, from a necessarily limited investment. Hodge concluded the "valley of death" represented the biggest barrier to commercialisation of technology developed by both SMEs and bigger R&D organisations or IP providers. The gap between a technology which has been developed to the stage where it can be demonstrated satisfactorily, and technology that is production-ready, relatively risk-free and available to a demanding prime contractor or end user can be insurmountable.

On the other hand, DSTO's very close relationship with its customer, the ADF, means its IP is developed with a strong eye to its implementation because the ADF is a demanding customer which wants best-value, best practice outcomes in the foreseeable future. This could make commercialisation a little easier.

However, despite DSTO's large annual spend on aerospace and defence technology development, as the technology arm of the Department of Defence it has limited freedom to operate freely in the marketplace - IP transfer to industry for profit is not its core business, acknowledges Dr Roger Lough: "DSTO's mission is to apply Science & Technology for Defence. We are not a commercial organisation judged on our bottom line. So we have a relaxed approach to IP ownership and income received. Of course, we don't throw it back but I emphasise it is not why we exist."

Nevertheless Lough added, "One of our key roles is to help industry to help Defence." And DSTO is responding to last year's Trenberth report which recommended greater effort by DSTO in moving its technology into the marketplace. With that in mind defence minister Robert Hill endorsed the approach in an exchange of letters with John Brumby which led to the creation of AADI.

Mark Hodge developed the business case for AADI, guided by an advisory panel consisting of defence and aerospace sector leaders representing SMEs, primes, DSTO, DMO and CRCs.

The AADI Board is chaired by Dr Peter Jonson with Mark Hodge as CEO. It also has a technical and strategic advisory panel consisting of sector leaders including Dr Bill Schofield, Dr Ian Sare, Director of DSTO's Platform Sciences Laboratory at Fishermans Bend, Warren Canning, Director of DSTO's Business and Commercialisation Office and Peter Croser, Head of DMO's Industry Division.

Critical to AADI's success will be four factors, believes Schofield: Formal buy-in from the primes, SMEs, IP providers, the Commonwealth and the other State Governments and the financial sector; a demonstrated national focus; market-driven (rather than solely technology-driven) operations; and the ability to generate sufficient resources to continue operations beyond its initial 12-month start-up period.

That last factor will depend on AADI's credibility, leading in turn to financial membership by the various industry and government stakeholders and the continuation of sponsorship and seed funding from a variety of private and public sector sources.

So far progress has been pleasing, according to Hodge. The highlights so far include signature of an MoU with the AIC covering collaborative arrangements to provide cash support for SMEs looking to do business. The Australian Department of Industry, Tourism, and Resources has funded the AIC to pilot its TechFast program in 2005/6 with $2.5 million, and this is being supplemented with additional funds from participating States. The purpose of TechFast is to assist technology-receptive SMEs to identify and transfer research and intellectual property from research institutions around Australia, to help them become more innovative and faster growing companies.

AADI has held formal discussions with the New Zealand Defence Industry Association and the ACT, NSW, QLD, SA and WA Governments aimed at generating ongoing support for AADI in each of those jurisdictions. And there's now an MoU being worked out with the CRC for Advanced Composite Structures for partnership activities.

AADI hosted a "speed dating" forum under the aus
Recently AADI won a tender from DITR to conduct a survey for the Aerospace Industry Action Agenda's R&D working group, on industry's R&D needs and intentions in the Australian Aerospace Industry and to make recommendations to DITR on strategies for the development of a technology roadmap for the sector. Principal Investigator will be Dr Bill Schofield, with Dr Peter Preston as senior investigator.

And there is the tantalising prospect of a major airframe structural test program for an overseas customer, to be conducted by a handful of well-credentialed SMEs in the sector, and DSTO with AADI playing a brokerage and coordination role. Watch this space, is AADI's message.

AADI faces a challenging first year, warns Chief Defence Scientist Dr Roger Lough: "It must demonstrate that it is providing a useful service in the aerospace and defence sectors - useful to the objectives of government, both state and federal, useful to the primes through which much of the technology programs must pass to get to the major projects."

The company's success will be measured not just on its own bottom line but those of some key stakeholders - the bar is set high, but there's plenty of goodwill to help it over.

By Gregor Ferguson, Avalon