NZ Industry rues Howard's warning

New Zealand's defence review will have a major impact on its defence industry, but the Expressing his disappointment with New Zealand's decisions on defence - particularly the axing of its air combat force - Australian Prime Minister John Howard warned of "international consequences."

It was a well chosen phrase - soft enough to avoid getting under the skin of Kiwi politicians, but it nevertheless denoted a clear warning to industries which depend on New Zealand's close defence relations with Australia.

The words certainly hit a chord with Kevin O'Sullivan, chairman of New Zealand's Defence Technology Joint Action Group who says there is evidence that Australia has already been freezing New Zealand businesses out of defence industry contracts across the Tasman.

While the Closer Economic Relations agreement is supposed to give New Zealand "local" status in all Australian Government procurement contracts, he suspects subtle means may be used to exclude bids for work in Australia from this side of the Tasman.

"There is anecdotal evidence that is already occurring. Some contracts which New Zealand companies thought they were well-positioned for have not been successful and the commercial reasons given for our lack of success lack credibility," said O'Sullivan.

He declined the opportunity to detail specific examples but there is some evidence to support his view. Last year, shortly after New Zealand cancelled the planned lease of 28 US F-16 fighters, Air New Zealand Engineering lost its long-term RAAF C-130 airframe maintenance contract to Qantas Defence Systems. An indication that Qantas perhaps shouldn't have won is the fact that some of that work is now being sub-contracted back to New Zealand.

Then just a week after the decision to scrap the air combat capability and to buy no more frigates, Tenix stopped work on the 10th Anzac ship modules at its Whangarei shipyard. The yard is now idling along, hoping that it might benefit further down the track when the Government details its requirements for a multi-purpose ship and patrol craft for the Navy.

While New Zealand industry can only take an educated guess that it is already suffering John Howard's "international consequences", it is licking far bigger wounds inflicted by New Zealand's own Government.

Safe Air general manager Brent Earnshaw says the direct effect of scrapping New Zealand's air combat capability represents a loss of 65,000 man hours of work a year to his company alone. The company, which operates the RNZAF depot level maintenance base at Woodbourne, has lost the airframe and engine maintenance of the Skyhawks and will also lose the engine overhaul contract for the Aermacchi jet trainers.

Indirectly it also stands to lose third-party contracts to foreign air forces which it has managed to lever off its RNZAF contracts - notably Skyhawk overhaul work for the Indonesian and Israeli Air Forces.

Since January the company has had 12 people in Israel working on a refurbishment contract for Advanced Training Systems Incorporated of the US. With luck, Earnshaw anticipates that will run till the end of the year and beyond where the work could continue in the US.

Earnshaw says other opportunities like that could dry up now as, "We don't know how other countries may view New Zealand as a credible supplier of defence services."

Safe Air is a high profile player in Australasia's defence industry's and has been involved as local contractor for the supply of 16 Kaman Seasprites now going into service with the Australian and New Zealand navies.

Earnshaw is also optimistic that his company is well-positioned for other major contracts, provided the Trans-Tasman Closer Defence Relations Agreement isn't too badly bruised. Safe Air is bidding for the Australian tender for maintenance, repair and overhaul of the T-700 engine used on the Seasprite and Blackhawk helicopters. It is also bidding for the RAAF T-56 (Hercules and Orion) engine contract held until now by Pacific Turbine.

There is also some light on the local horizon. Safe Air anticipates becoming involved in the RNZAF C-130 life of type study and assuming the Government elects to upgrade rather than buy new Hercules, it is well placed to
Downsizing of the RNZAF also provides another opportunity for Safe and Air New Zealand to take a greater role in training of engineers at Woodbourne, formerly the sole domain of the Air Force. At the moment about half of all New Zealand aviation engineering are Air Force trained, mostly at Woodbourne; industry is clearly going to have to train more of its own skilled staff in future.

Another major industry player, Serco, anticipates no major ructions from the defence decisions. Serco has a long term contract to operate the Army's depot level maintenance base at Trentham, stores and various base support services for the Army and Air Force.

It stands to be involved in the LAVIII armoured vehicle acquisition and is well positioned for the smaller Light Operational Vehicle (LOV - Landrover replacement) when tenders are called shortly.

The only real turbulence on Serco's horizon is uncertainty over the future of Auckland's Whenuapai Air Base. Government is considering the merits of retaining both Ohakea and Whenuapai and operating both as joint military-civilian airports. The alternative is to consolidate RNZAF flying operations at Ohakea.

The New Zealand defence industry has clearly been through the mill over recent years, but O'Sullivan is grateful for the fact that Government has at least committed itself to reversing the decline in defence spending seen over the past decade.

"I don't think it's a spend up, but if they spend $250 million to $300 million a year on defence there have got to be opportunities for industry." The promise is to lift baselines by about $300 million over the next few years and to spend $2 billion on capital projects over the next decade.

But stripping away the political hype it is not big money and it won't go particularly far. The value of the Kiwi dollar has plummeted about 50 percent to just US$0.40 in the past two years and it is clear that most of that $2 billion will be spent in North America.

By Hank Schouten, Wellington