Background

1. This audit focuses on the Australian Defence Force's (ADF's) Air Combat fleet's logistics support, regular maintenance and structural refurbishment. These activities are collectively referred to as fleet in-service support. The current Defence White Paper states that Air Combat is the most important single capability for the defence of Australia.

2. The Air Combat fleet is valued at $3.12 billion, almost ten per cent of the $31.99 billion of the total value of ADF specialist military equipment in 2005–06. The Defence Materiel Organisation (DMO) spent $323.71 million on the Air Combat fleet's in-service support in 2005–06, which represents nine per cent of the $3.59 billion DMO spent on ADF capability sustainment in 2005–06.

3. The Air Combat fleet consists of:

• 26 F-111s which provide the ADF with air strike and reconnaissance capabilities;
• 55 F/A-18A (single seat) and 16 F/A-18B (dual-seat) Hornet aircraft, which provide the ADF with air defence and tactical fighter capabilities; and
• 33 Hawk 127 Lead-in Fighter dual-seat aircraft, which are used for initial jet fighter pilot training.

4. At the time of the audit the Hornet fleet was undergoing a major upgrade known as the Hornet Upgrade project, which by August 2006 had an estimated cost of some $2.92 billion. This project aims to enhance the Hornets' capabilities and to extend their service life until their planned withdrawal between 2012–15. Also, the F-111 fleet was nearing the completion of a $634.66 million capability upgrade, and Defence had scheduled its withdrawal from service from 2010.

5. The audit covers the fleet's support in terms of:

• Operational Maintenance undertaken by Air Force's Air Combat Group (ACG) squadrons. These squadrons operate the fleets and provide them with first-line maintenance on the flightlines; and
• Deeper Maintenance undertaken by contractors and to a lesser extent by the ACG squadrons. Deeper Maintenance involves structure inspections and overhaul, repair, calibration, testing and alignment of aircraft systems and Repairable Items.

6. DMO's Strike Reconnaissance Systems Program Office (Strike Reconnaissance SPO) located at Amberley, Queensland; and Tactical Fighter Systems Program Office (Tactical Fighter SPO) located at Williamtown, NSW, manage the Deeper Maintenance contracts and the fleets' overall logistics and engineering support. ACG manages the fleets' Operational Maintenance.

7. The audit objective was to assess the effectiveness of the Air Combat fleet's in-service support arrangements to provide capability for air combat operations. Capital equipment acquisition projects covered by this report are limited to the Hornet and F-111 structural refurbishment projects, which aim to ensure these aircraft remain serviceable until their withdrawal from service.

Key findings

Fleet management framework (Chapter 2)

8. Tactical Fighter SPO and Strike Reconnaissance SPO held quality management system compliance certificates, which covered their management plans and processes. These plans and processes satisfied the ADF's technical regulations. The SPOs' logistics, engineering and financial systems enabled them to adequately manage their in-service support responsibilities and to report to senior management. However, some of these systems suffer data transfer congestion due to capacity limitations within the Defence Restricted Network.

9. Compliance with the ADF's technical airworthiness regulations is mandatory for all ADF aircraft and associated systems maintenance efforts. The ANAO noted both SPOs and ACG were complying with these regulations and, together with the ADF's Director General Technical Airworthiness (DGTA), were satisfactorily monitoring the regulatory compliance of their contractors.

10. In recent years ACG has found it increasingly difficult to sustain its engineering and technical workforce capability. ACG personnel are acquiring less depth and breadth in experience, skills and supervision due to the progressive commercialisation of the fleets' Deeper Maintenance. This is occurring at a time when the squadrons face increased on-the-job training needs due to:

• increased inspections, structural refurbishment and general maintenance associated with ageing aircraft;
• increased maintenance training associated with the introduction of upgraded systems;
• increased regulatory compliance associated with Authorised Maintenance Organisation certification; and
• increased logistics governance associated with asset and equipment accounting.

11. This represents a challenge in balancing the needs for skills retention while at the same time pursuing the benefits afforded by commercialisation of the fleets' Deeper Maintenance. Air Force and DGTA are aware of the tensions involved in positioning Air Force's engineering and technical workforce capability, and are currently reviewing the situation.

12. Many of the 7 200 lines of Hornet Repairable Items are repaired in the United States of America (US), where they attract repair costs which are paid in US dollars. The Standard Defence Supply System (SDSS) is unable to process foreign currencies. This limitation compels Tactical Fighter SPO personnel to conduct a complicated time-consuming Repairable Item management process for repairs that attract US dollar charges. This process impedes efficient supply chain management, and increases accounting accuracy risks.

Hornet and Hawk in-service support (Chapter 3)

13. For the period 1991 to 2005, Hornet fleet flying hours remained largely in line with Air Force planning and ACG's operational requirements. During 2005–06 the number of Hornet aircraft provided by Tactical Fighter SPO to Air Force increased to above that specified in the Materiel Sustainment Agreement between DMO and Air Force.

14. The commercialisation of most Hornet Deeper Maintenance routine maintenance has resulted in improved reliability in achieving routine servicing targets. However, the Air Force squadrons have not achieved the level of schedule reliability attained by the contractors. This is because many Air Force personnel responsible for Hornet Deeper Maintenance routine servicing are also responsible for higher priority Operational Maintenance on the flightlines. This dual role leads to increased routine service durations.

15. In recent years Tactical Fighter SPO has improved the Hornet fleet's supply chain efficiency and assurance of supply, as measured by demand satisfaction rates of Repairable Items and Breakdown Spares¹. At the time of the audit demand satisfaction rates for these spares exceeded 90 per cent. This has been accompanied by increasing supply chain effectiveness as measured by a gradual reduction in Hornet cannibalisation rates. The overall outcome was achieved through Tactical Fighter SPO and its contractors' continuous improvement efforts, together with increased logistics funding of $232 million.

16. BAE SYSTEMS Australia (BAE SYSTEMS) has been contracted to provide a pool of 33 Hawk aircraft to two Air Force squadrons since 2001. During the initial two years of the Hawk in-service phase, the Hawk fleet's availability was below contracted requirements because of latent defects appearing in the aircraft's oxygen systems and hydraulic system connector corrosion. When these defects were corrected, aircraft availability improved markedly and at the time of the audit the number of Hawk aircraft available to Air Force exceeded the minimum required under the contract.

17. The Hawk acquisition contract included 25 years of logistics support, renewable at five-year intervals, with the first renewal due in June 2006. In mid 2006 DMO entered into an agreement with BAE SYSTEMS to extend the initial five-year logistics support to April 2007. This extension was to allow resolution of pricing and work scope issues raised in BAE SYSTEMS's tender for the second five-year period.

F-111 in-service support (Chapter 4)

18. The F-111 fleet flew almost all of its authorised flying hours, for a large majority of the period 1991 to 2006. However from 2000 to 2003 the fleet experienced reduced aircraft availability caused by wing and fuel tank airworthiness and safety certification issues. These issues reduced both the authorised and actual flying hours, until they were resolved in September 2002. By November 2006 the number of F-111 aircraft available to Air Force had reached the target agreed in the DMO-Air Force Materiel Sustainment Agreement.

19. Since F-111 Deeper Maintenance was commercialised in 2001, the procedures for overhauling and replacing the fleet have been improved, as indicated by reductions in the time taken to complete the most complex F-111 Deeper Maintenance routines. There has also been the development of a greater understanding of F-111 systems reliability trends and associated aircraft ageing issues. F-111C mission critical and safety critical systems reliability data respectively show these systems to have experienced improved reliability during the period 2001 to 2005. For example, the F-111C mission critical systems had a six-fold improvement in mean time between failures since 2002. This has translated into increased sortie timeliness, and increased time available to the F-111 contractors and Air Force maintenance squadrons to clear their backlogs of Repairable Item repairs. These results flow from the systems engineering and maintenance skills held by the contractors combined with managerial efficiencies within the contractor organisations and their business relationships with Strike Reconnaissance SPO.

20. ACG squadrons have at times experienced difficulty in maintaining a sound Deeper Maintenance capability, and ACG is seeking to correct this through Air Force's Maintenance Quality Management System reviews and audits. At the time of the audit, DGTA was monitoring the situation and was satisfied that the maintenance difficulties did not present unacceptable risk to F-111 airworthiness. Both ACG and DGTA implement routine surveillance of the squadrons' compliance with technical airworthiness standards.

21. Since January 2003 F-111 spares supply chain efficiency and assurance of supply for Breakdown Spares remained predominantly 10 per cent above the target rate of 85 per cent. However, for Repairable Items it was on average five per cent below the target rate of 95 per cent. Supply chain effectiveness, as indicated by spares cannibalisation rates, remained largely within agreed limits.

22. The Defence Support Group's (DSG's) Facilities Operations Program is facing an increasing back-log of facilities maintenance at RAAF Amberley². Defence advised maintenance funding is prioritised to those areas of the estate that represent the highest risk. The risk management decision on prioritisation of funding is made by the Defence Infrastructure Sub-Committee.

23. The ANAO noted that challenges remain in ensuring more effective liaison and role clarity between DSG and its clients. DSG faces increasing facilities management difficulties in instances where contractors occupying Defence facilities carry out work for several DMO SPOs, or for commercial entities in line with Defence's industry support objectives. DMO and Air Force manage such difficulties through performance measurement and reporting systems, and through increased stakeholder liaison in the form of support management boards, integrated management teams and working groups. The ANAO reviewed the Customer Supplier Agreement between the Air Force and DSG, and the Base Support Agreement between DSG's South Queensland Region and RAAF Amberley's Base Commander. The ANAO found both agreements would benefit from more viable performance measurement and reporting mechanisms of a nature already established between Air Force and DMO.

Structural integrity management (Chapter 5)

24. Aircraft structural integrity management is the responsibility of DGTA's Aircraft Structural Integrity Section, with aircraft structural inspections and refurbishment programs conducted by the SPOs in conjunction with ACG. Structural fatigue tests and evaluations, conducted by the Defence Science and Technology Organisation (DSTO) and DGTA have identified structural integrity issues in all three fleets. Tactical Fighter SPO is managing a two-phase Hornet structural refurbishment program with a total estimated cost of $977 million. Strike Reconnaissance SPO is managing an F-111 wing refurbishment and replacement program costing some $1.18 million per wing set. A range of Defence organisations and BAE SYSTEMS are managing the Hawk fleet's greater than expected tailplane structural fatigue consumption rate.

25. The ANAO considers that the structural integrity of the Air Combat fleet is being well managed by each SPO with assistance from their contractors, DGTA and DSTO. This is indicated by the timeliness and cost of the F-111 wing refurbishment and replacement program; the extensive planning, prototyping and Initial Rate of Production techniques being applied to the Hornet structural refurbishment program; and the close monitoring of Hawk 127 structural integrity issues.

Overall audit conclusions

26. Air combat aircraft fleet in-service support involves highly-developed organisational relationships between the DMO, ACG, DGTA and contractor organisations. The ANAO considers that these organisations were effectively managing the Air Combat fleet's in-service support within a complex mix of operational needs, funding priorities, maintenance capacities and aircraft capability upgrades. Logistics and engineering support provided to the fleets are shown by key performance indicators to be effective in meeting ACG's needs, and on current indications and resource commitments, it is reasonable to expect that the fleets will remain available until their planned withdrawal dates.

27. The key factors that have contributed to these outcomes include:

• the availability of appropriately trained and experienced SPO logistics, engineering and acquisition project teams, located adjacent to Air Force's operational squadrons;
• the application of well-developed and applied technical regulations covering engineering and maintenance of ADF aircraft, and the organisations that support them; and
• the development of effective commercial support programs, which are coupled with DMO and Air Force management practices that focus on teamwork, performance monitoring, continuous improvement, and openness to external reviews and regulatory oversight.

28. Risks to the continued success of fleet's in-service support relate to reductions in the numbers of qualified and experienced Air Force technical workforce personnel and to ageing aircraft that require increased inspections, structural refurbishment and general maintenance. Furthermore, the Defence Support Group's back-log of facilities maintenance at RAAF Amberley also present risks to Air Combat fleet in-service support.

Agency response

29. The Department of Defence provided a response to this report on behalf of the DMO and Defence. Defence agreed with qualification to the recommendation, and provided the following overall comment:

Defence notes the overall positive assessment of the Management of the Air Combat Fleet In-Service Support. The areas identified for improvement are known and have either already been addressed or are being addressed.

Footnotes

1 Spares demands are deemed to be satisfied if deliveries are made within specified priority durations, which are typically 24 hours, 5 days, 10 days or 48 days, from the time they are ordered by maintenance personnel.

2 DSG's Facilities Operations Program delivers general maintenance and minor new works at Defence facilites on a regional basis across Australia.