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Boeing signs major contracts in Australia

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The Boeing Airplane Company today signed contracts worth an estimated $455 million with two Australian aerospace companies - the largest single order ever placed by an overseas company with the Australian aerospace industry.

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At the same time Boeing signed the first of the new long-term strategic aerocomponent agreements with the Commonwealth announced in the March 12 Industry Statement.

The Minister for Industry, Technology and Commerce, Senator John Button, said the agreement guaranteed Australia * free and fair access to future contracts with Boeing,.the world's largest civil aircraft manufacturer. In return, the agreement absolves Boeing from its obligations under the civil offsets program. ·

Senator Button signed the agreement at Parliament House in Canberra with Mr Lawrence Clarkson, Vice President of Boeing Commercial Airplanes.

Mr Clarkson also signed contracts with Hawker de Havilland and . AeroSpace Technologies of Australia. The two Australian companies will supply Boeing with an estimated $455 million worth, of composite tail control surfaces for -Boeing's new 7 77

aircraft. .' . ' ·


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Under the contracts HdH and ASTA will collaborate with Boeing in design, development and manufacture of the tail control surfaces. . · > . ' . . .

Senator Button said the March 12 Industry Statement outlined a growth strategy for the aerospace industry based on the development of a specialised role in major projects such as the development of new aircraft.

He described the contracts signed today as "building blocks" in that strategy under which Australian companies would take greater risk-sharing roles in the major aerospace projects of Boeing and other manufacturers.

"These contracts for the Boeing 777 are a landmark in the development of the Australian industry;" the Minister said.

"The components involved are very large, complex structures and their design and manufacture involves advanced skills and technology."

Senator Button said Boeing had played a critical role in creating an internationally competitive aerocomponent industry in Australia. The American company had placed orders, including today's, worth a total of more than $1 billion with Australian manufacturers and provided technical support and guidance.

"Today's agreements are a further vote of confidence in the Australian aerospace industry," he said.

The Minister said the development of the aerocomponent industry was an· important ro'le model' for other high value-added . ' industries seeking to position themselves markets. ·

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."The.aerospace, industry·has operated in an internationally competitive environment," he said. "Its performance has been measured against world-class benchmarks set by international companies such as Boeing.

"The industry's success is a testament to the importance of competition and the concept of measurement against world best practice - both important themes in the March 12 Industry Statement."


Canberra CONTACT: Senator Button's Office

Mike Roberts (06). 277 7580


' Doug Stuart ·

' . (06) 276 1967

DITAC Department of




A range of initiatives to be undertaken by the

Commonwealth, State Governments, and industry will facilitate the further development of Australia's aerocomponent industry. . .

This industry is a sophisticated niche supplier of structures and components to the world's major manufacturers of aircraft and aeroengines. It employs approximately 3000 persons and, with exports of over

$150 million in 1990/91, is among Australia's top exporters of high value added products. The principal firms are Aerospace Technologies of Australia (ASTA), Hawker de Havilland, and Turbine Components of Australia. There are a number of smaller firms which

generally provide a network of subcontract suppliers to the larger firms. .

The main impetus to the growth of the industry'over the last decade has been defence procurement and the civil and defence offsets programs. Collectively, these programs have provided the necessary market

leverage and technical support to establish the industry as a competitive subcontract supplier of aerocomponents. More importantly, these programs have developed an industry which has the credibility, scale, and leading edge design and production

technology to enter world markets as a long term risk sharing partner with international aerospace firms.

With increasing world competition for subcontract manufacturing work the future of the industry rests with the development of its design and manufacturing capabilities and the formation of risk sharing and

long term sourcing arrangements. These arrangements. will provide the opportunity for long term sustainable growth and build · on the achievements of the last decade. ·

By progressively moving to risk sharing arrangements the aerocomponent industry will achieve a higher level of value-adding, develop specialised and sustainable competitive advantage, and share directly in the profits of successful ventures.

The successful transition to risk sharing in the world's aerospace industry offers significant opportunities for growth. The commercial market for aircraft is. currently in excess of $US 70 billion per

annum, and in spite of short .term uncertainties the. industry, is expected to experience high rates of long term growth. . ■ · ' ' '

Government and industry are committed to ensuring that the industry's growth potential is realised and have together developed a growth strategy to facilitate the smooth transition to the risk sharing role.

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This transition strategy will occur over a period of .some ten years and will be achieved by a number of initiatives ' designed to create competitive advantage, ensure market access, and develop an appropriate

industry structure.

Market Access Arrangements - New Agreements with Overseas Aerospace Companies

The aerocomponents industry has benefited greatly from the application of offsets to the purchases of the airline industry. However, offsets have a short term focus and to some extent insulate the industry from competitive pressures, and are, therefore, not an appropriate means of achieving the transition to long term sustainable growth based on risk sharing


This transition can only be achieved by co-operative arrangements in which competitive Australian companies form lasting and strategic relationships with the world's major aircraft and engine manufacturers

through risk sharing, research and development, and product ownership. ·

In practice, the transition process will take a decade or more to complete and needs to be underpinned by continued access to competitive sub-contract work and longer term sole sourcing and development projects.

These opportunities are not always available on the basis of competitive bidding owing to the restrictive sourcing policies of major aerospace firms and pressure from Governments seeking work packages in exchange for market access.

It is necessary to ensure that these trade restraints do not disadvantage competitive Australian firms in their attempts to bid for and win work. Accordingly, the Government is negotiating ten year agreements with the major aerospace companies which will ensure

that Australian firms will have access to existing and future work opportunities on the basis of intrinsic competitiveness and agreed fair trading arrangements. Firms signing these agreements will be absolved of all obligations under the. civil offsets program.

Firms which do not enter into these fair trade

agreements will continue to be subject to the offsets program and will be required to meet.all outstanding obligations as well as any future offsets obligations

arising from sales to Qantas. However, to reduce the industry's reliance on offsets, and to avoid problems associated with the administration of offsets in a

deregulated domestic airline industry; offsets will no longer apply to aircraft purchased for domestic use.


Depending on the pace of development of the Australian industry and the working arrangements established with the primes, · the Government will consider the removal of offsets from Qantas at a later date. However, it needs to be understood that the hew arrangements are not tied to the existence' of the offsets program. The agreements have very specific policy objectives and time-frames which the government intends to vigorously pursue - preferably through co-operative agreements based on competitiveness and free trade.

The growth strategy is based on the expectation that the industry must achieve the transformation to a risk sharing role by the end of the period of the fair

trade agreements. Accordingly, it is the Government's expectation that it will not renew these agreements on expiry.

The first of these fair trade strategic agreements has now been signed with Boeing and an agreement is

expected to be finalised with Airbus Industrie shortly. Agreements are currently being negotiated with other, major aerospace companies.

Creating Competitive Advantage - Establishment of an Aerospace Structures Co-operative Research Centre

The aerospace structures research proposal developed by the Australian aerocomponents industry, the Aeronautical Research Laboratories, and tertiary institutions in Melbourne and Sydney, will be funded

by the Government under the Co-operative Research Centres Scheme.

This research will focus on improved manufacturing processess, improved structural performance in composites, and smart aircraft structures. Together these research activities will underpin the industry's competitive advantage in the development of risk sharing ventures on major airframe structures, and provide the basis ' for strategic alliances with the major aerospace firms. .

The overall budget for the research program is $21 million over 7 years. ' .

Enhancing Industry Capability and Structure - Development of Sub-Component Suppliers Scheme · ■

An important element in developing a competitive position as a risk sharing partner, and in expanding the scope and scale of the industry, is the need for a network " of subcontractors able to supply the

sophisticated goods and services required by risk sharing partners. Many of these intermediate goods and services are currently imported and add

significantly to the cost of production.


development of specialist suppliers will expand the breadth and depth of the industry and its capacity for greater, value-adding and competitiveness.

To facilitate the development, of these networks the Commonwealth and State government's, working through NIES, intend to establish a scheme designed to assist smaller manufacturers meet the exacting quality,

design, and process standards of the aerospace industry.

This scheme will help to identify important

value-adding activities which are not currently available on a sub-contract basis in Australia, and develop and support the comprehensive qualification procedures necessary to meet the strict technical

requirements of the aerospace industry.

Where appropriate the Government will also promote investment in Australia by overseas spegialist firms seeking to become part of, and grow with, Australia's aerocomponent industry. .

Strategy Implementation - A National Approach

A major impediment to achieving a major risk sharing role for the aerocomponents industry is the relatively small and somewhat fragmented nature of the Australian industry. To maximize opportunities it is necessary to establish a coherent and national focus on the complex and at times difficult process of making the transition to a substantial risk sharing role.

The responsibility for managing this co-ordination and monitoring role has been accepted by the Association of Australian Aerospace Industries which has

established a series of project groups to oversight and support the process of transition.

State and Commonwealth organisations are represented on these project groups along with industry.

April 1991