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Friday, 6 December 1985
Page: 3208

Senator GEORGES —I present report 242 of the Joint Parliamentary Committee of Public Accounts entitled `Government Aircraft Factories-Response', which considers the Department of Finance Minute on the Committee's 198th report.

Ordered that the report be printed.

Senator GEORGES —I seek leave to incorporate in Hansard a tabling statement.

Leave granted.

The statement read as follows-

Report 242 of the Joint Parliamentary Committee of Public Accounts is entitled

`Government Aircraft Factories-Response'.

This Report considers the Department of Finance Minute relating to the Committee's 198th Report on the Government Aircraft Factories.

There have been significant changes in relation to the Government Aircraft Factories in recent times. The Factories are now the responsibility of the Department of Defence and have a new General Manager and Finance Manager.

The production program of the Factories has also changed considerably in recent times. Production of the Nomad has ceased with 22 Nomads unsold and stored as at June 1984. The Government Aircraft Factories have now moved into a phase where they are heavily involved in assembling the new F/A-18 fighter aircraft for the Royal Australian Air Force.

Management Reviews

Since the Committee prepared its Report there has been a series of reviews focusing on various aspects of the Government Aircraft Factories. In August 1983 the then Minister for Defence Support established a Recovery Plan Taskforce to look at ways of avoiding retrenchments and means by which the Government Aircraft Factories might become more competitive and cost effective. The Taskforce consisting of representatives from the unions, factory management and external experts presented a report to the Minister in June 1984.

Following the series of reviews and the many recommendations, the Factories are now moving into an implementation phase. Some positive steps have already been taken to improve the Factories management and performance.

The target established by the management of the Factories is to cut out all Government subsidies by the end of the 1989-90 financial year.

In view of the substantial changes of the Factory the Committee decided to seek current information on a number of matters. The Committee first sought to gain information in writing. However, the Committee found that the answers to these questions were not consistent with information coming from the Factories on levels of productivity. As a result, the Committee held a public hearing on 13 November 1985 to gain evidence from the General Manager and Finance Manager of the Factories and Representatives of the Department of Defence.

At that hearing a paper from the Factories management to the Recovery Plan Implementation Steering Committee was tabled indicating serious production problems at the Factories. The Factories were found to be falling significantly behind on their targets and were well behind schedule on most of their projects.

Major problems are occurring with the production of F/A-18 Flap and Shroud Offsets for the McDonnel Douglas Company in the United States. Deliveries of completed assemblies of Flaps and Shrouds are seven sets or ten weeks behind schedule. This means that these Offsets are now being air-freighted to the United States at a cost of $4,000 per set because the Factories are running behind schedule.

As a result of the Government Aircraft Factories running so far behind schedule, they may have to procure ten sets of Flaps and Shrouds from McDonnell Douglas at a cost of $3.15m which is made up of $1.41m lost income and a premium of $1.74m for a special batch at short notice. There is a risk that these problems with the F/A-18 offsets may cause the Factories to lose credibility with the United States Department of Defense and the Royal Australian Air Force. This would be unfortunate as the F/A-18 Offsets form the major identified workload for the Bond Shop employing fifty-eight people with the potential of over $100m in future work.

When the management of the factories were questioned at the hearing on the reasons for the factories' recent poor performance they indicated that it was predominantly due to an industrial dispute during August and September of 1985. They indicated that such a problem would not reoccur as an accord had been signed by management and representatives of unions at the factories on 30 October 1985 that would resolve matters before an industrial dispute occurred.

Because of the nature of this new evidence, the Committee decided to seek the views of union representatives from the factories at a further public hearing which was held on 18 November 1985. Two of the union representatives were from the Joint Union Group at the factories. The union representatives were asked to give their views on why the factories' utilisation rate was falling and why the factories were so far behind schedule on most of their projects. They dismissed the effect of the industrial dispute in August and September claiming that only four hundred hours were lost making it a very small scale dispute with a minimal effect on production.

The unions had a very different explanation of why the factories were running late with their projects. They claimed in relation to the F/A-18 that every major item of tooling sent from McDonnel Douglas in the United States in early 1985 had faults. The master tooling and master references were both deficient for the radome for the F/A-18. Parts sent from the United States were also faulty and would not fit the jig that had been received previously. Parts that should have taken two hours to make were taking up to twenty hours because of these problems. Kits were sent with only half the required number of parts and materials were out of life. The jig for the flaps and shrouds was also faulty.

According to the union representatives these problems persisted for three to four months causing the factories to run considerably behind schedule. The union representatives indicated that management began to draw people from other projects onto the F/A-18 project. As a result, other projects at the factories started to fall behind schedule.

A union representative indicated that a committee had been set up in the factories to document the problem and make a claim against the McDonnell Douglas Company.

The Committee feels that it has once again been misled by the factories' management and the Department of Defence who failed to disclose these problems when the lateness of the F/A-18 project was discussed.

The Committee suggests that the Department of Finance become involved in examining these claims on McDonnell Douglas and in ensuring that McDonnell Douglas do not demand penalty payments for problems that were initially caused by that company.

Turning to other matters, the Committee re- iterates its previous recommendation that the Government Aircraft Factories should report annually to Parliament. The Committee also notes that the Auditor-General has repeatedly referred to the unsatisfactory nature of the factories financial statements and the lateness of these statements. The factories financial statements do not comply with current commercial accounting standards. Further they do not comply with the `Guidelines for the Form and Standard of Financial Statements of Commonwealth Undertaking' issued by the Department of Finance.

The Committee notes that the factories have introduced a large number of computer software packages in an attempt to overcome their financial accounting and management problems. The report makes a number of warnings in relation to this exercise.

Industrial Relations

In its 198th Report the Committee indicated that there was considerable scope for improvement in the area of industrial relations at the Government Aircraft Factories where morale appeared to be extremely low. Since then, to the credit of present management at the factories, there has been considerable improvement in industrial relations. An Industrial Relations Manager has been appointed and a Joint Consultation Forum established. This Forum has brought together unionists, management and external experts to consider important issues affecting the factories. This has resulted in a better flow of information to the employees.

The accord between the management and the unions signed on 30 August 1985 is an innovative development in industrial relations and should lead to a situation where there are virtually no industrial disputes. All involved in the introduction of this accord deserve considerable praise.

The Committee considers that the organisational structure of the Government Aircraft Factories should change. The factories must become a statutory corporation. The Committee goes further in claiming that the Government Aircraft Factories will only achieve commercial orientation, in addition to providing an efficient response to its Defence work, when it becomes a statutory authority. Only then will it be able to make the quick and decisive marketing decisions required and be able to manage its human and financial resources in an appropriate manner. In essence the Government Aircraft Factories are presently prevented from doing this by their organisational structure.

Several other issues would have to be resolved if the Government Aircraft Factories are to become commercial operations. The factories are also going to have to become much leaner more efficient organisations. Presently only 45% of the factories employees are regarded as ``Direct Workers''. The rest are either involved in management and supervision or the inspection and testing of products. The factories should devise a plan to significantly reduce the number of its employees over a period of time by not replacing certain employees when they retire or leave the factories.

Management will also need to substantially increase the workload of the factories. This can only be done by increasing the amount of commercial work done for customers other than the Commonwealth Government. The report goes on to say that the factories may not be able to continue the luxury of only seeking work in the aerospace industry as they have done in the past. The aerospace industry may be too restrictive in Australia and the factories may have to accept commercial work from other industries.

In conclusion the Committee remains dissatisfied with the management practices of the Government Aircraft Factories. The Committee expects adherence to recognised approved Australian accounting standards and financial reporting procedures. The Committee believes that it has been misled on a number of issues relating to the factories.

The Government Aircraft Factories must move towards being more commercially viable. In order to do this, urgent action is needed to form the factories into a statutory authority. In addition the factories need to obtain a higher level of commercial work and need to take steps towards rationalising their workforce.

I commend the report to honourable senators.

Senator GEORGES —by leave-I move:

That the Senate take note of the report.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.