The commercial woes of Qantas have blanketed the airwaves and newspapers of late, but the government’s intent to change the Qantas Sale Act to allow more foreign ownership of the airline seems unlikely to be realised in the near term.
Yet in all of the media fuss, virtually no attention has been paid to the fact that one part of Qantas has just been sold off to a foreign company—lock, stock and barrel. And it’s the sensitive side of Qantas to boot. On 27 February, Northrop Grumman Australia Pty Limited, a subsidiary of Northrop Grumman Corporation of the United States, announced through a press release issued in Virginia that it has completed the acquisition of Qantas Defence Services Pty Limited (QDS), a wholly-owned subsidiary of Qantas Airways Limited, and that the acquisition is now called ‘Northrop Grumman Integrated Defence Services Pty Limited (IDS)’. That’s to say, all of Qantas’ defence-related business has been sold off to the Australian branch of an American company.
QDS, which had an annual turnover in excess of $140 million, was engaged in aircraft maintenance, repair, modifications and upgrades, engine testing and maintenance, fleet planning, and fuel management as well as diverse supply chain, training and logistics tasks for the Australian Defence Force. It was also involved in the conversion of A330-200s to tankers for air-to-air refuelling and had signed aviation-linked contracts with the Indonesian government.
Through the A$80 million purchase, IDS takes over a range of major defence aerospace systems. Within NSW, the company will maintain C130H Hercules aircraft at RAAF Base Richmond and operate a unit at Villawood for maintaining, repairing and overhauling aircraft engines. In Canberra, it’ll maintain RAAF Special Purpose Aircraft (two Boeing B737-700IGW and three Bombardier Challenger CL-604 aircraft operated by the RAAF’s 34 Squadron). It’ll also operate businesses in Brisbane and at the RAAF base at Amberley. QDS employed approximately 500 workers, of whom some 320 will be retained by IDS.
The Australian media felt this news was deserving of no further attention than the reprinting of a truncated press release. And indeed, there has already been much outsourcing of Australia’s defence needs, as detailed in Andrew Davies’ table on the subject from last year. But there are several issues that suggest this deal might be worthy of deeper examination. The first is the reason for, and process of, the sale. At first glance it appears that this might have been intended to remove security-sensitive defence operations from the Qantas stable, in order to ready the airline for further public ownership. However, the impending sale of QDS was announced by Qantas in August last year and the company assigned the sale simply to the ‘disposal of non-core assets’. The process of government approval for the sale—or indeed whether any government approval was necessary—hasn’t been made public.
That Northrop Grumman has the technical capacity to take on the tasks of QDS isn’t at issue. It’s among the 10 top global aerospace companies and it’s a supplier and provider of defence hardware and services to a wide range of countries.
Through its Australian branch it’s a major subcontractor for the RAAF’s Wedgetail AEW&C, F-35 Lightning II and the FA/18 Super Hornet programmes. In addition, it has been contracted to build a cyber-test range for the Australian Defence Force Academy in Canberra , and in 2012 purchased M5 Network Security which provides cybersecurity services to military, government and large corporations.
While the United States is Australia’s major defence ally and provides our nuclear umbrella, and while its companies are key suppliers of our military hardware, the recent purchase of QDS by Northrop Grumman raises some concerns. When a foreign company, albeit that of an ally, is able to take over one of Australia’s largest defence services companies, whose tasks include maintenance of the prime minister’s aircraft and diverse other RAAF resources, with no media attention and no questions asked in Parliament, an observer might ask why. One could imagine, by comparison, the ruckus which would ensue in the US if an Australian company was tasked with providing and maintaining Air Force One.
Such purchases are increasingly facilitated by the Australia-United States Defence Trade Cooperation Treaty (PDF), signed by John Howard and George W. Bush in 2007. Only the UK and Australia have such treaty arrangements with the United States. This Treaty is being implemented in Australia through the Defence Trade Controls Act 2012, which came into force in May 2013, a few months before the QDS sale was announced. The Treaty and enabling legislation are intended to reduce defence export control restrictions between the two countries, and facilitate defence trade cooperation in ‘goods, services and technologies’ across the Pacific.
It’s inevitable that Australian and US defence integration will be stepped up through this Treaty and legislation, and we’ll be seeing more such tie-ups and purchases between businesses across the Pacific. The nature of the QDS sale suggests, however, that it’s perhaps worthwhile to keep an eye on the degree to and means by which Australian defence tasks are being outsourced to companies owned beyond our shores.
Geoff Wade is a visiting fellow at the Crawford School of Public Policy, Australian National University. Image courtesy of Defence Image Library.