Amid India Controversy, AW in U.K. Attempts To Broaden Its Business

Feb. 17, 2013 - by ANDREW CHUTER  - Defense news

LONDON — Graham Cole’s drawing of a three-leg milking stool may not represent the finest of British art, but it helps the chairman of AgustaWestland’s U.K. helicopter operations get across his message that the company’s future depends on adding commercial and export markets to a business dominated by declining British defense orders.

A five-year effort transforming the strategy and efficiency of the Yeovil-based arm of Italian helicopter maker Agusta-Westland into a wider-based business is revitalizing a company that had an uncertain future here in 2010. That’s when the Ministry of Defence threatened to ax an order for the AW159 Wildcat for the Army and Navy as part of budget cuts.

That challenge was fought off, and last month, the U.K. arm of the Finmeccanica-owned company secured the first export order for the Wildcat multirole helicopter from South Korea. The initial order is for eight machines, but company executives say the total could approach 40.

Despite the success, Yeovil’s prospects are again clouded due to another potential cancellation. The Indian government last week threatened to cancel an order for 12 AW101 VIP helicopters being built at the factory. The threatened cancellation follows accusations of corruption in the deal by top executives at Finmeccanica and AgustaWestland in Italy.

Three AW101s, sometimes referred to as the Merlin in its military variant, have already been delivered and the remainder of the order is scheduled to be handed over from the Yeovil assembly site by the end of the year.

India is the company’s largest customer for VIP AW101s and a key part of the drive to keep the Yeovil AW101 assembly line busy.

Aside from India, a recent tour of the Yeovil factory showed other machines either on the flightline or in the assembly hall for heads of state in Saudi Arabia and Tajikistan.

Briefing reporters Feb. 5 before the arrest in Italy of Finmeccanica CEO Giuseppe Orsi and AgustaWestland boss Bruno Spagnolini, the managing director of the helicopter company’s U.K. operations, Ray Edwards, said the company saw the VIP market as a big opportunity and had been putting considerable effort into that sector of the market.

Yeovil now houses the only AW101 assembly line, and aside from the VIP machines the factory is also working on an order for combat-search-and-rescue helicopters for the Italian military.

The market for AW101 is pretty tough, though, and Edwards admitted he would “love to dream we could [assemble] one a month.”

Exports also have been boosted by an Algerian requirement for six Lynx SL300s. Assembly starts in May and will add to earlier AW101 and Lynx orders.

On the commercial side, executives are planning the assembly of the AW189, in anticipation of a possible order to meet a British government requirement for a search-and-rescue (SAR) helicopter.

Yeovil is set to assemble all SAR versions on the AW189 frame, and produce the blades and transmission parts for other variants of the 8-ton machine built elsewhere by AgustaWestland.

“Conservative estimates are for exports of more than 200 SAR-configured machines generating 2 billion pounds [$3.1 billion] revenue over the next 10 years,” Cole said.

Yeovil also is working on other civil activities, including the AW169 and the AW609 tilt-rotor aircraft. Assembly of about 10 AW189s for the Department for Transport will result in the first commercial helicopter to emerge from the factory since the ill-fated Westland 30 line closed in 1987.

“To get where we are in the U.K. today depended on a massive increase in efficiency, it depended on convincing colleagues in Italy that we should undertake civil and other work, and it depended on us winning more military exports. It’s been quite a challenge,” Cole told reporters during a briefing at the Yeovil site.

Leading that efficiency turnaround is Edwards, who arrived three years ago after stints at Airbus and Agusta-Westland in Italy.

Jobs have been cut, infrastructure improved, processes changed and profit margins more than doubled in a U.K. business that has seen 100 million pound growth over the three years to 2011, when revenues totaled 1.1 billion pounds.

Five years ago, the MoD element represented more than 75 percent of the company’s business, much of it relating to innovative fly-by-the-hour support contracts. That mix is already changing.

Edwards said he would be satisfied with the U.K. MoD accounting for about 50 percent of revenues, with commercial taking a 30 percent share and military exports the remainder.

In part, the decline in U.K. military business reflects reduced MoD spending.

“The MoD remains a strong underpinning in what we do here,” he said. “I don’t want people to go away with the thought we are now a commercial helicopter company; we are not.”

The MoD revealed recently a 12.1 billion pound helicopter procurement and support budget for the next 10 years. Included is spending on the 62 Wildcats AgustaWestland is building for the British military, and a substantial upgrade of 30 Merlin (AW101) Mk1s for the Royal Navy already on the modification line.

Other MoD opportunities coming up for the company include optimizing 25 battlefield lift versions of the Merlin for amphibious lift duties with the Royal Marines and a plan to update the existing British Army Apache fleet and further support work.