Apr. 22, 2012 By ANDREW CHUTER Defense News
In Search of Buyer, DSG Promos Afghanistan Performance
LONDON — Faced with an 11,000-kilometer round trip to get service, repairs or upgrades for armored vehicles battered by the Taliban and the environment in Afghanistan, Britain’s Ministry of Defence instead opted to build a facility at its sprawling Camp Bastion in Helmand province to carry out the work.
The task of operating the factory in the desert went to the Defence Support Group (DSG), the up-for-sale, state-owned company that is already responsible for depth servicing and other work at its facilities in the U.K.
Now in its second full year of operation, the facility, known as the Equipment Sustainability System (ESS) Regeneration Capability, is proving its worth — saving the MoD money, relieving pressure on the air bridge between Afghanistan and the U.K. and getting vehicles back into the fray much faster.
Dave Burgess, the DSG general manager at the Camp Bastion facility, said the MoD has saved 22.9 million pounds ($36.5 million) in the first full year of operation — nearly 8 million more than predicted.
This year’s savings are shaping up to be even better, Burgess hinted.
Importantly for DSG, the facility is not just saving the MoD money and improving vehicle turnaround times. ESS is also boosting the company’s bottom line as it faces the challenge of replacing the profits from its recently closed military aircraft maintenance business at St. Athan, Wales.
The Bastion facility is reckoned to be the first British base workshop deployed in an operational theater since the Korean War.
“Conceptually, ESS was a good idea, and we can now see it working in practice,” Burgess said.
ESS mainly handles longer-term preplanned work on land platforms, he said, while the British Army’s Royal Electrical and Mechanical Engineers do the rapid-turnaround maintenance needed on the front line.
“In soldier terms, [the vehicles] get trashed,” Burgess said. “We give them an in-depth inspection, carry out the repairs, do a full service and any modifications and urgent operational upgrades required at the same time.”
Aside from armored vehicles like the Jackal, Husky and Warrior, ESS also services a range of land gear, including generators and electronic and optical equipment.
In the first year, 567 big pieces of equipment, from generators to armored vehicles and heavy equipment transporters, were serviced, repaired and updated by the 120 DSG and support employees at ESS.
British plans for the facility once combat troops are withdrawn at the end of 2014 are unclear. DSG has a minimum three-year contract for ESS, and while the drawdown will likely mean its eventual demise, the withdrawal of troops and equipment could bring opportunities of its own.
The MoD has been considering its options on what theater exit standard it wants for vehicles it brings home and whether that work is done back in the U.K. or at ESS, Burgess said.
The outcome of those deliberations will have a short-term impact on DSG’s efforts to remain viable amid the fallout from the government’s economic austerity measures, which has included serious cuts to spending and capabilities in sectors where the company operates.
While DSG has brought significant benefits to maintenance and repair activities in the U.K. since it was founded in 2008, reduced MoD spending could leave it exposed, said Howard Wheeldon of Wheeldon Strategic Advisory.
“The coalition government policy on deficit reduction and eventual privatization of DSG is an inevitable consequence of changes demanded by SDSR [Britain’s Strategic Defence and Security Review],” he said. “However, while the necessity to further reduce costs is an obvious consequence, we caution that with equipment capability reduction across all three U.K. armed forces, a privatized DSG with 12 bases and 3,000 employees could find itself deemed too large for future anticipated levels of maintenance and repair activity.”
The government’s 2010 SDSR resulted in large cuts in the numbers of some operational vehicles, like the Challenger II main battle tank.
DSG has other problems on the vehicles front. With withdrawal looming, the government’s heavy spending on urgent operational requirements in Afghanistan is starting to end. DSG has been a big beneficiary, with its facilities kept humming by extensive Army-required upgrades to platforms such as the Warrior infantry fighting vehicle and CVR(T) scout machine to increase protection against roadside bombs and fix other problems.
None of that’s good news for a company that the Conservative-led coalition decided would be sold off as part of its 2010 strategic defense review. Industry executives here said the delay between the decision to sell and the sale itself is to allow DSG to complete its transformation and secure the large long-term contracts that would lure would-be buyers.
Two major deals are in the works, but neither has been signed. Lockheed Martin UK has said it is committed to using DSG as the integrator on a $1 billion update of the Warrior, which includes fitting a new turret and cannon.
General Dynamics UK has a memorandum of understanding with DSG to build scout vehicles and other variants in the British Army’s specialist vehicles program. GD is working on the demonstration phase, and an MoD decision on a production deal is likely some way off.
An MoD spokeswoman said the ministry is “still looking to sell the Defence Support Group in line with the SDSR announcement. You can expect further developments later this year.”
Defense ministers have previously talked about completing the sale in 2013-14.
It’s unclear if all of DSG is up for sale. Aside from land systems repair and upgrade, DSG has an electronics and components unit that tests, repairs and calibrates avionics and other equipment.
Last year, it also took over the part of the MoD that undertakes vehicle storage — a small but important element in DSG’s strategic plan to offer customers a cradle-to-grave vehicle capability.
The company will soon report its annual figures for the year that ended in March, and defense analysts here said they are hopeful of an improvement over the previous year’s performance despite what is likely to have been a declining workload in the land and air sectors.
Unfortunately, 2011 is the last year in which DSG can rely on its Large Aircraft unit to underpin performance. The unit closed last month with completion of the last depth-maintenance program on the Royal Air Force’s VC-10 fleet ahead of the tanker/transporter’s retirement.
In 2010, the air and electronics businesses together (DSG doesn’t split them) reported 7.2 million pounds operating profit against total returns of 7.5 million pounds.
About Defence Support Group
Owner: U.K. government. Formed in 2008 from the Defence Aviation Repair Agency and the Army Base Repair Organisation.
Headquarters: Andover, England.
2010 sales: 209 million pounds.
Operating profit: 7.5 million pounds.