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Leading Edge

Monday, October 1, 2012 - 12:12

Boeing Australia's president Ian Thomas puts higher productivity and innovation into his flight plan. Tom Skotnicki reports

The tragedy of September 11, 2001, marked a turning point for the Boeing Corporation. The world's largest aviation company scaled down production of passenger aircraft in the wake of the terrorist attacks.

It reflected an American-centric view of the global aviation market. The reality was that although there was a downturn in demand in the United States, the growth in other parts of the world, particularly the rapidly expanding Asian market, continued unabated. The lay-offs and downturn in Boeing production lines were mistakes which, in 2004, gave passenger aircraft market leadership to its major competitor, Airbus.

Ian Thomas' eyes glaze as he recalls the events of September 11. The president of Boeing Australia had just left the Pentagon. It was the day he put his Washington townhouse up for sale in preparation for the move to Boeing's office in St Louis.

He recalls hearing and feeling the explosion and the acrid smell that lingered for weeks after the crash of American Airlines Flight 77 into the Pentagon killing all 59 on board and 125 people on the ground.

The story of how Thomas, a Texas- raised academic, became a key player in Boeing's international operations is symbolic of the changes that have taken place in the company over the past decade. Thomas, who has a doctorate in history from Cambridge University in the

UK, was recruited after leaving a policy position at the Pentagon. He is now in charge of ensuring Boeing Australia succeeds in its role as sole supplier of a vital part of the 787 Dreamliner, the most important aircraft launched by the aviation giant in the past decade.

Boeing, like all manufacturers in Australia, faces a huge challenge from a high-cost environment. Thomas believes the answer is to seek competitive advantage through innovation and greater productivity.

Boeing's post-WWII expansion was largely driven by a combination of engineering and production excellence, along with a huge domestic market. For more than 30 years from the mid- 1960s, the launch of the phenomenally successful 737 (still in production), the growth in the US domestic market and international travel all provided Boeing with massive economies of scale. Combined with the market for military aircraft, which kept them at the edge of research and development, Boeing was at the forefront of aircraft innovation, quality and price.

However, the aviation market in the US no longer dominates world demand. Airlines have a wide range of requirements around fuel consumption, cabin size and fuel load capacity.

This has forced a fundamental change for the company - no longer global by default, Boeing has become global by design.

Indian Connection

Within five years of joining Boeing, Thomas was asked to become the first president of Boeing in India. The company had been selling aircraft to the country from its independence, but a bilateral security agreement provided the basis for an expansion in sales of military aircraft.

Thomas later secured what was then the largest contract to date with India (valued at $2.4 billion) for the purchase of a fleet of P8 maritime patrol aircraft (based on a 737 frame). His success in India paved the way for his appointment in 2009 as president of Boeing Australia. It was no small feat as the Australian arm was the company's largest operation outside the US.

Thomas believes Australia will benefit enormously from its decision to export uranium for peaceful purposes to India. He says an agreement with the US on military aircraft followed the signing of the "123 Nuclear Agreement" under which India separated its civil nuclear and military nuclear operations and placed the civilian operation under the scrutiny of the International Atomic Energy Agency. "The decision on uranium will be seen as tremendously catalytic for the future of the Australia-India relationship. Even though they can obtain uranium elsewhere, the decision was a demonstration of faith."

Sydney-bound

Thomas said when he was offered the Australian position he did not hesitate. His best man was Australian and Thomas spent his honeymoon in Australia. Another connection was that the Thomas family had owned a sheep station in Western Australia (won in a card game according to family lore) which his uncle ran for several years. It also provided Thomas with the

opportunity to further his credentials within Boeing as a leading player in its international operations. Boeing Australia employs just over 3000 people across 28 sites in seven subsidiaries.

Australia's Boeing footprint

Australia is a significant market for a range of Boeing products, but it is also an international services and manufacturing hub.

The local business generates revenue of close to $1 billion including export revenue of more than $400 million. It generates large sales to the Australian Defence Force, as well as airlines including Qantas, Virgin Australia and Air New Zealand, valued at billions of dollars a year.

The RAAF was the first international customer for the Super Hornet fighter and has taken delivery of 24 of the aircraft, which is designed to provide an interim solution between the F111 and the F35 Joint Strike Fighter. Australia has also bought five of the Globemaster C17 heavy military aircraft with a sixth due next month. Earlier this year Australia took possession of its sixth Wedgetail (Airborne Early Warning & Control) aircraft based on a 737 frame. Australia is also buying seven Chinook helicopters for delivery in 2014.

In July, Boeing announced a $2.2 billion order from Virgin Australia for 23 of the fuel-efficient 737 Max aircraft. A previous order by Qantas for 50 787 (Dreamliner) aircraft was placed on hold in August with a definite delivery on only 15 of the aircraft. Air New Zealand has also signed up for 10 Dreamliners. Thomas said Boeing had a strong relationship with Qantas and Air New Zealand going back decades.

Most of the Boeing workforce in Australia is divided between manufacturing (mainly in Victoria) and maintenance and training operations (mainly Brisbane-based).

Acknowledging the Boeing role as one of Australia's largest manufacturers, Thomas is on the Prime Minister's Manufacturing Industry Taskforce and is president of the American Chamber of Commerce. Boeing acquired the Hawker de Havilland operation, which had earlier bought the long-established Commonwealth Aircraft Corporation, in

2000. The Brisbane side of the operation was largely inherited through Boeing's purchase of the Rockwell aviation business and through it Aerospace Technologies Australia in 1996. Other significant subsidiaries include Jeppesen Australia, which is a flight planning specialist, Boeing Training and Flight Services, Aviall, a spare parts supplier, and Insitu Pacific that specialises in unmanned aircraft.

Boeing has a research and technology division where scientists work on composite materials, biofuels, autonomous systems and robotics. It has a long-standing relationship with CSIRO as well as links with universities including RMIT, Swinburne, UNSW and QUT.

AUSTRALIA'S TECHNOLOGICAL EDGE Thomas said Boeing was continuing to expand its manufacturing operations in Australia. "Some [of our] customers face challenging times, but we have just completed the latest 20-year outlook and our forecast is that airlines will acquire 34,000 new aircraft which represents a market worth about $4.5 trillion."

Thomas said this represented a compound growth rate of 5 per cent and did not include another $2.4 trillion of services, support and training.

"Australia is well-placed to benefit from that growth with the high-end technology, composite manufacturing we do at our plant in Victoria at Fishermans Bend and also in the services sector, whether it be the flight planning and navigation that Jeppesen provides, or our pilot training (450,000 new pilots will need to be trained over the next 20 years)," he said.

Thomas said he was particularly excited about the opportunities for supply of composite materials to Boeing manufacturing facilities.

"At Fishermans Bend we have the moveable trailing edge, the flaps on the wings for the (787) Dreamliner for which we are the sole supplier."

Boeing Aerostructures Australia - which also supplies and exports parts for the 737, 747 and 777 and some military aircraft - uses a technology called resin infusion that was designed and developed locally and effectively allows the carbon fibre (in the wing edge) to be cured outside of an autoclave.

"It is a patented process that exists nowhere else in the company and the Dreamliner, which is the fastest-selling new aircraft in aviation history (already having received more than 900 orders from 56 customers), will not fly without Australian technology and innovation."

This has provided an enormous challenge and opportunity for the Victorian manufacturing operation. It is only a few years since Boeing was laying off workers and now it is seeking to hire similar numbers or more back.

The reality is the Dreamliner, a fuel-efficient, long-range wide-bodied aircraft, has consistently run behind schedule and far-flung outposts of the Boeing empire like Fishermans Bend are under huge pressure to deliver. At one stage specialists from the US were being flown in to help ramp up production.

The challenge is the plant that has had about $300 million spent on it since winning the Dreamliner contract must produce about 10 of the trailing flaps a month or risk holding up production of the aircraft in the United States.

"It should have a strong future provided we get the sort of innovation and productivity that we have had in the past and I believe we will," Thomas said.

"But what has changed recently is the exchange rate, so Australia has become a very high-cost environment for manufacturing."

Thomas said this was not an insurmountable problem provided, like Germany, it can generate high levels of productivity and innovation.

"Then you can justify or offset the high labour costs and that is what we are looking at carefully in Australia.

"Our challenge is working closely with the workforce and the engineering and technology team as we ramp up to 10 Dreamliners a month," he said.

The objective is that with increased production it will also be possible to generate greater efficiency and productivity. "It is a very open and collaborative approach, it is not just about management saying 'go faster, do it cheaper', quite the contrary. It is about engaging with our high-performance work teams to tap into their ideas about how we can do things better. Working with the technology team to see what we can do to make the production cycle more efficient, drive quality and meet our cost and schedule targets."

However, Thomas warned there had to be a relentless pursuit of quality, performance and production. "Certainly we are on our way to cope with [Australian dollar] parity and accept that cost is one factor and we must look elsewhere for our advantage. Also we face greater global competition even from the US (which is experiencing a renaissance in manufacturing).

"The real challenge will be how do we in Australia compete and win our way on to the next airline, the successor to the 787 and 737? There are no handouts in business and no handouts in Boeing ... we have to be ready and relevant and cost-effective to be part of that global supply chain."

Thomas is convinced the future for Boeing will involve having a global footprint. However, all operations will need to be able to justify their place within the broader organisation and there will be intense competition from existing and emerging Boeing operations such as those recently established in India, China and Brazil.

There is no doubt Boeing has changed. A decade ago 90 per cent of its defence business was generated from the Pentagon. Now it is closer to 75 per cent. However, if Australia wants to maintain a prominent position in the Boeing global operation it will need to be prepared to continue to justify its place.

Winding Road from academia to aviation giant

Ian Thomas is not your typical corporate executive. Having grown up in Texas, the progeny of a well-to-do family with extensive Wall Street and investment banking ties, he chose to go to Amehurst for his university education rather than Harvard, Yale or Stanford. Amehurst

is among America's leading liberal-arts universities. As Thomas himself jokingly described it, "I thought I was a Democrat until I got to Amehurst".

On completing a history degree with honours he decided he wanted to be an architect and went to Florence to study art history for a year. From there he moved to Stockholm University for a masters in international relations where he worked for the Stockholm International Peace Research Institute on naval arms control policy.

It was an exciting time with the collapse of communism for which he had a front row seat. He then decided to continue his studies and went to Cambridge where he eventually completed a PhD in history and became a post-doctoral fellow. By this time he had met and married his wife who grew up in Denmark after escaping Kabul in 1979 along with her Afghan father and Danish mother.

Thomas admits to having had a fascination with the US relationship with Europe. In 1997 he wrote a well-received book, The Promise of Alliance: NATO and the Political Imagination.

It was after this that he started thinking about returning to the United States. He was keen to bridge the gap between policy theoretician and practitioner and headed for Washington where he cultivated contacts within the White House and eventually met president Clinton. It resulted in an offer of a political appointment at the Pentagon.

He spent almost four years working at the Pentagon on NATO policy before the election of president Bush. He then considered a move to Wall Street, but met some Boeing executives who introduced him to Tom Pickering, one of America's most renowned diplomats. Pickering was a former ambassador to the United Nations, one-time ambassador to Russia, ambassador to Israel and most recently an undersecretary of state for political affairs. He was then working with Boeing to increase its global focus.

"He [Pickering] had been hired by Boeing, as he said, 'to transform this great iconic American company into a more agile and more effective international and global company' and that really intrigued me. It was a fantastic opportunity and after a few months they offered me a chance to go to St Louis and work in the military aircraft and missiles division."

After several months in St Louis he became a vice president for business development of military sales in London before eventually taking over sales and marketing for Europe. He briefly returned to the United States before being offered the role as the first president of Boeing India.

It was a successful few years and led to his appointment to Australia in 2009.

Thomas said his time with Boeing has expanded his understanding of Asia and the role of Australia in Asian and pacific affairs. "I want to continue to learn and add value to this global journey Boeing is on."