July 09, 1995

Article at Sunday Age

BUSINESS | US aero giant moves into town in $40m buy-up

Space shuttle Atlantis landing at the Kennedy Space Centre in Florida

By Wilson da Silva

THE people who make space shuttles have taken an interest in Fishermens Bend. And the interest is sizeable $40 million worth.

Rockwell International, the US high-technology and defence giant, has bought the Melbourne-based AeroSpace Technologies of Australia Ltd from the Federal Government and plans to integrate the operation into its global aerospace network.

The purchase, following a year of negotiations, has delivered ASTA from under a cloud of uncertainty and may have secured its 680 employees a future in one of the world’s toughest industries. 

“The ASTA components and defence business fits very neatly into what we are currently doing here and in the US,” Mr Ken Peacock, chairman of Rockwell’s Australian operations, told The Sunday Age.

“We’re looking to expand what we do here for the local market and the Asian region, and to supply back to the United States.”

There was an air of relief at ASTA’s facilities following the announcement last week.

“It was an anxious time . . . people were worried,” said Mr Richard Santo, ASTA’s former chief executive, now general manager of human resources under Rockwell. He said the new owners would give ASTA the kind of corporate and marketing muscle it needs to capture new contracts.

Rockwell is no small beer on the international aerospace market: it has an annual turnover of US$12 billion, and last year made a US$634 million net profit. It designs and manufactures high-technology products from robots and modems to aircraft instrumentation and missile defence systems, but is most famous for the six space shuttles it built for the US space agency, NASA.

In Australia, it operates as Rockwell Systems, holder of a $1 billion contract to design and build the combat systems for the new Collins class submarines for the Australian Navy, and it is refurbishing the instrumentation for the Air Force’s F111 fighter bombers to make them last well into the next century.

ASTA, by comparison, is an aerospace components and defence manufacturer that, although highly regarded and a contractor to some of the biggest names in the business, had hit hard times. Last year, the group lost $61 million, and its eventual sale price came in below its 1994 valuation of $154 million and below industry estimates of $100 million to $300 million.

Although the company has whittled down its reliance on the skittish business of defence contracts from 98 per cent to 20 per cent, the privatisation process exposed some marked flaws in the company’s operation, leading to recent speculation it might be offloaded for as little as $20 million.

In the end, the Government was forced to hive off ASTA’s least attractive holdings: its ASTAAS aircraft maintenance group, the operations of Avalon airport and ASTA’s New Zealand enterprise, Pacific Aerospace Corporation Ltd, a subcontractor that makes light aircraft.

“The underlying fundamentals of the other businesses are very good.

What they lacked is volume,” Mr Santo said. “Rockwell just could not see a way of adding value to that business.”

The three remaining units, which employ more than 500 people, have been retained by the Federal Government, and merged under a new company, Avalon Airport Geelong Pty Ltd. This holding company will operate the airport, continue to service commercial jets in Sydney and Melbourne airports for British Airways and the Japanese carrier, ANA, and train pilots for ANA, Qantas and Ansett, and make light planes in Hamilton, New Zealand.

But the Government may not keep them in public hands; a spokesman for Finance Minister Kim Beazley would only say they were “not being sold at this time”.

A walk around ASTA’s cavernous components manufacturing hangar, on the banks of the Yarra under the shadow of the Westgate Bridge, shows why Rockwell was so keen. Most of the tradesmen and women are doing export work: floor supports and landing gear doors for the Airbus A330 and A340, rudders for the Boeing 757 and for the latest series, the 777, launched in May.

ASTA has built 73 of the Air Force’s F/A-18 Hornet fighters, assembled the Australian Navy’s Sea Hawk helicopters and continues to make F-18 wingflaps for US manufacturer McDonnell Douglas, recently completing its 500th. The company’s defence subsidiary at Avalon airport has recently won a multi-million dollar contract to refurbish and upgrade the P-3C Orion partol aircraft.

The work is detailed, precise and labor intensive. Workers use lasers to cut carbon fibre and kevlar moulds and they cure wing sections in two storey-high cylindrical ovens. Not everyone in the world can do this sort of exacting work on a large scale. For the companies that can, the meticulous work can turn a tidy sum.

“Each one of these is worth $447,000,” said Neville Moore, one of the section leaders on the Boeing 777 line. “So we’ve got about $1.5 million sitting right there,” he said, pointing to a group of three rudders.

Rockwell has long being convinced of ASTA’s potential. They have been chasing the company since 1993, when Canberra first announced it would be privatising the company, and went on to squeeze out four competing multinationals for the right to buy from the Federal Government.

An extra $50 million of new business for ASTA has already been promised in the next year by the new owners, and another $130 million over the next seven to 10 years.

Rockwell executives say they expect to double ASTA’s sales to $160 million a year in the next five years. Despite the talk of potential, there is no firm guarantee the jobs will stay, nor that the workforce will expand.