In this episode of the Defence Connect Podcast, chief executive Andrew Sanderson charts the business’ journey from novice to number one and reveals the growth strategy his team employed to develop and differentiate the business from its competitors in the field.
You’ll also hear how TAE zeroed in on and perfected its core business to be the top contender for major military contracts, as well as how the SME has since cracked the international supply chain to lead the way for other small businesses in the exportation space.
Enjoy the podcast,
The Defence Connect team.
Listen to previous episodes of the Defence Connect podcast:
Episode 179: PODCAST: The 15-year evolution of the Bushmaster – Paul Feighan, Thales
Episode 178: PODCAST: How Australian SMEs can compete on a global stage – John O’Callaghan, Defence Council Victoria
Episode 177: PODCAST: The key challenges facing naval shipbuilding in Australia – Alain Houard, Dassault Systèmes
Episode 176: PODCAST: Operations since the SEA 1442 program contract, Michael Lenton, Leonardo
Episode 175: PODCAST: Forging closer industry partnerships on the back of Type 26 – Mark Goldsack, Defence & Security Organisation, UK government
Episode 174: PODCAST: Aegis delivery for Hunter Class frigates – Neale Prescott and Rob Milligan, Lockheed Martin Australia
Episode 173: PODCAST: Management consulting in high-risk areas – John ‘JP’ Smith, Noetic Group
Episode 172: PODCAST: The importance of real-world situational testing in a simulation-heavy environment – Raydon Gates and George McGuire, QinetiQ
Episode 171: PODCAST: Launch of the Australian Maritime Development Centre – Peter Davie, Dr Len Sciacca, Francois Duthoit
Episode 170: PODCAST: Setting the agenda for defence industry in WA – Paul Papalia, Parliament of Western Australia
Phil: G’day everyone. It’s Phil Tarrant here, host of the Defence Connect Podcast. Thanks for tuning in. We're gonna have a good story today from one of the top, sort of, SMEs, I would say, in the Australian marketplace in terms of both size and scale. And it's a story that I've been wanting to uncover for a little while, in particular, running off the back of an announcement. A couple of weeks ago this company did quite well down at the D and I Industry Conference with the Essendon Lewis Awards and took out the coveted award for, I think it was the Minor Sustainment Activity – Under $20 million, which was for the LAND 907-1 tank replacement for the Abrams. So I've asked into the studio Andrew Sanderson who's the CEO of TAE. And I'm just gonna really uncover his story and see where this business is headed and see if he can give me any gems of information. Andrew who you going, mate?
Andrew: Great, thanks Phil. Thanks for having us.
Phil: So you guys pretty chuffed about the award win the other week?
Andrew: Absolutely. It was great to be recognised for all the work that the team does for that programme, yeah.
Phil: It's pretty good. And I'll read out some of the findings of, I imagine, why you received the award. It said, "This programme is an excellent demonstration of what an agile and innovative SME can do when given an opportunity. TAE began with lot repairs on Abrams tanks in 2013 and has moved onto heavy maintenance of the engine this year." Which I'm sure Andrew will explain to us, is a jet engine in the tank. "All in country. Thanks to the relationship with the US, OEM TAE team can now deliver engine maintenance at a fraction of the time of the US foreign military styles. And between 20 to 30 per cent less cost. It is an outstanding achievement for a participant." So obviously it's cheaper and it's faster.
Andrew: Well it has been.
Andrew: It's been a great experience for us, 'cause we've added the tank engine, which is a jet engine inside a tank, into our jet engine business for aeroplanes . And it sorta fits well with what we do. The experience we have in looking after engines in general and now translating it to the army as well.
Phil: So for our listeners who aren't familiar about TAE ... And we spoke really quickly off-air, is that our businesses are quite similar in terms of we're sort of middle-of-the-road guys. We're not tiny, small SMEs, but we're not the biggest guys in town. So we sort of seem to hold a space in between somewhere. So a big SME is essentially what TAE is. Can you tell me about the background of the business and how you guys got to where you are today?
Andrew: I think "big SME" is a good description. We're about 230 people now in Australia. Quite complex in what we do. Started back in 2000. We had six people. I think I had a check for $100,000 dollars and a laptop and a little contract with Defence to look after some of the background work, or the overhaul work, that was being outsourced at the time in 2000. And grew over that time, you know, delivering great service to keep that contract and then expand it over the years into doing much, much more. From just looking after electroplating wing pivot pins of the F-111 into looking after their engines and expanding into painting over time. And just growing in other things that we did both in the defence space and also the commercial business, to now being the leading engine MRO in Australia as TAE Aerospace.
Phil: So can you tell me about the development of the business? So you talked about doing some minor work on the F-111 through to, all the way through to painting and engine maintenance and servicing. Did the opportunity arise ... Because you're working on the project and you went, "Oh, hang on. Here's a way we can expand our services. Let's quickly get the skills to be able to do that." Or did you develop those skills and then go after those additional chicken and egg type of thing?
Andrew: Yeah, well, I think we, you know, had first contract which we had to make good on a promise to create a company.
Andrew: So we created what was then known as Tasman Aviation Enterprises. But we shortened that to TAE over time. More recently changed it to TAE Aerospace. But we had some work ... So we did some external recruiting. We grew people along as well. We're trying a lot of apprentices over the years and added engineers. But it's been win the work, bring the people on work, deliver that work, deliver for your customer so that they like what you're doing, and then the next opportunity that comes up you can sorta be stronger in your bidding or your tendering process to win the next piece of work.
Phil: And you built your business on the back of the F-111 work. When did you sort of deviate from that and start moving into other air frames or other sort of projects?
Andrew: I think ... Yeah, F-111 was retiring in 2010, so it was a great underpinning piece of our business. But, about late 2008 we diversified a little bit, went into the commercial space as well. Bought a company in Adelaide and one in Cootamundra in New South Wales.
Andrew: To get into the commercial aviation market. We also brought on a new engine. We, at the time, at been looking at the engine out of the F-111, but we brought on the engine out of the F18 Hornet. Repatriated that back from New Zealand and started work at Amberley, and also Newcastle, on that engine. So once the F-111 retired in late 2010, we migrated onto the Hornet engine. 2013 we moved into the Abrams tank engine. In parallel, our business in Adelaide had been looking after a lot of the commercial space as well, with turbo props and fuel controls and other things. So, we've sorta spread and spread and spread as we've become older and older as a business.
Phil: And how transferrable are the skillsets? So, and engineer on a F-111 into a Hornet engine to an Abrams tank engine – is it by and large the same stuff, but just needs some specific up-skilling or training on them?
Andrew: I think it's more type-specific training.
Andrew: Once you've got the hand skills to look after a turbine engine, which is spinning anywhere from, you know, the fast jets right now are probably spinning 16,000 RPM. The tank engine spins at 43,000 RPMs. So, the tolerances are all the same. The way you build them is all the same. It's just knowing sizes and scales and as applied to a particular engine type. So we can certainly leverage the experience we had on the F-111 into the Hornets, into the tanks and Super Hornets. And what's exciting in 18 months’ time is into the engine of the Joint Strike Fighter as well.
Phil: And you guys looking at that, are you?
Andrew: Yeah we've been assigned the work for the Joint Strike Fighter engine, the F-135, for the next 20 or 30 or 40 years. For the whole of Asia-Pacific, so that's -
Andrew: Japan, Korea, Australia – anyone else. And also the US forces in the region too. So our first work, we anticipate coming from the US Marine Corps out of Okinawa in Japan.
Andrew: So it's the regional depot for the F-135 engine.
Phil: And you would be operating out of Williamtown, New South Wales?
Andrew: No, we'll actually be at Amberley.
Andrew: So we've combined all our engines businesses all into the one ... Under the one roof. So the heavy depot work, the overhaul work, is gonna be all at Amberley. Where we deliver some of the services for the operator might be at Williamtown, like we do today, but in general it's all gonna be at Amberley.
Phil: And when you guys secured the Joint Strike Fighter contract, did you pop a couple of champagne bottles and celebrate?
Andrew: It's one of those unique things. So we're assigned that work by the US Government on the back of our experiences. And of all the tendering that I've done over my, you know, time with the business, it's the best of all of them. A lot to do with reputation. I think it was a 20 page document. We could only write on half of the pages because the questions were on the left-hand side of the page. And then we're assigned the work for this region. So champagne corks were popped. Having said that, right now we've been operating, largely, on the back of a press release from the Minister in February 2015. So we still got a lot of work to do to get some contracts over the line.
Phil: It is. And just talking about, sort of, celebrating successes, you've been in business for quite some time now and it's a great story starting with six people and a laptop to 250 plus people now. Obviously celebrating successes is key for business growth and it keeps people engaged and motivated and stuff. How do you, sort of, keep moving ahead when you cop one, sort of, in the chin, and you, sort of, don't win a particular job? How have you, sort of, manage and mitigated those negative effects?
Andrew: "Mitigation" is an interesting description. I've probably got chips on both shoulders, to be honest.
Andrew: But, so we've had some success during the years. I built on our abilities and the way we deliver for a customer. But we've lost a few along the way, too, that were probably quite disappointing at the time. I think we offered some great solutions that we've seen, subsequently, being reflected back at us, that have been given away to our competition. So, challenge to get through that. I think the good part about our business is that we've been able to build layers upon it. So when one piece is not working, another piece can be on the upside. So, for example, our aerial agriculture work, if it's a drought, no one's flying, so there's no engine work. But the military might be on the upside, so we try to balance that too. But, yeah, disappointing not winning tenders. Doesn't mean we won't keep putting a hand up to win the next one as well.
Phil: Yeah. Yeah. And can you sort of describe to me the culture of the business? So if I was to head up to your facilities in Amberley, never been there beforehand, what would I feel? What would I get the sense of?
Andrew: A really bright technical solution. And people wanting to do a really great job for their customer. So, we've sorta brought a culture along that's all about the customer. You know, customer comes first is our first line of our 'what sets us apart' culture-type activity. So, you'll see people going the extra yard for a customer. Be it an army tank commander, or it might be someone who's flying a jet for the air force. It's been a neat transition. We've got this commercial business that is more and more urgent. There's a lot more time pressure on the commercial side of the business. And we're translating that into the military business too so that we're nimble in the way we deal with people. But, you know, customer first in our eyes.
Phil: And you’re ex-Air Force, are you?
Andrew: That's right. Yeah.
Phil: And you recently appointed, into the business onto the Board, a retired Air Force Marshal, Mark Skidmore. So obviously you have a flavour of military in the business and leadership positions. Have that, sort of, shaped the culture, do you think? Or are you sort of…
Andrew: It did over the time, but we're actually quite balanced right now. So 50 per cent of our business is defence and 50 per cent is commercial. Having Mark come on board has been really valuable as, some respects, a sounding board. He's a director, he's headed up CASA, so our commercial business gets his experience there. He's been the air commander, so our military business gets the same, sort of, benefits from having him on board. Our chairman's a finance commercial expert here – lives in Sydney. So we've got an independent chairman over the business too that's not a defence person. My chief strategy person's not defence. So we do try and balance what we're doing from, you know, from those two markets. Which makes us a little bit unique.
Phil: Yeah, and do the non-military guys get frustrated ever with the, sort of, ex-service guys?
Andrew: No ... well it's a frustration. But, ironically, there's more hierarchy within the commercial side of our business. It doesn't have the same ... Hasn't grown up the same way. So there's more threat of lack of certainty in jobs and more cut and thrust around how people are employed and things like that. So there's actually quite – you look at it from two different angles. Yes, the military group, they work together well 'cause they've worked together well for so long. Commercial business is a little more hierarchal, though. Which is really quite ironic.
Phil: It's interesting. And what about on the floor? I imagine you're a nice home for, you know, aircraft that is coming out of the RAF into a home in commercial life. Can you tell me a little bit about how that works?
Andrew: Yeah. Well, we did at the start. So when we first got up and running, there was a lot of ex-defence people that came on board as part of our business. More recently, though, we're recruiting people from across the industry. We got an ex-Honda mechanic who's joined our tank team. Couple of engineers out of Safran here in Sydney. An IT specialist has gone back and re-rolled and started his AME apprenticeship. And boilermaker started his AME apprenticeship. So we're actually bringing in very few ex-Air Force people, or ex-defence force people, into the business right now at the technical level. So it's really quite a change. The average age of our business has gone from mid-50s to mid-40s in the last four years. We've recruiting heavily and growing, which is great. So we're not actually getting defence people too often today. We're getting a few. Some real experts that come out. But, at the trade level we're actually bringing on apprentices and training them.
Phil: And what's the technical skills differential between ex-Air Force and people coming out of a non-military background? They're both capable to -
Andrew: It's -
Phil: To do what they do?
Andrew: It is. I think it's all about hand-skills, attitude, passion for wanting to be in the industry. And I joke with our team quite a lot we get to play with big boys toys. So you come and visit TAE, you see jet engines, you see tank engines. We also look after the wheels and brakes for Qantas's A380 and A330. So you see big wheels and big brakes in and around the region too. So it's easy to attract young folks into our business. More recently we've started, and really grown, our test cell design and construction business. So you've got engineers and mechanical engineers, mechatronics engineers, joining the company too, so.
Phil: Do you have any concerns of the longevity of getting good tradespeople into businesses like yours? Because every kid these days wants a university degree and wear a suit and go to lunches all day.
Andrew: Yeah. There is a little.
Andrew: But at the same time, when we go to market right now, and I think we're in the market for about 13 people at the moment, we are oversubscribed. We get 40 to 50, in some cases 100 people, applying to come and join us. So, the threat of the industry not being able to recruit people, for my business it's not the same as what others are probably experiencing. My own son, he started at uni but he’s now changing careers, wants to become an aircraft maintenance engineer. So he's back to TAFE and learning how to be an engine mechanic. So…
Phil: And you're not, sort of inhibited geographically being based up in Amberley to try and get, sorta, talent outside of the state, or is it ... Do you think that the depth of talent with Queensland is sufficient enough to provide the guys on the ground doing what they need to do?
Andrew: There is. We're probably ... it's 50/50.
Andrew: Our most two recent technicians into the engine line for the tank came from Sydney.
Phil: So they're relocating up there?
Andrew: Absolutely. Pick up and move up from Sydney to Brisbane. We got some junior engineers who are on the test cell team who've moved in from Brisbane, but also from Melbourne. One of my young engineers whose into our performance and liability team has come out of Melbourne. And one of the project managers we've just appointed as one of our business managers has come from Melbourne. In fact, he still commutes back to Melbourne as well, so.
Andrew: So I'm not worried about attracting people to our business. While it stays a good business, it becomes its own attractor.
Phil: And while it remains a good business. So if I was to read one of your requests for tenders and I read one from your competitor as well, what would, sorta, set you guys apart? What would be that one thing where I'd go, "You know what? Let's just put this one at the top of the pile?"
Andrew: I think it's about the quality, safety, innovation thing that we wanna bring to being part of this aerospace industry. We're not generally going to be the cheapest, and we don't try and have that fight to the bottom. It's about the quality and the service that you get from working with our business. And I said earlier on, you know, customer comes first. It's about that customer service approach to doing things. So you get that feeling whether you're an AG customer from the back of Moree or you're General Electric, or GE, with their 404 or 414 engines. You know, we treat each customer just the right way and write about that in our tendering activity.
Phil: Yeah. And leadership has its challenges obviously. And being CEO of a company, you've got the weight of the world on your shoulders, no doubt. When you lie in bed at night at three in the morning, what do you worry about the most?
Andrew: Over the last two years, 'cause we did a management buyout two years ago, there's a little more pressure on us now from capital investment in our business. We used to be owned by Air New Zealand, now 100 per cent Australian-owned. So making success of the business next year and five years’ time is what I look at. What's going to be in 2020? Not necessarily what's going to be in 2017. That's the thing that, sorta, keeps me awake at night.
Andrew: And what are we doing with our investment and where are we taking the business? That's probably more of a ... The future is more of what I'm looking into. And that's part of my job as Chief Storytelling Officer.
Andrew: Is actually out there, you know, talking up the reputation of the business and see what we can do into the future.
Phil: And it sounds like you can back it up, though, with some good runs on the board.
Andrew: Standing in front of the organisation, it's easy to talk about the good things that we do. So it's not hard to project what we can do at any point and try and convince customers, whether they are the AG customer from Moree or anywhere in, you know, a global player. And that global player can be India, it can be in Europe or the States, for example. We show and demonstrate what we can do every day.
Phil: And when you sit there and, you know, think of all these things that you should be worrying about, all these challenges you have ahead of you, what is it that really excites you, that just brings you back to equilibrium about "irrespective of all these tough things that are ahead of us and all these uncertainties and unknowns", this is what really excites you and gets you going every single day?
Andrew: Having the opportunity to lead this business. And it's been, you know, been my life, realistically, for 17 years. And so, where can we take it? You know, we've grown from this little business back in 2000. We're now a business that's projecting close to 100 million dollars’ worth of revenue in the next year or two. There's some real great successes within our company. So, what I'd like to do is to take that even further. It's just an exciting way of getting up in the morning and going to work. We've got great people within it too that really value being part of our business and delivering for their customer. So, without the customer we're worthless. So it's really important that we, you know, keep that front of mind.
Phil: And obviously the White Paper, the 2016 White Paper is ... And associated documents, 195 billion will be spent in 10 years. You're obviously doing some pretty good revenues right now and it's a market which has opportunities moving forward. Is there gonna be a listing at any point? Or, you know, what's the end story?
Andrew: I think, you know, we've-
Phil: 'Cause it is a good story right now.
Andrew: It is, yeah.
Phil: And if I was looking at this market, externally, as an investor, aerospace would be an attractive business case. Considering, you know, you've got 20, 30 years coming out of the F-35.
Andrew: I think, yeah, we've got a great base to build on from a business. In the defence side of things, things come and go and the classic Hornet, the F-18, out of Williamtown is going to be withdrawn over the next few years. So that'll impact us. But we're bringing other things on top as well. 30 per cent of our work comes from overseas right now. So we're exporting. So we've grown from about five per cent four years ago, to 30 per cent today. So, yeah, we see lots of opportunities for the business. Now our planning means ... You know, we're sorta aiming to double in growth, you know, or double in size over the next four years as well. Which we have done in the last four years. So, not saying that's going to be easy, but I think there's great opportunities for us. Aerospace is where we're focusing. You know, we've added that to our name now so we're now TAE Aerospace because it helps define the market that we're in and what we're focused on.
Phil: And, obviously, the government's talking a lot at the moment around an export strategy. So, you guys have been in that game for a little while. You mentioned, 30 per cent of your business is external to the domestic market. How have you guys gone about, sorta, cracking, sorta, export or getting into, sort of, international supply chain?
Andrew: It's a slow and patient process. We've got customers Malaysia, Thailand, Taiwan, India. You know, we're getting work out of India into our Adelaide business. And a little more in the US. So, out through South Asia, or Southeast Asia, it's ... You have to be patient. So we have a bit of an agent network. How did have connections up in that part of the world? We have a really strong engagement in Malaysia. Strong engagement in Taiwan, Thailand as well with military up in that part of the world. Royal Thai Navy and the Thai Air Force, as well, are our customers. You know, you can't say, "I'm going to be exporting tomorrow the services that we do". It's three or four or five years before you start seeing the fruits of the investment that you made in that programme. So, it's important for us. Australia's only so big. I think we're 1 per cent of the global aerospace market. We probably think we're 10. But how do we, sorta, find a market, you know, exposing ourselves or demonstrating that we can do things outside of Australia is important to us.
Phil: And for SMEs looking to crack the international supply chain, any particular tips or hints?
Andrew: Well, I think, with defence, they have a great export encouragement process with the Team Defence Australia activity. So we've made use of that for the last four or five years, where we go along with groups of SMEs and we might have a rear Admiral or an air-vice Marshal come along to help have those engagement with Asian customers. And, you know, it's been good to be involved with that too. So, there are, sorta, some opportunities. You get out to be there. But, a lot of it's feet on the ground and working with your agent network out through Asia-Pac.
Phil: And you have a now, a very strong representative in Mark Skidmore from a, you know, Senior Officer within Royal Australian Air Force. Do international governments, international services, like speaking to someone who is of the same ilk, is that a big key?
Andrew: Certainly do.
Andrew: You've got to be careful that you don't outrank them.
Andrew: So it's really quite important if you bring your two-star to visit their two-star-
Andrew: Make sure your two-star isn't higher than them. So that's one thing we learnt through this process. But having Mark on board is going to be really valuable. He's ex-Air Commander. So he's got the credibility to have the conversations with a Deputy Chief of Air Force, for example, in Malaysia. So that's going to be helpful to us in the long run.
Phil: And your story, so did you go straight from the RAF into this business or was there a bit in between?
Andrew: A little hiatus -
Andrew: When we were still doing some business development work. I left the Air Force as 6 Squadron with the F-111 Squadron. Spent about a year doing some business development work with Air New Zealand.
Andrew: And then we won the first contract and had to make good on that promise and create the company. So, being the only Australian in that team I, you know, stayed in Queensland and started the business in 2000. So, little gap – sorta nine or 10 months in the business development world and then, realistically, it's been business development ever since.
Andrew: As well, within our business.
Phil: And where did you work out, "Oh hang on a second, this thing's serious. It's gonna be a long-term play"?
Andrew: Well early on, but we've also had some downsizes within that process too. You know, when the F-111 retired, we actually had to move on 100 people. So we had some pluses and minuses within our journey. So, the last three to four years has really seen some great uptick. And we gotta back ourselves. You know we put our own capital on the line to make this business a success. Got a lot of emotional capital -
Andrew: - at the same time. Really the last two or three years has seen it head in the right direction. Really has been some great growth in the last three to four years.
Phil: How did that feel, sorta, personally but also as a business and people within a business, seeing that big hole get dug and all those F-111s being put in there and being filled over with dirt? Must have been a bittersweet type of ... You know?
Andrew: Absolutely. Having spent my time with the F-111 in my Air Force career, including buying 15 out of them out of the US. You know, 15 of those aeroplanes were buried, I delivered out of the US with some colleagues. And so you know that they've now disappeared. It was a great aeroplane.
Andrew: As an industry, it was a maintenance magnet. So it probably had ... The right thing was done from a defence point of view and once -
Phil: It was in service for a long time, but -
Andrew: It was. Yeah. And it was a big stick in and around the region. And a lot people learned a lot of things from it. That's one of the pluses. From a lot of the underpinning benefits that are flowing out into defence industry now, you know, generated through servicing things like the F-111. Be it the engines or the air frame, and the like.
Phil: And you're obviously ... You have a Queensland pedigree, but you're now, sort of, across a number of different states in Australia. What's your, sorta, thoughts on ... You have South Australia, you have Victoria and WA really flying the flag for defence industry. We had Greg Combet on here who's the Defence Industry Advocate, I think is his title, out of -
Phil: Victoria. And South Australia has a very strong advocate who likes to fly the flag for the state and Western Australia's not really scared to get involved and start ruffling some feathers and championing it's shipbuilding capabilities. But do you think Queensland is doing enough to support defence industry or-?
Andrew: It went through a hiatus for quite a while. They brought a defence envoy on and it's now turned into Defence Industries Queensland.
Andrew: More an attractor, as opposed to, the front of the foot business or the, you know, the government, sort of, organisations in South Australia and Victoria and WA. So, we do get lots of support from them and they're happy to be engaged with us through that journey. And I think we're part of their defence planning into the future. We just got to make ourselves relevant. They're probably not as strong as the other states competing for work, but relying on the fact that Queensland's a great place to do work and, there's a huge proportion of the military, for example, in Queensland. Southeast Queensland, in particular, with Enoggera Army base. Amberley is a significant group of people and enterprises in and around the region. But I'd say the ... Probably South Australia very attractive, Victoria very attractive, and WA is some real strong ones.
Phil: Yeah. It's an interesting industry we're in right now. And do you think it's attracted a lot of people, sort of, considering the government investment into defence spending in the years ahead? You know, is there anyone that you're looking at the moment who you think might be a potential competitor, who might come in and ruffle things up and try and take their share of some of things coming on the line?
Andrew: Well, you have to think so.
Andrew: So, one of the things that we try and do is make ourselves the best at what we do so it's really hard for someone to make a decision to enter the market. We've got quite a few barriers to get into where we are. You know, fixing engines doesn't come with just turning up into a tighten shed on the side of the road and start fixing jet engines. So we're reasonably protected but can't be complacent. I think a lot of that spend, that 195 million-
Andrew: Or billion.
Andrew: Which I think is getting closer to 200, 'cause it's rolled into the next year, lot to do with acquisition. So my business is more around sustainment. And we do some manufacturing for the Joint Strike Fighter, but generally we're a sustainment organisation. So we have to fit well with the primes who are delivering the platforms. I think that's one thing that we, sorta, put a hand up for and say, you know, "We're the best at what we do." Not to say people don't want to nose into our business or become a competitor for us. 'Cause there are competitors around, they're just not at the same scale that we are right now.
Phil: Yeah. And the work you're doing on the Abrams, obviously, that should go up into 2020, within the, sort of, the land environment, is there anything on the horizon for you guys that you think you can move into?
Andrew: Well it's ... I think, you know, with an aerospace background, anything aero-derivative is what we're, sorta, pursuing. Whether that's marine aero-derivative engines or the land side of things. We're probably not involved in the LAND 400 project around the wheeled vehicles. So anything but the turbine is what we're probably pursuing.
Andrew: And I think Army's looking at expanding that fleet too at some stage in the future, so we want to be around for when that happens. We do a great job for them in terms of servicing their engines, as compare-, you know, compared to what they were getting out of the US. So I think they're pretty happy with the product they're getting. So, you know, if they expand their fleets, we'll be more and more involved with them downstream.
Phil: And how do you keep focused on the strategy? So, obviously you can get the next big shiny thing, sorta, pops up over here and you think, "Oh, hang on a second. We should be looking at that." But, you know, how do you keep the direction and keep on path without getting distracted with the stuff that could potentially spread you too thin and you stop the value proposition?
Andrew: We've been through that recently. We have, what we call our "heat map" – all the things that we're chasing. And there's too many on it for us to keep pursuing. You know, we have a very high complexity-per-capita ratio. We do so many things with the number of people that we have. So we actually have to stop doing things. And that's probably as hard a decision to say "No" as "Let's go chase everything". So you can't just keep pouring resources to chase everything because some things we have a competitive advantage and others we just want to be there, and that's not gonna be helpful. So, we've become more disciplined about what we focus on from a core business perspective rather than chasing, as you said, "the next shiny thing", to follow, you know, fly past us which engineers are prone to doing. You know, "Let's go chase the shiny thing". But a lot more strength in the strategy work that we do and what markets we try and enter.
Phil: You've obviously grown quite rapidly. Are you a natural inclination to, "Well yeah, let's keep going" or is that you more of a conservative leader?
Andrew: I think the development of the business is been what I've been about for a long, long time. So I have a natural conservatism. Though, seeing opportunities is what we're trying to do as well.
Andrew: So it's taking the next step and the next step. And now being, you know, effectively privately owned, we have a board that decides what we want to do. I don't have to answer back into a large parent organisation that we weren't aligned with. So, getting money, we've got good support from out financiers. So if we want to invest in something, we can do it. I'd rather chase things than sit back and consolidate. That's sometimes is a flaw, but that's been the growth of the business.
Phil: And how have you gone about raising cash to grow? In terms of financing, what, sort of, sources do you normally tap into?
Andrew: Well, ours has been, you know, big four bank here in-
Andrew: In Australia. So our main investor has been-
Phil: And they've been happy to lend on that basis?
Andrew: So the good thing in Queensland is we're not residential and we're not mining services. So we're, you know ... We've had great support from, you know, from the NAB. They've been our main -
Andrew: - our main banker. So it's been positive the whole way through. Yeah.
Phil: And have you found their appetite waning at all, sort of, over the years? Or has it always been quite solid and steadfast?
Andrew: We've only really been with them for three years -
Andrew: - because of the private nature. You know, prior to that, we were part of an airline that was really ... it gathered four billion dollars of cash-
Andrew: Every year. So getting money wasn't that hard under the old days. But now they really see the success of our business. When we started to where we are now, we're effectively double in earnings. So they can see that the promises we made back in 2014 have come through and now they're really wanting to get on board with where we want to go in the future.
Phil: Have they got, like, an aerospace specialist actually understands the business or is it more of a, "What are you guys doing? Tell me about it."?
Andrew: No, they're as excited as anybody else to come out to Amberley and see a jet engine run or a -
Andrew: See the, you know, jets come past. They're business specialists. And they can see a good idea when it's in front of them and they've really supported us to get where we are.
Phil: That's good -
Phil: And we've got a great partnership with NAB as well. So, it's a good bank. Enjoy the chat, it's really interesting. You know, it's already run out of time. Just to, I guess, to summarise ... Just, before I do so, an average day for you, can you tell me about it? What would it look like?
Andrew: I joke at times, I actually don't have to go to Amberley. My main office is at Amberley, but it's, you know, it's a seven o'clock start. I've got a 45 minute drive to work. So a lot of thinking, unfortunately the phone -
Phil: A lot of times you listen to podcasts?
Andrew: Podcasts. Yeah that's ... Unfortunately the phone works on the way -
Andrew: Amberley's not, you know, Queensland-
Phil: Too far away.
Andrew: Bit behind the southern states, maybe. But, no the phone still works. So, yeah seven o'clock start. I try and get, you know, finished by six or six thirty, sorta get back home. But during the day, lots of different things going on. Business in South Australia, bit overseas. So early mornings are often US base contacts. Canada.
Andrew: We have a joint venture in Kansas City in Missouri that we're working on. So, there's some ... You know, our business is quite a global business. I don't get out into the workspace as often as I want to but we've got a good team at Amberley. But half, well, a third of my business is in Adelaide. So there's comms down there too. You know, phone calls and ... I have someone very good at managing my diary, in terms of-
Andrew: How I get things done during the day. Yeah.
Phil: Yeah, that's key. It's good. So, just to wind up, you've been in the industry commercial perspective quite some time and obviously ex-services. If you had to explain the defence industry in 2017 versus the defence industry in 2007, 10 years back, how would you ... What's sorta the key changes? Key differences?
Andrew: Today it's ... If you enter it today, it's fabulous compared to where it was back then. So, back in, say '97, 2007, you know, we were seen as dirty rotten contractors. The change is substantial today. And be it through, you know, defence industry policy that's been brought out ... We have our minister, you know, Minister of Defence Industry, you know, Christopher Pyne has been a plus for us. So, within the buying part of the organisation, you know, and the CAS Group, they now acknowledge where our industry fits. And I think we've got a more mature group of people. So everyone's not out there trying to get the last dollar out of defence. It's actually looking for long-term approaches. And we're taking a long-term with it – a long-term view with it. So I'm more encouraged today. If it was like it was today 10 years ago, we'd be vastly different. You can imagine what it'd be like today. It's a real plus, I think, where we've got to.
Phil: And you explained your business has gone from an average age of 55 to 45. Do you think that needs to happen within defence industry, because I go to a lot of events, and there's a lot of middle aged guys in suits. Yeah.
Andrew: Gray-haired dark suits?
Andrew: It is and so we're trying to bring people through the business bit of project manager or business manager. I've just appointed a sales role in our Adelaide business who's come off the shop floor, sorta mid-30s. And he'll be someone who'll actually engage with the defence into the future. So it won't be old guys like me and other, sort of, networking around Canberra. That's part of our problem is we, sorta, joined the Air Force together and we sorta know each other. So you get to go back to those events and, you know, reminisce more than anything else.
Phil: Yeah. There's nothing wrong with that.
Andrew: No, but I think it does need to be refreshed. You know, sooner or later the generation of Air Force or Army or Navy folks that were in and around the business that left to join industry, will get replaced and it'll be changed, you know, will be changed the whole way through.
Phil: Yeah. Interesting. Which we will watch closely. Andrew, I've really enjoyed the chat. Andrew Sanderson from TAE Aerospace. Have I got that right?
Andrew: That's right.
Phil: That's it?
Andrew: TAE Aerospace now.
Phil: We've been writing a couple things about you guys recently on defenceconnect.com.au, so if you're interested go and check it out. I Googled the business a couple days ago and there's a good video on the home page which pretty much talks about the vision for the future, yourself and Mark Skidmore discussing the path. And you've set some pretty ambitious growth targets, but they don't sound pie in the sky, because you've got a proven history and experience by delivering this growth and value. So, keep up the good work.
Andrew: Yeah, it's ... Looking forward to the next part of the journey.
Phil: Nice one.
Andrew: For sure. Thanks Phil.
Phil: Thanks for coming in.
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