Leadership moves signal changes at Tenix

Tenix has undertaken a significant corporate re-structuring which will provide it with the flexibility to carve a new course into the future - with significant implications for the future shape of Australia's naval industry. The senior management team at Tenix underwent a significant reorganisation in February as part of a major corporate re-structuring which will provide it with greater flexibility to pursue new opportunities such as the Federal government's sale of ASC Pty Ltd.

Notwithstanding former Group Managing Director Paul Salteri's comments last year to the magazine Business Review Weekly that he didn't see the need for Tenix to float on the stock market, the new structure positions the company to manoeuvre rapidly in response to changes in market conditions.

Observers aren't ruling out the possibility of a float at some point in the future. The company itself remains silent on the toTenix currently employs some 4,500 people and turns over $1.2 billion a year, of which $680 million is directly defence-related. About 45 per cent of group turnover, and growing, is now derived from commercial work, principally through the company's Tenix Alliance business, though its commercial aviation and IT security businesses are starting to make an important contribution, too.

Of immediate interest to the defence community is the decision of Tenix's founder, Carlo Salteri AC, 86, to retire as Chairman of the Tenix Board and become a non-executive director. The new non-executive chairman of Tenix is his son Paul Salteri, who has relinquished his long-time role as Group Managing Director.

"Having led Tenix as Group Managing Director since the company was founded in 1997, I believe, with the support of my family and fellow Board members, that the time is now right to take up the non-executive role of Chairman", said Paul Salteri. "I look forward to this new challenge and my continuing involvement with the company."

Moving into the role of Group Managing Director and Chief Executive Officer is Greg Hayes, who was previously Tenix's Executive Director Finance and Corporate Development based at the Tenix Group head office in North Sydney. He was appointed to that position in November 2006 after being recruited from AGL, where he was Chief Financial Officer.

He has also held senior management positions with two publicly-listed companies, Westfield and Southcorp (now owned by Fosters). The former head of Tenix Defence, Robert Salteri, has also become a non-executive director of Tenix, relinquishing his role as an Executive Director and CEO of Tenix Defence.

The Tenix Defence business has been reorganised into two principal entities: Tenix Marine, and Tenix Defence & Aerospace. The Marine business is based at Williamstown in Melbourne, and is headed by Executive General Manager David Miller; despite the completion of the highly successful Anzac-class frigate project, Tenix Marine still accounts for at least half of Tenix Defence's total turnover.

It has major facilities at Henderson, WA, and at Williamstown and Whangarei in New Zealand, where the company is building two Offshore Patrol Vessels (OPV) and three Inshore patrol Vessels (IPV) for the RNZN under Project Protector . Over at Henderson, Tenix Marine's yard specializes in patrol craft-size ships, including the recently delivered Philippines Coastguard vessels and a family of patrol boats for the Pacific Islands, Kuwait, Hong Kong and other customers.

Western Australia is also the location for the ANZAC Alliance, the tripartite structure established by Tenix, Saab Systems and the Commonwealth to manage and implement the in-service support and upgrade of the RAN's eight Anzac frigates.

The company owns and operates a ship lift at Henderson, which has been used extensively by the RAN and its contractors to pull warships and submarines out of the water for maintenance and refit. While the high point of the Anzac-class frigate program has passed, Tenix Marine is positioning itself to tackle two new high-profile projects: the RAN's Amphibious landing Ship (LHD) program, for which it is teamed with Spanish company Navantia; and the Air Warfare Destroyer program.

Both projects will reach their 2nd Pass milestone around mid-year, when the Federal government is scheduled to select which of the two competing AWD designs will be built by ASC Pty Ltd in Port Adelaide, and which of the two competing LHD designs will be built by the designers' Australian partners 

The LHD program will likely be a straight win/lose outcome for Tenix Marine and its rival, Thales Australia, which is teamed with French naval consortium Armaris. It's uncertain how much of the winning design would be built in Australia, given current concern in Canberra over the Australian naval industry's capacity and skills base.

Tenix has plenty of capacity to fabricate LHD modules across its three yards, and the smarts to be able to do so efficiently and economically, but the LHD program is likely to clash with the AWD program, with both projects competing for manufacturing manpower, skills and space. The AWD program also represents an important opportunity for Tenix Marine, albeit as a sub-contractor rather than in the prime contractor role it has been used to.

ASC has repeatedly stated that some 70 per cent of the hull and superstructure modules for the AWDs, regardless of the design, will be fabricated outside South Australia. The companies who win the contracts to build these modules will be selected on fairly simple grounds: capacity, quality, cost and risk. Tenix Marine's module fabrication, consolidation and project management skills, honed on the Anzac and Protector programs, along with its ability to carry out fabrication work at up to three separate yards concurrently, should enable it to win a significant proportion of this module work.

If it fails to win the LHD contract the company should have plenty of capacity available. Tenix Aerospace & Defence incorporates Tenix's former Aerospace, Electronic Systems and Land Divisions in Melbourne and Adelaide. Its Executive General Manager is former GEC Marconi Australia chief Ian Sharp.

This part of the company's business is very diversified, though a major focus of its operations is Electronic Warfare (EW), in which it has been positioning itself patiently as an EW equipment designer, manufacturer and systems integrator capable of providing Electronic Surveillance (ES) and, uniquely within Australia, Electronic Attack (EA) capabilities for both air and maritime platforms. The company also has a significant aerospace maintenance and upgrade business.

The former Land Division is responsible for military vehicle design, upgrade and manufacture, along with the Army's major facilities outsourcing program, the Albury Wodonga Military Area (AWMA) project. Interestingly, two key Tenix joint ventures don't form part of Tenix Defence - these are the Tenix Toll Defence Logistics joint venture with Toll Logistics which is currently prime contractor on the 10-year, $900 million Defence Integrated Distribution System (DIDS) program; and RLM Systems Pty Ltd, a joint venture company set up 10 years ago with Lockheed Martin to take over, complete and deliver the troubled JORN (Jindalee Operational Radar Network) program.

Although the glory days of JORN are now passed, RLM remains in being as a high-end software and systems house; David Miller of Tenix Marine is a former senior executive of RLM Systems. The establishment of Tenix Marine gives the company the freedom to bid for ASC, either by itself or in partnership with another company, when ASC comes up for sale late this year or in 2008.

A Tenix corporate source declined to comment on speculation about the company's plans, saying only that it would await the announcement of the ASC sale and of any conditions attached to it before in turn stating whether it would bid or not.

It's known that the Federal government wants ASC to be majority Australian-owned with an Australian board, but also with access to the surface ship and submarine technology and project management 'smarts' required to deliver the AWDs and maintain and support the Navy's six Collins-class submarines throughout their services lives.

Tenix's new structure allows it, through Tenix Marine, to form a joint venture with one or more Australian or foreign (most likely US) partners to bid for ASC, or to bid for ASC direct, or to divest itself of the marine business entirely.

It's unclear how far the Federal government would welcome a privately-owned company, even one with Tenix's track record, achieving a dominant position in Australia's strategically important naval construction industry: if the omens aren't promising, Tenix Marine could be the vehicle for a joint venture, perhaps involving some sort of public share offering.

It's hard to imagine Tenix turning its back on the shipbuilding industry, but if it fails to win the LHD contract and is unsuccessful in securing a share of ASC (or declines to bid, if the conditions aren't right) then, again, divestment could be an option. Tenix, of course, hasn't commented on this or other speculation about its plans and its future.

It was widely expected a couple of years ago that the company would be floated, but its owners saw no compelling reason to do so then; has the Australian naval market changed so much in the mean time that a float, or some sort of divestment/joint venture is on the cards? The next 12 months may provide an answer - whatever happens, the impending sale of ASC means Australia's naval industry is about to undergo significant change.