Inside Defence: South Australian companies in running for $37bn in new contracts

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By David Russell

The issue of future submarines has been looming large in South Australia for some time now. And for good reason. South Australia’s defence industry is one of the biggest in the country, and our maritime capability accounts for a majority of the sector.

The six Collins-Class Submarines built at Port Adelaide are being retired, meaning they will no longer be returning to South Australia to receive essential maintenance. The $9 billion Air Warfare Destroyer project is also coming to an end, with construction of the third and final ship due to be completed by 2020. Together, the two projects represent a huge proportion of what drives the defence industry in South Australia.

And while we have the infrastructure and the skills to continue to service Australia’s Navy, there is still no assurance that the $50 billion Future Submarine Project – the next generation of subs – will be built on Australian soil.

But it’s not all about the subs. Locally-based companies are currently in the running to win $37 billion worth of contracts to build tanks, frigates (battles ships) and patrol boats in South Australia.

With so much at stake, Inside South Australia spoke to Defence Teaming Centre CEO Chris Burns and Defence SA Interim Chief Executive Julie Barbaro about the future of the defence industry in South Australia.

The South Australian-built Collins Class submarines.

The South Australian-built Collins Class submarines.

Defence in South Australia

While it may not be a sexy enough slogan to continue to adorn our licence plates, South Australia is undoubtedly the defence state. The sector accounts for 25% of the nation’s defence industry. It’s a mantle Defence Teaming Centre (DTC) CEO Chris Burns wants to keep. The DTC represents 200 member companies operating in the defence industry in South Australia.

“South Australia punches above its weight in terms of its contribution to defence,” Mr Burns said.

“The industry employs some 27,000 workers, both directly and indirectly, in South Australia and contributes $2 billion to the state’s economy each year.”

Defence Teaming Centre CEO Chris Burns.

Defence Teaming Centre CEO Chris Burns.

Many leading defence companies are headquartered or have significant operations in South Australia, including the Australia arms of BAE Systems, Lockheed Martin, Raytheon and Saab Systems. South Australia also has a strong core of specialist SMEs that service the big players. Together, these companies contribute to a critical mass of world-class industry delivering many of defence’s largest projects.

“The $9 billion air warfare destroyers, sustainment of the Collins submarine fleet and Orion aircraft maintenance (are) just a few,” Said Julie Barbaro, Interim Chief Executive of Defence SA, the state government agency tasked with attracting defence projects to the state.

South Australia is also home to significant defence infrastructure and a large number of military personal.

“(There is) a large and varied military presence resident across the state, with 7500 personnel employed with Air Force, Army, Navy and DSTO,” Ms Barbaro said.

“We are (also) home to some of defence’s most unique and valuable assets, namely the test and evaluation range at Woomera and the recently expanded Cultana Training Area.”

The story behind the subs

The Defence Teaming Centre advocates on behalf of the South Australian defence industry in its dealings with governments. It’s this role that is keeping them busy, with many DTC members set to be directly affected if the Future Subs aren’t built in Australia.

“The problem is that industry has up-skilled an entire workforce, but if there is nothing for them to do after the current programs end, we may see them move into other, less technical industries, or go interstate,” DTC CEO Chris Burns said.

The Future Submarine acquisition will be the largest defence purchase in Australia’s history; an estimated $50 billion for the build and on-going maintenance of at least eight subs. The federal government has invited companies from Japan, Germany and France to submit expressions of interest to design and construct the new fleet. The companies have been asked to provide details of three options: complete build overseas, complete build in Australia, and a hybrid of the two.

In a speech to the Australian Strategic Policy Institute on 25 June 2015, Prime Minister Tony Abbott announced that his government wanted to maximise Australian involvement in the Future Subs Project.

“And, because there will be more submarines, there will be more sustainment work in Adelaide, too,” he said.

But despite committing to building 12 submarines in Adelaide prior to the last Federal election, there was no assurance from the PM that the subs would be built in Australia.

It’s this foreign-build possibility that has the DTC and its members worried. Chris Burns believes the cost of the build should not be the government’s only consideration.

“We’re not saying we should build the submarines here at any cost, but we are asking the government to look beyond the purchase price and consider the value to the economy.”

The French and German companies tendering for the project have responded to the political fall-out by stating publicly they would be happy to build in South Australia, but the Japanese have been less forthcoming, leading many in the industry to believe the Japanese are pushing for the foreign-build option.

The DTC also believes there are compatibility and sovereignty issues to consider.

“If the submarines aren’t built here, it makes it much more difficult to maintain them in Australia; there are language and cultural barriers… (and) the technology and Intellectual Property are not handed over,” Mr Burns said.

“It’s also about national security – as an isolated island nation, submarines are one of the most important military capabilities Australia operates.

“Significant consideration must be given to Australia having to rely on another nation to operate one of its most important assets.

“This includes assuring that Australia is able to maintain, repair, overhaul and upgrade our submarines in times of trouble.”

New opportunities

Not everything hinges on submarines. Defence SA’s Julie Barbaro said that several valuable new contracts have been won by South Australian firms.

“They include the future P8 and triton aircraft fleets for RAAF Base Edinburgh and the national headquarters for the $92 million Data to Decisions Cooperative Research Centre,” she said.

“Local company Cobham has (also) secured the $640 million Australian Maritime Safety Authority contract to provide an airborne search and rescue capability in Australia for 12 years from 2016.”

Vertical tail fin parts manufactured in Adelaide by BAE Systems and Rosebank have also been successfully delivered to the global Joint Strike Fighter program.

In addition to these contracts there are a number of other projects South Australian-based companies are seeking to secure. If successful, new jobs and a lot more money will flow to South Australia.

Adelaide-based companies General Dynamics Land Systems Australia (GDLS-A) and BAE Systems Australia are pursuing one of those opportunities. They are tendering for phase 2 of the $10 billion Land 400 project to build the next series of up to 225 armoured vehicles to replace the ASLAV (Australian Light Armoured Vehicle) tanks.

An Australian ASLAV in Afghanistan in 2011.

An Australian ASLAV in Afghanistan in 2011.

South Australia is also in the running to secure the $25 billion contract to build the next generation of Frigates (small battle ships) for the Navy. The tender process is expected to begin around 2019, but if the Future Subs are built abroad industry insiders believe the tender process could be brought forward to bridge the economic gap that decision would create in South Australia.

The HMAS Warramunga Frigate.

The HMAS Warramunga Frigate.

And the federal government is seeking to replace the fleet of 22 Pacific Patrol Boats which were donated to South Pacific nations to assist with fisheries enforcement and border protection. The new Pacific Patrol Boat program is worth $2 billion and South Australian shipbuilder Adelaide Ship Construction International (ASCI) are partnering with KBR and ST Marine to put in a bid.

An Australian-built patrol boat being used by the Solomon Islands to assist a stranded fishing vessel (foreground).

An Australian-built patrol boat being used by the Solomon Islands to assist a stranded fishing vessel (foreground).

Defence SA is working towards South Australia’s Defence Strategy 2025, which proposes outcomes across maritime, land, aerospace, systems and cyber and science and technology.

“We are committed to partnering with Defence, industry and academia to build on our strong foundations,” Defence SA’s Julie Barbaro said.

“With our world-class infrastructure, robust defence industry and critical mass of highly skilled workers, South Australia is well placed and remains committed to supporting the Australian Defence Force.”

Australian-made defence

The DTC has launched an Australian Made Defence campaign to promote a policy of supplying the Australian Defence Force (ADF) with Australian-built systems. The campaign aims to educate the public on the benefits to the economy, and national security, of building on Australian soil, and the issues that can arise with foreign builds.

“Some things can’t necessarily be made here, we understand that,” DTC’s Mr Burns said.

“The primary role of the defence industry is to ensure that the ADF has the best possible capabilities it requires to fulfil its obligation to the nation. In many instances, we believe we have the capability here (in Australia), so we are advocating that wherever possible, Australian industry involvement is maximised.

The DTC also wants to see a continuous-build program for submarines and other major projects going forward, to avoid costly and inefficient stop-start contracts. 

“Historically, defence procurement has been very ad hoc.

“We are calling on the Government to develop a 30 year strategic plan for shipbuilding in Australia premised on a continuous build philosophy.

“At the moment it’s impossible for industry to plan and invest in the future, there is so much uncertainty.

“If we can sure-up the work, we will see more investment from industry, governments and universities in new innovations and technologies.”

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