The AWD project was hamstrung by a couple of things: first,
it had been nearly a decade since the Australian shipbuilding industry had
constructed a modern major warship. The technical, supervisory and management
skills necessary to do so had all atrophied and needed to be re-learnt.
Secondly, the shipyards needed new investment so they could handle new
fabrication and assembly processes. Both of these cost money. Rebuilding
industry skills and capacity, once they have been allowed to wither and die, is
expensive. And that cost is being amortised over a one-off project to build
three destroyers. No wonder it’s expensive, and no wonder critics point to the
cost and argue that Australia can’t, and shouldn’t try to, build warships
in-country.
There’s another technical issue that affected the AWD
program as well, but I’ll get to that later.
Thanks to the previous Labor government’s indefensible
time-wasting, we’ve almost re-created the market conditions that cruelled the
AWD project. But if we’re planning to revive those skills and that
infrastructure to build the RAN’s new fleet, then those conditions should apply
only at the start of this new project.
Our next major purchases are not trivial: Australia plans to
build 12 Offshore Patrol Vessels (OPV); 9 new Anti-Submarine Warfare (ASW)
Frigates; and 12 new Submarines. We’ll also be building 21 new Pacific Patrol
Boats – not demanding in technical terms, but requiring good management along
with good design and construction skills. Importantly, they’ll deliver cash
flow and profit to their builder, Austal, and help solidify the naval
construction sector’s skills and capacity base.
Given the recent(-ish) history of Australian naval
construction, and the level of scrutiny that the whole Submarine/Frigate/OPV
enterprise will attract, I’m inclined to accept the publicly stated estimates of
parent designers and constructors who understand how to design a new vessel and
transfer technology and skills to an overseas partner.
There are precedents for success, even here in Australia:
the ANZAC Frigate program delivered 10 ships on time, on budget and with
extremely high levels of Australia and New Zealand Industry Participation
(ANZIP). Even allowing for Australia-specific design modifications (some of
them a first for the baseline MEKO200 platform) and fluctuations in the dollar
exchange rate, the out-turn cost of building these ships was not so different
from what we’d have had to pay if we had simply bought them off the shelf from
Blohm+Voss in Germany.
Much of the cost of the new submarines and ships will be in
items that we need to buy from an overseas supplier, such as guided weapons and
their launchers and handling systems, sensors, elements of the communications
and combat system, and so on. The local cost will be driven by platform construction,
assembly and integration. These are the areas where a smart partner can tackle
risk and cost.
If Dr John White from TKMS says that building 12 of his
company’s submarines in Australia would cost no more than building them in
Kiel, then I’m inclined to believe him, but I’d want to check the fine print
and the terms and conditions. The same goes for the French DCNS bid.
Given our history with the AWD project, you’d need to look
carefully at the history of high-technology tech-transfer programs; they’re not easy and if you’re doing it for the first time, they’re not
quick.
This is what I was referring to earlier when I mentioned a
technical issue that had an adverse impact on the AWD project. The Spanish ship
designer, Navantia, had never undertaken such a complex technology transfer process before,
so fell into many of the traps that lie in wait for young players. The process
of fabricating hull and superstructure blocks to drawings that didn’t reflect
then-current Spanish shipyard practise was difficult, to say the least. The
difficulties were compounded by the design changes necessary to make the
Navantia design suitable for RAN service, the shortage of welding and
supervisory skill in the Australian yards that fabricated the blocks, and the
structure of the AWD Alliance that was supposed to deliver the ships. We all
know the result.
Interestingly enough, exactly the same lessons emerged from the
development of the Vickers Supermarine Spitfire in England during the mid-late
1930s. There truly is nothing new under the sun in all of this. And remember how successful the Spitfire became.
So – to answer my original question: will it cost 30% extra
to build the RAN’s new ships and submarines in Australia? Not if a proficient
parent yard in France, or Germany, or Japan is given the freedom do to an efficient and effective job. How much
more (if anything at all) might it cost, in that case? It’s hard to say, and
the figures need to be calculated correctly if they’re to have any meaning.
Furthermore, if the submarine design in question is good enough, and has a
sufficiently robust upgrade path, then the broader question becomes: What can
the bilateral relationship with that company’s parent government give us, both
in the naval construction domain and in a much broader sense? A good submarine
backed by the promise of the right bilateral relationship may be more
compelling than an outstanding submarine that isn’t sustained by a relationship
of similar warmth and intimacy.
One aspect of the indigenous build proposal that hasn’t been
canvassed over much is the broader local benefit of doing the work in-country.
If we pay, say, AUD$20 billion to have 12 submarines built in Germany, that’s
money lost to the economy. If we’re going to spend that sort of money (and the
2016 defence White Paper says we must) then we should aim to get the maximum
return on that investment: corporate and personal tax; development of skills,
new jobs, new supply chains, new export markets; the creation of knowledge that
we can use to maintain and upgrade those ships over their life; the development
of a technology base that sustains and enhances other industry sectors.
Consider this: because we built the ANZAC frigates in
Australia, with a locally developed combat system based originally on an off-the-shelf
product made by Saab (formerly Celsiustech) in Sweden, we were able to design,
develop and implement a world-leading upgrade to those ships that embodies
major platform modifications designed by BAE Systems, the development by Saab of what is now an
all-Australian combat system of considerable performance and the creation of an all-Australian family of
new active phased array radars by CEA Technologies. Those radars will now be fitted to the RAN’s
nine new ASW Frigates. If they aren’t paired with an advanced derivative of the Saab 9LVMk3E combat system, designed and developed in Adelaide, then I’ll be very surprised. And disappointed.
The benefits of local investment must be taken into account
when assessing the cost of a major defence purchase. That’s not meant to be a
defence or justification for a 30% premium; it’s a genuine strategic issue. The Government's plans to acquire no less than 33 submarines and surface warships create unprecedentedly good market conditions for industry. If, under these conditions, the shipyards reckon they can build submarines and warships in Australia
without incurring such a premium, then let them prove it – and hold them to
their word.
