Keen ADM readers will note that 2017 has been a big year for major programs, with milestones on many making headlines. And 2018 looks to be more of the same. ADM managing editor Katherine Ziesing caught up with Minister for Defence Industry Christopher Pyne to get some background on the Government’s thinking on the year that was and the year ahead.
ADM: AIC has become increasingly important in Defence’s larger complex and/or complicated programs. What does this mean specifically for Land 400, Sea 5000 and the Future Submarine programs?
Pyne: I think the best way to describe what it means is for the projects themselves is to compare the attitude pre the Turnbull government to the attitude now. So in Land 400, for example, before the Turnbull government decided that we were going to have an emphasis on capability first and Australian industry second, the bidders were probably probably going to tender a low level Australian industry content. Having been asked to go away and find out what Australian companies they could incorporate into their bids, they’ve both come back and rumour suggests that they now have much higher Australian industry content.
What this practically means for Australian businesses is winning contracts and becoming part of the global supply chain of significant primes like Rheinmetall, BAE, Navantia, Fincantieri, Naval Group and what these companies have discovered is that there is a lot more capability in the Australian defence industry than they had realised. But having been forced to compete to find these companies, they have gone out and faithfully done so.Even to the extent where both Rheinmetall and BAE have signed up Australian companies to be part of their global supply chain regardless of whether they win Land 400 or not. And the same process has been replicated for the frigates, for the submarines, for the offshore patrol vessels, so not just for Land 400. This policy is flowing through all of these particular projects.
ADM: What do you make of the argument that an Australian industry content level adds a cost premium to the bottom line of programs?
Pyne: I think in some cases it adds a small premium. The submarine contract, for example, there is a premium for building in Australia and the Cabinet decided that that was worth it because of the impact it will have throughout the economy for decades to come, both in the acquisition and then of course the sustainment and maintenance of the 12 submarines.
That is a premium that we are prepared to pay because it has a huge impact in the economy. If you put it around the other way, if we had decided to instead build the submarines in France, Germany or Japan, their economies would be the ones that benefited from that decision and that didn’t seem like a very sensible direction to me or to the Cabinet.
ADM: The French Barracuda program is experiencing some delays at the moment. Will that have a flow on effects to Sea 1000?
Pyne: No, not at all. So their process is completely separate to our project; ours is on schedule and going very well and their own project has no bearing on delays for us at all.
ADM: Given the length and complexity of Sea 1000, do budgets exist for the different phases of that program, against which Naval Group can be measured for performance throughout the process?
Pyne: Yes, they do. Each phase of the project has its own budget and the phase we’re in at the moment is the design and mobilisation phase (Editor’s note: $935 million according to the Budget papers this year). That has been allocated a certain amount of money and there are other phases throughout the process. The Department of Defence and the submarine group within it, led by Rear Admiral Greg Sammut, with an overarching responsibility with Steve Johnson as the head of the shipbuilding and submarine building enterprise, they are monitoring the progress of the project to minute detail every day and the project is going well.
Naval Group is performing exactly as we had hoped and the relationships are being formed. Hughes House in Cherbourg is open and operating and, of course, they’re headquartered here in Adelaide and that is open and operating and they are accrediting Australian firms. I think at last count that it had accredited 126 firms and we will monitor this project throughout, in terms of both the budgets and ensuring that Naval Group is fulfilling its promises, which it so far is.
ADM: There has been a very different approach between supporting Australian shipyards between the OPV and Sea 5000 programs. What is your thinking behind this?
Pyne: Well that is a bit of a misnomer. The government has an ambition to produce a sovereign shipbuilding industry and by the end of the OPV and the Future Frigates projects, we will have the capabilities to design, build, deliver and export frigates and OPVs. That is our national enterprise and we are on track to deliver it.
The OPV tender has obviously finished and the successful design, primes and subcontractors have been chosen and that work will be done in Osborne, SA and Henderson, WA and a similar process is underway for the Future Frigates. Now we haven’t stipulated that the tenderers should work with a particular Australian shipbuilder for the Future Frigates because we didn’t want, quite frankly, to put the shipbuilder in a position where they could dictate terms to the design.
The first step is to get the design that we want for the Future Frigate and the second step is to ensure that we have the capabilities to build the frigates here in Australia at Osborne and it follows that whoever wins the contract will have to work with the capabilities that are available here, both shipbuilders and, of course, the workforce.
Now the workforce is currently in ASC in Osborne and Austal in Henderson and we would anticipate that that workforce will be the backbone of the Future Frigates project. We need about twice as many people, at least, who are currently working on the AWD to build the Future Frigates and it follows that they will all get work.
ADM: So, Minister, it doesn’t matter what colour shirt the workers wear as long as they’re wearing a shirt?
Pyne: My priority is not to pick and choose between shipbuilders. My priority is to get the best design for the Navy’s capability in an anti-submarine warfare vessel and to ensure that those are built in Australian shipyards by Australian workers using Australian resources and that’s exactly what we are going to bring about.
ADM: Can you give us an update as to what the state of play is with the Special Purpose Aircraft (SPA) renewal project, the VIP fleet?
Pyne: I know that it is going to final approval, so we’ll make a decision at the earliest opportunity but I can’t give you any more detail around that.
ADM: “Earliest opportunity” – is that the political equivalent of “imminent”?
Pyne: A decision on the SPAs will be made at the appropriate time by the NSC.
ADM: Are you aware of any resentment in other states about what is being seen as South Australia’s perceived sense of entitlement to the defence industry dollar?
Pyne: What we’ve done as a government is massively increased the plans for the upgrade of our military capability, $200 billion over the next 10 years, and we’ve decided that not only do we want to have that capability but we want to maximise the benefits to the Australian economy, growing a smart, skilled workforce in advance of that, with clever researchers and developers behind the scenes in both industry and universities and in the DST Group. This is a national project that is benefiting the whole country.
The majority of defence industry support to Air Force, for example, is done in the eastern states. The majority of the naval shipbuilding work will be done in South Australia. A lot of the Army projects are spread throughout Australia. So every state, every part of our country is benefiting, from Tasmania to Darwin.
The government made a decision that we would make Osborne and Henderson the two hubs of the same industry, one building larger platforms, one building smaller platforms, and that necessarily follows that the majority of the work will be done in Adelaide and in Henderson.
But the parts that go into these large vessels will be spread right across Australia. For example, there are companies in Tasmania that make life rafts that we use in our current projects and that the English are using in the Type 26, regardless of whether they win the tender for the Future Frigates.
As long as you either have the best workforce or the best product or the best service and the capability to produce whatever is required, you have every chance of winning work on these projects, whether you’re from South Australia or any other part of the country.
Quite frankly, I think defence industry gets that. I’m not sure that the parochial local papers always get it but they have a job to do themselves. But there’s no doubt defence industry across the country is abuzz with the energy that this huge program is creating and they are all fully aware that they are going to share in this big boost to our military capability.
ADM: Given those comments, what role do you see state based defence advocates or agencies playing in the Defence debate and decision making process?
Pyne: I think the defence advocates that were pioneered by South Australia are really useful additions to the architecture in defence industry because they actually explode a lot of myths. It’s pretty easy for state based politicians or even bureaucracies to jump at shadows, to assume that they are not in the running for a particular project for political reasons.
One of the important things about the defence advocate is that they are increasing the sum total of the knowledge about defence and defence industry in the state and territory governments.
I think that is a really useful contribution because they can help state and territory governments focus on the areas where they have got capability and do have a chance of doing well. Or promoting their capability as opposed to simply complaining when they don’t win projects that they probably never had the capability to win in the first place. So I really work closely with the defence advocates because I think they really assist us in targeting and focusing the activities of state and territory governments.
ADM: You spoke before about mandating the shipbuilding industry between Osborne and Henderson; why aren’t other parts of defence industry also being mandated? Why are we not building vehicles in Victoria or Queensland forever more under a Centre of Excellence model?
Pyne: Naval shipbuilding is a different proposition. The scale is dramatically different. You can’t move submarine yards around the country on a political whim, or shipyards for that matter. The Future Frigate project is $35 billion. The submarines program is $50 billion. Whereas the Pacific Patrol Boats are about $300 million and the OPVs about $3.6 billion. So the scale is different.
The combat reconnaissance vehicles under Phase 2 of Land 400 is about $4-$5 billion. A lot of the Air Force projects can be divided up between places like Amberley and Williamtown and so forth. So it’s not comparing apples with apples. Governments have to make decisions, as they do all around the world.
The RAND Review made it clear to us that we needed to choose shipbuilding hubs rather than try and sustain half a dozen different shipyards, a model that is being seen the world over in places like Spain, Italty, the UK and Canada.
ADM: You’ve talked a lot about increasing the export levels in defence industry and the new Defence Export Strategy will hopefully be out by the time this interview goes to press but what does that look like? What does that mean, both politically and for industry?
Pyne: Well the Defence Export Strategy will be a comprehensive response to what has been an area of government area that’s been sadly lacking, which is the promotion of serious sovereign defence capabilities that are able to be exported.
There will be lots of meat on the bones in the Defence Export Strategy. There will be increased financing of the strategy and there will be a range of measures. I think there’ll be a surprising number of measures that people would not have expected that will promote Australian industry overseas.
Critically for us that means we can smooth out the peaks and troughs of our own acquisition, sustainment and maintenance programs, and that is a really critical priority of the government.
Exports allow us to find new markets for products like the Bushmaster or the Hawkei or the CEA phased array radar or remote weapons systems and OPVs that mean those companies who operate in those areas can take a more consistent and long term view about their equipment acquisition, their workforce, their warehousing, etc.
It’s a really important priority for us to be able to promote that. It’s not something we’ve done well in the past, we have to admit that, and we have to draw a line under the past and start again, which is what I’ve been doing the last 18 months.
ADM: What role do you see a national space agency playing in Defence?
Pyne: I’m very enthusiastic about space. I think the space agency being placed in the Department of Industry, Innovation and Science is the right choice because it’s an across government priority but Defence will be the balance of our spending in space. We plan to spend $10 billion over the next 10 years in space and that gives us an opportunity to create our own sovereign space industry. That doesn’t mean putting people on Mars, although I can think of some people I’d like to put on Mars.
It does mean looking at satellites, the information we gain with satellites, the capabilities we want in intelligence, surveillance and reconnaissance and spending those resources in a way that promotes an Australian domestic space industry. I think this is a once in a generation opportunity for Australia and we have to grasp it. So while the space agency will be driven by Arthur Sinodinos as the relevant minister, the ballast of the spending will be provided by Defence and that means that we have a really important role to play.
And I’d add that Arthur and I both sit on the Prime Minister’s Innovation and Science Council because so much of the spending on innovation in Australia is being done in Defence and defence industry, so it’s not an area that should be regarded as separate to it. It’s very much a driver of the innovation part of our economy.
Clarification: Arthur Sinodinos stood down as Minister for Science in late 2017 (after this interview was conducted) for health reasons, he will remain in Government as Cabinet Secretary. Assistant Minister Zed Seselja will now oversee the Science portfolio.
This article first appeared in the December/January 2018 edition of ADM.