Australia bets $68bn navy spend on export industry

Bloomberg

Australia wants more from its $68 billion investment in new ships and submarines than just a more capable navy. With final bids due this month on a A$35 billion ($27 billion) contract for nine anti-submarine frigates, Defence Industry Minister Christopher Pyne said Australia is seeking a bigger role in naval shipbuilding.
“From an industrial point of view, it’s a once in a lifetime opportunity,” Pyne said in an interview. “The spin-off benefits,” he added, “we haven’t even begun to imagine.”
Australia last year awarded a A$50 billion contract to build 12 submarines to France’s DCNS group. With construction to be completed in Australia, Prime Minister Malcolm Turnbull’s naval shipbuilding plan includes 12 offshore patrol vessels, up to 21 smaller patrol boats, and the nine warships known as the Future Frigates project.
Three Future Frigates bidders have been shortlisted, with the winner to be announced next year: The UK’s BAE Systems Plc, Madrid-based Navantia, and Italy’s Fincantieri SpA.
“The British are offering the most sophisticated design but it’s unbuilt and unproven,” said Andrew Davies, a defense analyst at the Australian Strategic Policy Institute. “The Spanish are offering a design that builds on what we’ve already done but is less sophisticated in many ways than the British ship. And the Italians are somewhere in between.”

‘VALLEY OF DEATH’
Rising geopolitical tensions in the South China Sea and beyond make it vital to get the nation’s rejuvenated shipbuilding project right, Pyne said. Still, the government may face difficulties in getting Australia’s allies to commit to purchasing extra vessels, according to defense analyst Neil James.
“They’re unlikely to be competitive in the international market because shipbuilding is usually done a lot more cheaply in low-wage economies,” said James, executive director of the Australia Defence Association, a non-partisan security watchdog. If Australia fails to secure exports of large vessels, “the continuous build would go ahead without it, it would just be more expensive” for the government, he said.
Pyne, whose home state of South Australia is where the frigates will be built when construction gets underway in 2020, said the project was part of the largest increase in Australia’s military capability in its peacetime history.
He said Australia is committed to establishing a continuous naval shipbuilding industry that would provide a strategic infrastructure capability lasting decades, avoiding a so-called “valley of death” scenario where domestic shipbuilding dries up from a lack of orders.
“The more export contracts that our businesses can get, they can smooth out their books to ensure that they continue to maintain their workforce,” Pyne said.

GOVERNMENT PRIORITIES
The Australian government’s number one priority regarding the frigates is “capability, and the economic benefits of building in Australia are the second,” Pyne said. He declined to nominate a leading contender for the frigate contract.
The three companies vying for the project say they are pleased with the way their bids are progressing. “We are confident that our product and our capability are very well positioned,” said Domenico Rocco, head of market development in the Trieste-based Fincantieri’s naval vessel business unit. The shipbuilder is offering a modified version of its FREMM multi-purpose frigate.
While the first steel for the BAE Type 26 frigate’s UK operations will only be cut at the end of the UK summer, the fact it
will be in production three years before construction is due to begin in Adelaide would “substantially de-risk” the program, said Chris Nunn, who is leading the BAE bid.
Madrid-based Navantia, which in 2007 won a role helping to build Australia’s three new Air Warcraft Destroyers, believes it has “proven itself to be a competent and reliable ship design partner for Australia,” said Francisco Baron, director of Navantia Australia.