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Abbott plan raises new questions for shipbuilding industry in existential crisis

Abbott plan raises new questions for shipbuilding industry in existential crisis
Published 5 Aug 2015 

Yesterday, the Abbott Government announced an $89 billion warship building program that it said would allow for 'a continuous build of surface warships in Australia', thus guaranteeing 2500 jobs in South Australian shipbuilding 'for decades'.

These are bold claims for an exceptionally difficult task, especially since it appears from the statements surrounding the announcement that the Government has as yet little idea of how it will manage the implementation of its proposals.

Launch ceremony for the first Air Warfare Destroyer, NUSHIP Hobart. (Defence.)

The Australian naval shipbuilding industry receives frequent bad publicity for poor productivity, cost overruns and schedule delays. Yet, in the 1990s, the ANZAC frigate program for 10 vessels (including two for New Zealand) proved exemplary. This example underpinned an argument that a long-term, guaranteed 'continuous building' of naval vessels would allow the industry to reach an acceptable level of performance.

The Government has adopted this approach to underpin 'a permanent naval shipbuilding industry'. Over the next 20 years it will acquire submarines, frigates and offshore patrol vessels (OPV), with the latter two programs constituting the continuous build undertaking.

The cynical reaction would be to dismiss the proposed shipbuilding plan as a largely political exercise. South Australia, with the highest unemployment rate for 15 years at over 8%, has become an electoral weakness for the Government, inducing local MPs to urge the use of defence procurement to support the economy.

The Government's shipbuilding proposals can proceed only by replacing existing naval vessels at an unusually early stage in their operational service, bringing forward by three years the ANZAC frigate replacement program to commence in 2020 and advancing the OPV by two years to 2018. There is as yet no commitment to the local construction of the $50 billion future submarine program. [fold]

Yet, if this $40 billion plan is primarily a vote buying exercise for the Coalition's South Australian colleagues, it is so massively focused on saving one or two seats as to defeat its own purpose.

The Australian naval shipbuilding industry faces existential problems. Several businesses, significantly BAe at the Williamstown Naval dockyard, are likely to leave the sector if they do not soon secure naval work. Shipbuilding interests in Cairns, Townsville, Newcastle, Melbourne and Fremantle are as focused on government policy as those in Adelaide.

Unfortunately for them, the Government appears to be fixated on South Australia and particularly on the Government-owned ASC. Yesterday morning Prime Minister Abbott proclaimed '2500 shipbuilding jobs, safe for Adelaide, for all time'.  Predictably, the announcement was panned by the Victorian and West Australian premiers, with Victoria's Industry Minister Lily D'Ambrosio denouncing it as a blow to shipbuilding in Melbourne.

As usual, Abbott's statements are open to interpretation and so could be modulated by the condition that 'the major build be in South Australia', implying some wiggle room that would see shipbuilders in other states subcontracting to ASC, as is the case with the Air Warfare Destroyers.

Nonetheless, ASC emerges from the Government's announcement as clearly the dominant entity in Australian shipbuilding. The Government has commissioned a strategic review of ASC's shipbuilding capacity which will include advice on how to structure ASC to implement the announced plan. The South Australian Government says it is willing to incorporate its facilities at Techport into any expanded shipbuilding vision, which hints at removing ASC from its current ownership by the Department of Finance, if not the privatisation of the company.

So, only three years before the program commences, the Government is yet to determine how it will implement its proposals. Privatisation would come with its own implications. The companies interested in ASC have obvious intent towards their particular strengths. Austal, the West Australian builder of the Armidale class patrol boats, manufactures modular multirole warships for the US Navy in its American shipyard, one that could serve as a model for the similarly multirole OPV program. BAe, the big British defence conglomerate, has strengths in frigate and submarine technology. TKMS Australia, the local representative of the German conglomerate in the Competitive Evaluation Program for the future submarine, has been arguing strongly its ability to build these boats in Australia and its willingness to buy ASC in order to do so.

In the presence of so many unknowns, the future of the Government's naval shipbuilding plan remains very much a mystery.

Even so, will it work? That again remains dependent on the implementation of various elements of the proposal, for there is plenty of opportunity in the three shipbuilding programs to create extensive problems of training, technology management and finance.

Whatever happens, it seems likely that the Navy's force structure will become more expensive as either the surface fleet is expanded or its vessels' operational lives are reduced in line with a continuous replacement program. Whatever the Government's preferences, it also seems that a considerable part of the future submarine program will need to be undertaken in Australia if a continuous build policy is to be sustained.

More clearly, Australian naval shipbuilding is now centred on Adelaide. Some of the smaller regional yards may be able to survive on fleet maintenance, which will also support the continued viability of the industry in Fremantle. However, should BAe wish to remain in Australian naval shipbuilding, it might be best advised to realise the latent real estate value of its Williamstown facility and purchase ASC. Whether that would ultimately contribute to the Commonwealth Government losing more seats in Victoria than it might hope to save in South Australia remains to be seen.


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