Australia's Sovereign Naval Shipbuilding Capability Submission 36

Section 1: Whole-of-capability approach to delivering Naval Capability The Naval Shipbuilding Plan is premised on consolidation of industrial capability at two shipyards, one at Osborne in SA and one at Henderson in WA. This consolidation provides a focus for some aspects of the work, primarily the construction of the hulls in three streams of minor warship, major warship and submarine. The singular focus on construction and assembly within the Plan on these shipyards, however, is disproportionate for what should be a whole-of-capability plan. A whole-of-capability approach to the Naval Shipbuilding Plan would recognise that much of the value of new naval vessels is not associated with construction of the hulls but resides in high technology areas such as design, systems integration, weapons, propulsion, communications, and logistics support. Australia’s industrial and R&D strength in related technologies is principally resident in major centres geographically distant from the two shipyards. In fact, more than 80% of national industrial capability exists in states other than SA and WA, with 30% of total national manufacturing capability in NSW alone. Additionally, as currently written, the plan does not place sufficient emphasis on the requirement to optimise the transfer of intellectual property (IP) and skills (where these originate overseas) to these Australian firms and workers. IP and skills acquisition are key components of sustainment and provide a sound base for future capability development for projects not yet initiated. IP and skills transfer will provide a quantifiable boost to these existing capabilities to undertake future work. Recommendations: Noting that Australian industry involvement in the ‘smart systems’ of naval vessels will be essential for implementation of Australian Industry Capability Plans, the Naval Shipbuilding Plan should be modified to: • appropriately address whole-of-capability aspects beyond hull construction and assembly. • emphasise the requirement to optimise the transfer of intellectual property and skills to Australian firms and workers. Section 2: Whole-of-Life approach to delivering Naval Capability It is generally accepted within Defence that one third of total capability costs will be spent on acquisition and around two-thirds will be spent on sustainment. The Naval Shipbuilding Plan is currently too occupied with acquisition (and, as noted above, focussed on platform construction to the exclusion of the ‘smart systems’) at the expense of sustainment. To maximise both overall effectiveness and economic benefits from the investment in naval capability, greater attention needs to be paid to sustainment elements of the Plan. A good first step would be to retitle the plan ‘The Naval Shipbuilding and Sustainment Plan’. Today, around half the Navy’s major fleet units, including the two capital ships of the fleet, are operated and sustained from Fleet Base East in Sydney and supported by a network of other interconnected Defence establishments and facilities. To support this capability, NSW 3 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020 has a sophisticated ecosystem for naval sustainment, comprising of hundreds of defence companies that develop and support the fleet. The strength of that capability is illustrated by the fact that, directly and indirectly, the Naval presence in Sydney contributes around $1.83 billion annually to the regional economy and supports around 12,692 jobs.1 The NSW industry base includes major Defence primes and SME operating from and around Garden Island and the interlinked network of Defence facilities from Orchard Hills to Randwick. NSW is home to numerous defence Primes with indispensable industrial capabilities, including Thales Australia (sonar), Lockheed Martin Australia (systems integration), Raytheon Australia (weapons systems, systems integration) and BAE Systems Australia (systems support) and Navantia Australia (design authority). The presence of east coast exercise areas and training establishments, and major urban areas to support naval personnel and their families, are also key factors in the success of NSW in supporting naval sustainment. The NSW Parliamentary Inquiry into Defence industry (2018) noted the potential opportunities for New South Wales provided by the Naval Shipbuilding Program and concluded that the state is well placed to provide a range of maritime sustainment and support services. The Inquiry emphasised the importance of the Naval Shipbuilding Plan in this context, referring specifically through the SEA1000 (Attack Class submarines) and SEA5000 (Hunter Class frigates) programs presenting opportunities for New South Wales. In evidence to the Parliamentary Inquiry into Defence industry in New South Wales (2018), Thales Australia noted that increased ship repair and maintenance services will be required as a result of Defence’s investment in the naval fleet. Thales argued that its presence and recent investment in the Port of Newcastle, in conjunction with the longstanding Garden Island naval base, has helped New South Wales to position itself as a leader in maritime sustainment. 2 The current national shipbuilding plan does not adequately address the essential elements of being able to sustain the fleet long term. The plan would more accurately reflect the nation’s capabilities and challenges to support the national shipbuilding enterprise if it acknowledged that relevant skills and industry capabilities exist in strength beyond the select ship construction yards in SA and WA. The Plan might usefully acknowledge the entirely legitimate role of those proven capabilities in sustaining the current fleet. It might also investigate ways to optimise their potential contribution to new platforms, while avoiding the current over-emphasis on moving qualified workers to SA and WA. This would be entirely consistent with the Commonwealth’s intent to maximise the use of Australian supply chains and would have a positive effect over the lifespan of each platform. The Maritime Systems Division (MSD) of Defence is working on a new approach for sustainment of Navy assets. It is called the Future Maritime Sustainment Model (Plan Galileo). A key part of the new approach is the design and implementation of Regional 1 Economic Contributions of Naval Bases in Sydney 2 Defence Industry in New South Wales, page 30 para 3.11 4 We pay respect to the Traditional Custodians and First Peoples of NSW, and acknowledge their continued connection to their country and culture. Copyright Government of New South Wales © 2020 Maintenance Centres, which will be asset agnostic maintenance hubs in strategically located Navy home ports which are initially planned for Cairns, Perth and Darwin, and Sydney. From public comment provided by Head of Maritime Systems, RADM Wendy Malcolm, RAN, it is understood that Plan Galileo is intended to match ‘our continuous naval shipbuilding capability with a continuous sustainment capability.’ Matching the continuous naval shipbuilding capability with a continuous sustainment capability is a sensible and indeed the only proper approach. We consider that a continuous sustainment capability already exists in Sydney in the form of the extensive Navy base infrastructure and the supporting industry cluster. We also suggest that there is untapped industrial capacity available to support continued expansion of the naval presence in NSW, including through consideration of the establishment of new naval bases to support capability as required, such as the re- establishment of an East coast submarine base. Beyond Sydney, Newcastle Port and Port Kembla, which have not been named in connection with Plan Galileo, and their associated industry clusters offer strong and viable options for the sustainment of naval assets on the east coast of New South Wales. Recommendations: Noting the requirement to generate naval capability across whole-of-life, the Naval Shipbuilding Plan should: • be modified to address generation of naval capability across the whole-of-life, including sustainment. • incorporate the latest Defence projections on future basing and sustainment of the fleet. • place more emphasis on the use of local content and supply chains. Section 3: Whole-of-Nation approach to delivering Naval Capability As mentioned above, the current Naval Shipbuilding Plan focusses heavily on the capabilities at two shipbuilding yards in Osborne and Henderson rather than looking at the shipbuilding and sustainment capabilities of the whole of the nation. At the Future of Australia's naval shipbuilding industry inquiry public hearings (2017), several witnesses reiterated the national contribution to the shipbuilding programs. For example, at the committee's hearing on 4 April 2017, Mr John O'Callaghan, Executive Director, Australian Industry Group Defence Council, explained that shipbuilding is a national enterprise and there were many examples of where this national approach has proven successful, including supply of smart technology related to combat system activity from NSW and work undertaken by Victorian companies on the ANZAC frigates3. 3 Mr John O'Callaghan, Executive Director, Australian Industry Group Defence Council, Senate Economics References Committee, Committee Hansard (Future of Australia's naval shipbuilding industry), 4 April 2017, p. 21. 5 We pay respect to the Traditional Custodians and First Peoples

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