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Budgetary necessities vs. commitment to local Defence Industries

South Australia is home to four critical, nationally significant industries: Agriculture, Wine, Mining and Defence. Together they form the bedrock of the state’s economy.

Today we look at defence. South Australia hosts some 25 per cent of national defence industry capability, focussing predominantly, though not exclusively, on shipbuilding. Arguably, Defence is the state’s quiet achiever. Most South Australians know, or have heard, that their state is considered the ‘defence state’ though this may not be immediately obvious. Perhaps that is a good thing. However, when the Federal government handed down it’s May 2012 budget in which the Department of Defence was expected to contribute towards the Gillard government’s heavily hyped budget surplus, some $5 billion was slashed from the Defence bottom line in either cancelled or deferred projects. To many people, this may not present much of an issue. After all, it is a reasonable assumption that every government department needs to ante up when it comes to sharing the cost of righting the national accounts. But, Defence is different. Unlike other government departments where arbitrary political decisions on funding have relatively modest affects, in Defence, projects normally take many years to gestate and bring to fruition. This is because the high technologies embedded in many military platforms today are long lead-time items. Research and development (R&D) and test and evaluation (T&E) are not simple processes. In a submarine or a fighter aircraft for example, the multiple layers of systems needed to sail or fly the finished product in the modern combat environment, requires time to finesse potential technical challenges. In Australia’s case, we have much to be thankful for since much of the hard work on R&D and T&E takes place offshore. Large defence companies in North America and Europe with R&D, T&E, as well as deep, sophisticated design and manufacturing capabilities enables these companies to take much of the risk associated with bringing a new military item to market. We in Australia usually buy the desired foreign product and, if there is a strategic or tactical requirement to modify the foreign product to suit the Australian context, then we do so. Generally we do not simply buy items off-the-shelf and press them into service, though this might very well be a cheaper solution for our defence forces; there is a political and strategic requirement that we hold some industrial capacities in Australia to assemble, modify and service defence equipment locally.

Supporting this local capability is a myriad of companies, some large (Primes), but also many Small-to-Medium Enterprises, (or SMEs). The latter group have a variety of boutique, specialised capabilities that can take a base-line foreign military platform and colour it uniquely Australian. Retaining this national base is important since not everything built in the factories of North America or Europe can service the strategic or operational needs of Australia. Take submarine construction for instance. European shipyards (a declining number of them) are the only repositories for building conventional diesel-electric submarines. The US stopped building this class of boat back in the 1950s. Since the political climate in Australia is against purchasing American-made nuclear submarines, this leaves Canberra little option but to buy an established European submarine design. But because European designs are only good for the shallower, protected waters of the European littoral – an Australian acquisition of a European submarine must incorporate local modifications to make the boats capable of operating in the deeper, open oceans surrounding Australia. Therefore, the Gillard government’s decision to invest some $214 million in exploring submarine options for Australia is a good thing for both the Royal Australian Navy and for South Australia. We have the ASC (Australian Submarine Corporation) site at Techport and the pool of talent necessary to not just assemble, but refit and modify any foreign boat design we choose. Our experience with building the Collins class (the first time Australia ever built submarines), while not necessarily trouble-free, provided a steep and valuable learning curve for work on future submarines and should therefore stand us in good stead for building the next model. However, because of the Gillard government’s decision to favour one acquisition – the new submarine project, another long lead-time project, the Joint Strike Fighter (JSF/F-35) was put on hold for a couple of years.

What does this mean for local South Australian defence industry? It means that those companies (especially at the SME level) that pegged their futures on the timely delivery of JSF, have had to push this lucrative project down their order of priorities. Some of these local companies might not be able to wait for a future government recommitting to JSF, even if this recommitment is only a couple of years down the track. Should this decision see some of these companies go bust, this would not only erode South Australia’s diverse base of defence industrial capabilities, it would de-skill the aerospace sector in particular. This game of political football with the defence dollar that is played out in Canberra, can wreak havoc locally, costing the state jobs, status and skill.

By Dr. John Bruni, Director SAGE International

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