- Armaments manufacture, procurement and inventory
Overview
6.1The National Defence: Defence Strategic Review 2023 (2023 DSR) stresses the importance of Australia possessing a diverse array of munitions, capable of long-range strike across Sea, Land and Air domains. In August 2023 the Australian Government announced plans for the rapid procurement of High Mobility Artillery Rocket Systems and Precision Strike Missiles, this followed the May 2023 appointment of Air Marshal Leon Phillips OAM as Chief of Guided Weapons and Explosive Ordnance.
6.2The Subcommittee looked at the process for the acquisition of specific munitions from coalition partners, the requirements to enable domestic manufacturing and storage, and the comparison of current stock holdings against what would be required during a high intensity conflict.
6.3This chapter discusses Australia’s changing priorities and considerations for armaments manufacture, procurement and inventory within the Defence (inclusive of the Department of Defence and the Australian Defence Force (ADF)) framework of the 2023 DSR, 2024 National Defence Strategy (NDS) and the 2024 Integrated Investment Program.
‘Deterrence through denial’
6.4The 2023 DSR stated that Australia is seeking a military strategy of ‘deterrence through denial’, that is, ‘a defensive approach designed to stop an adversary from succeeding in its goal to coerce states through force, or threatened use of force, to achieve dominance’.
6.5The ‘deterrence through denial’ strategy, or ‘denial strategy’, requires the complete defence against and defeat of an act of aggression, which is anti-area, anti-denial capability preventing an adversary advancing on and operating within an operational area. To hold an adversary to Australia’s north, the ADF must possess significant stocks of long-range strike and other guided weapons to pose a credible threat, supported by a sovereign capacity to manufacture certain lines of weapons.
Guided Weapons Explosive Ordnance Enterprise
6.6The 2023 DSR recommended the appointment of a senior leader for the Guided Weapons Explosive Ordnance (GWEO) to increase focus to realise the GWEO Enterprise. In May 2023, the Australian Government appointed Air Marshal Leon Phillips, OAM as Chief GWEO. Air Marshal Phillips is responsible for the consolidation of ADF GWEO needs and the establishment of a domestic manufacturing capability, accelerating foreign military and commercial sales and strengthening supply chains.
6.7Concurrently, AUKUS Pillar II (Advanced Capabilities) is supporting technological transfers and the removal of barriers to support the domestic manufacturing and maintenance of key weapons. In addition, ‘AUKUS partners are the pooling talents [of the] defence and innovation sectors to catalyse the delivery of advanced capabilities, including the integration of defence industrial bases, research sectors and investor networks’. This approach is expected to ‘accelerate trilateral capability development’ into the future.
6.8The 2024 Defence Industry Development Strategy (DIDS) identified domestic manufacture of guided weapons, explosive ordnance and munitions as one of the seven Sovereign Defence Industrial Priorities (SDIPs). To advance domestic manufacture, the DIDS acknowledges Epoch 1 from 2023-2025 for domestic manufacture of select guided weapons, commencing with the assembly of imported sections and components, while concurrently expanding the types and increasing quantities of non-guided munitions. Epoch 2 from 2026-2030 prioritises the manufacture of selected weapon sub-sections and components, such as rocket motors, to improve supply chain resilience and enhance industrial capability, design and manufacture of GWEO components.
Integrated Investment Program
6.9The 2024 Integrated Investment Program has reprioritised Defence capability investments in support of the 2024 NDS. The reset lays out a coherent, logical and affordable plan for defence capability.
6.10Defence long-range strike priorities, detailed in the publicly available Integrated Investment Program, requires the purchasing of the following weapons systems for the Navy, Army and Air Force:
- Tomahawks
- Evolved Sea Sparrow Missile Block II
- SM–2 and SM–6 missiles
- 42 High Mobility Artillery Rocket Launch Systems with Precision Strike Missile and Guided Multiple Launch Rocket System munitions
- Long Range Anti-Ship Missile for integration into F/A-18F Super Hornet, P-8A Poseidon and F-35A Joint Strike Fighter
- Integration of the Joint Air-to-Surface Standoff Missile – Extended Range capability onto the F/A-18F Super Hornet and F-35A Joint Strike Fighter
- Integration of the Advanced Anti-Radiation Guided Missile – Extended Range into the EA-18F Growler and the F-35A Joint Strike Fighter platforms, and
- Loitering precision munitions and their associated launch platforms and enabling systems to support land and maritime targeting operations.
Armaments manufacture
6.11Australia has two government-owned munitions facilities located at Mulwala, New South Wales and Benalla, Victoria. The facilities are contractor-operated, producing propellants, explosives, bombs and a range of non-guided munitions such as small arms ammunition. Defence submitted that these facilities provide the essential foundation for Australian munitions manufacturing and the provision of key propellants for solid-rocket motors and warheads.
6.12Defence has publicly put forward that with the NDS prioritising the expansion of Australia’s domestic munitions production, the DIDS prioritises expanding non-guided munition production plus a concurrent transition period to produce a small number of guided weapons. The initial production of these guided weapons will likely be the assembly of imported components with Australian made componentry inputs increasing overtime.
6.13Defence underscored in its submission the ‘high barriers to entry and technical complexity’ in the manufacture of guided weapons and the importance of the Defence strategic partnerships with Lockheed Martin Australia and Raytheon Australia. Defence emphasised that it does not consider it ‘realistic, affordable or necessary’ for Australia to manufacture all its guided weapons even with this focus and industry assistance.
6.14The Australian Strategic Policy Institute’s (ASPI) submission raised two concerns on the issue of Australian armaments manufacture. The first that:
While it is essential that Australia builds up its sovereign defence industry base, we must eschew delusions of autarky and avoid beggar-thy-neighbour scrapping with allies over limited supplies.
6.15Secondly, ASPI expressed concern with the slow pace of progression with the GWEO enterprise, which was announced in March 2021; the announcement of enterprise strategic partners two years later in July 2023, and GWEO production planned to commence late 2025.
6.16Australia’s national intent is to develop and expand sovereign munitions production. ASPI proposed that:
Defence must help Australian defence industry collaborate with international partners, including through AUKUS, recognising the complexity of modern production and supply chains as well as the economies of scale achievable by accessing markets beyond our shores. To succeed at pace, Defence must be willing to take greater risks, including picking winners amongst promising Australian defence companies, underwriting certain costs and accepting loses when some capabilities don’t fulfil their hoped-for potential.
6.17RAND Australia further amplified limitations to domestic munitions manufacture as being:
- A cost premium to reduce sovereign risk;
- A greater variety of weapons makes it more challenging and costly to rely solely on domestic production; and
- More sophisticated weapons require more complex parts, making it harder to mitigate sovereign risks due to the complexity of global supply chains.
- RAND argued, in respect of the establishment of domestic manufacturing, that:
Complex weapons system enterprises require decades to develop and significant investment in supporting innovation and education systems.
6.19Mr Benjamin James, Chief Executive Officer Australia and New Zealand of the NIOA Group proffered a similar argument, suggesting that to entice private investment, Defence needs to get past:
… a short-term transactional approach to acquiring munitions, guided or otherwise, [to give] industry certainty. It allows industry to form deep and sustained partnerships that bring critical IP and technical data to Australia and invest in this country to ensure that we can start to assemble and, ultimately, manufacture those munitions here in Australia get past the short-term transactional approach to acquiring munitions, guided or otherwise, to longer term investment to provide industry certainty.
6.20Defence added that in the future, domestic manufacturing may produce ‘rocket motors and warheads for selected missiles’, thus expanding pathways for sovereign armaments manufacturing.
6.21Mr James of the NIOA Group stressed the need for Australia’s defence industries to assess horizontal integration opportunities across systems in preference to the extant vertical silo’s approach focusing on a single armament or weapon system. To demonstrate this commercial focus, NIOA Group are seeking to develop a joint venture with a United States company with the express aim of ‘establishing in Australian a multi-user solid rocket motor facility as part of a broader GWEO enterprise’.
6.22RAND highlighted the critical nature of test and evaluation (T&E) extending from developmental to in-service phases, rounding out the considerations to increasing domestic armaments manufacture. RAND also suggested T&E activities will ‘give confidence in weapon safety and fitness for purpose’, and that T&E requirements can be ‘correlated with the level of risk in the related capability activity’.
Procurement and inventory
6.23With Russia’s full-scale invasion of Ukraine, military planners across the world have focussed on the significant rate of munitions expenditure. Significant increases in production capacities and importantly, increased inventory holdings, are essential to support this form of warfare.
6.24Mr James from the NIOA Group raised concerns to the Subcommittee about Australia’s stock holdings, noting the 2023 DSR identified them as ‘shallow’, and Australia’s potential over-reliance on international supply chains.
6.25RAND raised parallel concerns relating to Ukraine where there was a significant disparity between peacetime munitions production and wartime munition expenditure, which represented a significant risk of short supply. Equally, RAND cautioned that in Australia learning lessons from the Ukraine conflict,
… care needs to be exercised in view that Ukraine is a quite different environment compared to potential threats that Australia may face.
6.26Defence recognises the integral importance of GWEO inventories to the national defence and security narrative, however, munition inventories are highly classified and cannot be released for public review. To clarify Defence’s processes for GWEO stockholdings, the Defence submission detailed an internal methodology known as the Strategic Material Reserve – Explosive Ordnance (SMR-EO). This methodology assists in the assessment of ‘optimal GWEO stock levels in preparing for high intensity conflict’ and prioritisation when acquiring additional war stock. Defence further articulated that rapidly expanding GWEO inventories will require an expansion of GWEO storage networks.
6.27ASPI warned that the ADF’s ‘strategy of denial’ may require a greater range of capabilities than those the ADF have or are currently acquiring. ASPI also expressed concern that combined armament stockpiles and production capacities will be ‘insufficient for a protracted war in the Indo-Pacific’ because of the high rate of expenditure of munitions in modern warfare. ASPI reflected that Australia’s primary allies are thousands of kilometres away and so to negate this risk, operational planning requirements should consider manufacturing, sustainment and stockpiling with coalition partners who we anticipate fighting alongside.
Defence’s management of Contracts for the Supply of Munitions – Part 1
6.28On 25 June 2024 the Australian National Audit Office (ANAO) released the Auditor-General’s Report No.47 of 2023-24 Defence’s Management of Contracts for the Supply of Munitions – Part 1 (report). The report highlighted significant issues relating to the cessation of the 2009-2014 Domestic Munitions Manufacturing Arrangements selection process, Defence’s decision to sole-source the Strategic Domestic Munitions Manufacturing contract and associated probity risks.
6.29The Subcommittee did not have the opportunity to review and inquire into the report with Defence and the ANAO due to the timing of its release. However, the Subcommittee understands that the Joint Parliamentary Committee of Public Accounts and Audit (JCPAA) are reviewing the report as a component of the its inquiry into the contract management frameworks operated by Commonwealth entities.
Committee comment
6.30Australia is witnessing changing strategic military circumstances in its region. The Subcommittee acknowledges the significant work undertaken in the creation of the 2023 DSR, the 2024 National Defence Strategy and the Integrated Investment Program. The Subcommittee is confident that, combined with the Defence Industry Development Strategy, Defence, its allies and Australian industry have a clear roadmap of prevailing priorities and timelines.
6.31The Subcommittee supports the acquisition of a significantly higher number of long-range strike weapons and corresponding capability enhancements across the ADF to mitigate immediate strategic risks.
6.32The Subcommittee considered all the evidence received on Ukraine munition expenditure rates, supply rates to achieve a ‘strategy of denial’ and likely requirement to support collocated munition resupply with an ally. The Subcommittee urges Defence to review these factors in its inventory calculations and whether current or proposed holdings account for these considerations, particularly in relation to guided weapons manufactured overseas.
6.33The Subcommittee enjoyed regular engagement with the Guided Weapons Explosive Ordnance leadership and Defence munition contractors throughout inquiry. The Subcommittee commends the establishment of the Guided Weapons Explosive Ordnance enterprise as a significant and positive benefit in the management of Defence’s Guided Weapons Explosive Ordnance requirements and proactive engagement of Defence with Australian industry.
6.34The Subcommittee agrees that Defence must consider how it will incorporate and manage wider industry participation and access to government-owned, contractor-operated munitions facilities in the next iteration of the Strategic Domestic Munitions Manufacturing contract to increase Australian industry involvement in armaments manufacture.
6.35The Subcommittee is concerned that Australia may be in a precarious position of overreliance on international supply chains. Thus, the Subcommittee recommends that Guided Weapons Explosive Ordnance non-guided munition contracts prioritise the manufacture and sourcing of components within Australia to increase national resilience, in preference to suppliers sourcing overseas components that are then assembled locally.
6.36The Subcommittee has identified a need to nurture Australian industry development in domestic armaments manufacture with a view to potential international munitions sales in the future. The Subcommittee recommends that Defence lead industry engagement and understanding on international agreements and export control requirements of military and dual-use goods and technologies.
6.37The criticality of T&E to Australian armaments manufacture, interoperability and interchangeability with its allies and international partners became evident to the Subcommittee. As such, the Subcommittee believes it is imperative that Defence leads national industry engagement and development to achieve these requirements.
6.38The Subcommittee believes our national defence is enhanced by sovereign armaments and explosive ordnance production capabilities. Further, the Subcommittee is acutely aware of the challenges of accessing and maintaining global supply chains during conflict. Considering this, the Subcommittee strongly encourages Defence to focus on examining Australia’s supply chain resilience and vulnerabilities to increase the proportion of components that can be locally sourced, for instance local brass production, which will ultimately strengthen our sovereign capability.
6.39The Subcommittee acknowledges the challenges and sensitivities around Guided Weapons Explosive Ordnance inventory classifications. However, the Subcommittee feels there would be merit in Defence developing a reporting framework for use within the Department of Defence and Government, which takes account of Guided Weapons Explosive Ordnance stock holdings, including critical components sourced from overseas and sovereign munition production, sets goals around improving Australia’s sovereign capability, then measures progress against those goals against prescribed timeframes.
6.40The Subcommittee welcomes the increasingly concerted focus by Defence (inclusive of the Department of Defence and the Australian Defence Force) in its examination of Australian supply chain resilience and vulnerabilities, and recommends it continues with increasing sovereign capability by:
- reviewing and replacing current components sourced internationally with components produced domestically, and
- increasing Australia’s future domestic sourcing of components.
- The Subcommittee recommends that Defence (inclusive of the Department of Defence and the Australian Defence Force), through the Guided Weapons Explosive Ordnance Enterprise, create a detailed reporting framework with identified goals and performance measures on critical vulnerabilities, for six monthly reviews by the Defence executive and Australian Government more broadly.