A number of submitters accepted the argument that the naval shipbuilding
and repair industry is not simply about costs, broader economic benefits or
local jobs— it is about national security.
In this chapter, the committee considers the decision
to conduct a limited tender for the two supply ships in light of the argument
that an indigenous shipbuilding industry is required for national security
There are many and significant benefits that accrue from the
construction of naval ships in Australia, including: the establishment and
further development of a strong industrial base supported by a skilled
workforce; expanded indigenous research and development, design, production and
management capabilities; and extensive technology transfer across a broad
spectrum of activities. There are also savings to be considered that may derive
from being better able to support the vessels throughout their operational
life. But shipbuilding is not purely an economic, research and development or
job creation activity, it is above all a Defence activity with national
security its foremost concern. Thus, when considering a major naval
acquisition, Defence's primary concern, within a limited budget, is with maximising
its capability and the continuing support needs of the naval fleet.
To fulfil its primary role to protect the national interest, Defence
must ensure that it has control over the capability and technology needed to
secure operational independence in areas vital to Australia's defence. For
Navy, it means that its fleet must be equipped to best meet the security
challenges it confronts. Many argue that to do so, Australia needs an
indigenous shipbuilding industry and a domestic capability to support
Australia's naval ships and their systems throughout their working lives.
Indeed, the Australian Business Defence Industry stated succinctly that
the strategic requirement for the repair and maintenance of naval ships would
appear to be 'a given'.
Mr Dunk similarly recognised the importance of a shipbuilding industry to
Australia's national interest. In his words:
There can be no doubting that the ability to maintain ships
is a strategic requirement and it may well be...that with a shrinking overseas
shipbuilding capability there is a strategic requirement to build ships here
but that work has not been done and has not been unambiguously stated as such.
The AMWU stated that naval shipbuilding, including both construction and
repair, was about:
...having the sovereign industry necessary to keep the
Australian Navy operating every day at sea; having an industry with the ability
to conduct expert maintenance and repair on complex warships; and an industry
with the ability to build new warships that meet the specific requirements of
the Australian Navy. Our industry is critical to Navy’s operations in support
of peacetime activities like humanitarian assistance and disaster relief, as
well as high–end warfare operations.
Thus, the union argued that the capability of Australia’s naval
shipbuilding industry was 'foremost a national security issue as well as being an
issue for our economy and our manufacturing industry'.
In this regard, the Government of Victoria sought to impress on the committee
the importance of taking account of the whole life cycle of the supply vessels
and of the need to sustain that capability. In its view,
a local shipbuilding industry capable of maintaining and modifying these
vessels throughout their lifecycle would be critical to Navy's capacity to
operate and support this expanded capability. The Victorian Government informed
the committee that Victoria was home to one of the region's most advanced
shipbuilding dockyards in BAE Systems at Williamstown. It referred to its
substantial contribution to the LHD program and its work in supplying blocks
for the AWD program. According to the Victorian Government:
The Williamstown shipyard has been one of the cornerstones of
maintaining, developing and building Australia's shipbuilding capability with the
ANZAC Class Frigates a prime example of their capability. This capability will
not be available in the future unless companies such as BAE are afforded the
opportunity to participate in major defence projects.
Mr Hamilton-Smith argued that the current thinking about purchasing the
supply vessels offshore was unsound. He argued that unless you maintain,
sustain, mid-cycle dock and keep that capability in the water—and if you have
not built it your ability to do that is diminished—then you do not have a war-fighting
To his mind, the argument that you can save money up-front by bidding off your
projects overseas, which satisfies a Navy and ADF need and then forget about
the acquisition, was flawed.
Indeed, he informed the committee that:
...the decision to restrict the tender to build these two
supply ships to companies outside Australia, in the South Australian
government's view, is detrimental to the future of naval shipbuilding in
Australia. It is a consequence of the longstanding and, in our view,
short-sighted project by project mindset to naval shipbuilding in this country
In his view, over the next 12 to 18 months and before the next White
Paper, the government must devise the right strategy, policy and investment
decisions. Otherwise, in his words, it will cost Australian taxpayers more
money over the future life of the projects; be at the expense of Australian
jobs; and throw away investment in skills. According to Mr Hamilton-Smith:
Most importantly, it may irreparably damage our capability to
defend ourselves as a nation in the Asian region.
The Navy League of Australia argued that, as far as practicable, the
ships that the Navy needs should be built in Australia, particularly warships
It noted that:
By doing so we will maximize the long-term benefits of
developing the industrial capability essential for the long-term support and
modification in service of such vessels. We will maintain independence in the
support of our naval assets.
The League accepted that, apart from the organisations currently engaged
in naval programs, Australia no longer had a significant shipbuilding industry.
Even so, it contended that Australia should sustain the capability of the
current participants in Australian naval shipbuilding in order to 'maintain the
strategic industry capability they provide'.
The League argued that the key to maintaining this capability was:
...continuity of orders and a concentration on building those
ships most relevant to this aim, warships and submarines. In maintaining this
capability we may have to pay a premium, although this is not necessarily so if
the programs are of sufficient size to allow Australian industry to benefit
from continuous production. The ANZAC frigate program of 10 ships, 8 for the RAN,
2 for the RNZN, is a good example.
Mr King did not subscribe to the argument that Australia needed to build
the ships to be able to maintain and repair them effectively throughout their
service life. He indicated that Navy has had ships from overseas all of its
life and Australia
has supported them. Indeed, Defence told the committee that ships are 'generally
sustained by different companies and at different sites'.
Mr King gave the example of the F111s, 'one of the most expensive, exotic
aircraft of their day':
They were fully maintained by Australian industry right up to
the finish and very effectively. Super Hornets, Hornets, JSFs will all be built
overseas and I can assure you we will support them very effectively in
Australia. What is important is that you have the intellectual property in
order to be able to make changes and to modify them through life—that is very
important. We have six FFGs. The first four of those were bought straight from
It should be noted that at the time of considering the acquisition of
the LHD, Defence maintained that the case for a domestic build was not as
strong for these large ships as for the AWDs: that a local build for the LHDs
was likely to produce relatively few savings for through-life support. In
particular, Defence suggested that the LHD platform would not require the
high-end skills that are critical for the industry
to retain. In its view, the skills used during platform construction are 'less
important in the through life support phase of ships'.
Consequently, although Defence agreed that there was 'some crossover between
shipbuilding and ship sustainment and repair', it suggested, as Mr King had
already made clear, that it was not necessary to have built the ship to sustain
it. According to Defence, it was more important to ship sustainment to have
access to ship design experience and the required technical data.
Mr King explained further, that while he did not believe that the
maintenance argument was very sound, he saw the need for Australia to have a
strategic capacity to support its naval fleet. Thus, whereas Mr King rejected
the notion that Australia could only maintain its ships if it had built them,
he did contend that Australia should have a shipbuilding industry and in this
context he stated his strong support for the surface combatant shipbuilding
According to Mr King, it was important to remember that the decision to
tender for the supply ships was one of a number of decisions including the one
to pursue the feasibility of building future frigates in Australia. In his
this decision was critical to having a vibrant and effective shipbuilding
In respect of surface combatants, he said:
...you need lots of competent supervisors and management
levels. The world capacity that we can access to buy surface combatants is
diminishing quickly. American shipyards, UK shipyards, European shipyards are
diminishing quickly...Ships take five or six years to build. It strikes me as a
good, strategic insurance policy that we have the ability, should pressures
outside grow for us to need an expanded navy, that we have a fundamental
capacity to be able to build those ships. Because one thing we know for sure is
that if there were suddenly a demand for another 20 or 30 surface combatants
from our friends and allies in the markets that we could go to, we would not be
seeing one for eight or 10 years.
The Navy League of Australia noted that in view of the commitment of ASC
and the Techport to the AWD program 'the priority there should be to ensure the
success of that program and to prepare for the construction of the future
frigate and future submarine, bringing forward the frigate program if
necessary'. In its view,
it was already 'too late to prevent a run-down of capability at the major AWD
sub-contractors Forgacs in Newcastle and BAE Systems in Melbourne'.
National security concerns are central to any consideration about
Australia having a naval shipbuilding industry and the priorities that should
be given to developing and retaining the skill base and experience to support
The committee has referred to the important capability that the supply ships
provide to Australia's naval fleet. But, as Mr King explained, Australia does
not need to build the supply ships in-country in order to maintain and upgrade
them throughout their life. He did recognise more broadly, however, the need
for Australia to have an indigenous industry that has the strategic capacity to
support the Navy's fleet.
In the following chapter, the committee looks at Australia's Defence
industry policy and how the government's decision to restrict the tender for
the supply ships was consistent with its policy objectives.
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