Australian security needs a ‘Future Made in Australia’ too

Written by

David Harvey

One of the spurious reasons for not using Australian industry in Australian platforms is that there are very few Australian original equipment manufacturers (OEMs) of the equipment installed in ships, vehicles and aircraft.  Yet Defence’s insistence on dealing with industry primes and largely ignoring what happens beneath them weakens Australia’s strategic position. Most primes incorporate offshore OEMs with no local production.  Yet armed forces are an industrial product and Australia can’t afford a 12,000-mile gap between industry and the fighting force.

We need to on-shore much of this production to reduce supply chain risk and to make our own industrial base more relevant to our allies.  All recent history shows us there are no short wars.  Europe and the US are stretched just supplying Ukraine, even without a major crisis in the Asia-Pacific.  So, local, on-call, industrial support is critical to national credibility.

Fixing our industry base requires Defence to correct some long-held biases about Australian industry and for politicians to develop a more informed and nuanced understanding.

Defence industry is an issue of public concern but replete with unique constraints, making it mysterious to the mere mortal.  So, for this discussion let’s consider those constraints.

With a few exceptions (e.g. munitions, small arms), today in the West there is limited  defence mass production –the US is still industrial powerful, but without the easy scale of production many assume.  There is some ‘series production’, but even one or two ‘Virginias’ is still not mass production.  Platform primes (for ships, aircraft, vehicles) are designers, assemblers, integrators and vendors of articles composed of subcontracted elements, often complete subsystems, purchased from OEMs.  These OEMs subcontract most of their piece part production.

They and their parent governments want to capture as much of the value add, overhead recovery, and industrial utilisation in their local jurisdiction to maintain their own defence capability.  They will find every good reason not to subcontract part of the work offshore unless faced with a market imperative.  Nevertheless, there is no reason that work cannot be done in Australia at least for Australian projects, creating the ability to deliver sustainment and form a base from which to expand in a national emergency.  It certainly did in the Collins and ANZAC projects.

Moore’s Law has reduced the volume of electronics in combat systems and replaced custom defence circuitry with commercial computing.  What used to be in a 1.8m electronics cabinet can now be transported in carry-on baggage.  But all the ‘metal bits’ are as big and as custom as ever.  These unsexy subsystems and assemblies are where true availability lie.

To use submarines as an example, no Australian company designs and manufactures a complete ballast pump or hydraulic system, yet the boat is unserviceable without either so local support, spares manufacturing etc, are critical.

Australia managed this requirement in the Collins build by mandating in the tender and contracts that all OEMs have at least a minimum level (50%) of local content.  This is both logical and achievable since almost all OEMs subcontract their piece part production to subcontractors, so it is manageable to change the subcontracting to Australian companies, usually also transferring non-exclusive IP rights and setting up local support.  Most shipbuilders do about 15% self-perform work, with the rest subcontracted.  Building vessels here with fully imported parts does not constitute any form of self-reliance. 

No premium was paid for the Australian industrial involvement on Collins.  The often quoted 15% premium relates to what the government decided in advance it was prepared to pay, not what eventuated.

Note that economies of scale are rare if not non-existent in defence industry since production runs are so short, particularly outside the US. 

Australian Governments (and the Defence Department, which seems to resent local industry and does not understand either the history or the strategic need) get hung up on doing some shiny ‘high-tech’ part here.  But Moore’s Law and the COTs nature of electronic systems has naturally de-risked much of those parts.  However, try putting your frigate to sea with a bent ‘A’ bracket or damaged gearbox when the OEM is 12,000 miles away, has little excess capacity, the part needs an Antonov to air freight, and has a lead-time measured in months.  As but one example, the castings supplier on the Hunter class is a medium sized, listed but family controlled British company, yet there is excellent castings capacity and skills here in Australia. 

Worldwide, on aggregate, most defence suppliers are small to medium companies or subsidiaries of larger firms for which the work is not core business.  The Lockheeds, BAEs, and Thales subcontract most of their industrial inputs, so all western nations are vulnerable.  Australia can only manage its vulnerability by bringing work onshore, even if only as subcontractors to OEMs.  In the case of current shipbuilding, we are making Britain’s vulnerability our vulnerability.  The air warfare destroyers, LHDs and Hunter class are replete with further examples.  The Australian taxpayer will not thank any government which has to put their money into propping up small overseas companies when Australian firms have the same capabilities.

Local industrial participation on almost any item has a strategic value, however mundane the specific equipment might appear.  In a time of conflict or supply chain failure, being able to use local industry is critical, made practical if during peacetime they have already won contracts and work for Defence.   It is the industrial element which makes deterrent credible.

The first need is not investment in new, fashionable, defence wares, but In having Australian industry working on the daily bread and butter of ships, submarines, aeroplanes and land equipment – the fundamental equipment of capability and warfighting.  Yes, through and with overseas OEMs, but today they have the designs and products.

The nation needs Australian industry working on defence and positioning to do more when the need arises. It should mandate local content on all OEMs through and in parallel with the primes.  They will squeal (as will their home governments), but the commercial imperative will bring them into line.  Australia’s deterrence strategy is not credible without onshore industrial capability.

‘Best endeavours’ or ‘we’ll do it later’ never work.

There is no better way to deliver ‘Made in Australia’ in the national interest than locking Australian industry into Defence’s supply chains right from project start.

David Harvey is an Australian defence industry veteran with experience stretching back to the 1980s.  Originally an RAN submariner, he has international defence industry experience in the UK, continental Europe, the United States and Latin America.  In Australia, he led two sector-leading defence and professional systems companies and has served on a number of boards.  He holds a Masters in War Studies from UNSW.

SHARE THIS ARTICLE