There’s a tsunami coming. It’s the huge surge of work needed to deliver Australia’s naval capability plan.
Unlike most tsunamis, however, we have some idea of the size of what’s coming. It’s already visible on the horizon. Whether we are prepared for it is another matter. And if we can’t manage that tsunami, Australia will face a capability crisis.
Here’s an outline of the scale of what’s going to hit Australian industry. As many commentators have noted, maritime capabilities will form 38 per cent of Defence’s $330bn capability investment program over the coming financial decade. That’s a vastly greater percentage than in previous plans, resulting in maritime alone being more than land (15 per cent), air (14 per cent) and cyber (7 per cent) combined. That balance will likely extend for at least two decades.
Within the maritime program, the vast bulk of the funds are for local shipbuilding programs – around $85.2bn-108.7bn. That’s mainly the big three of nuclear-powered submarines, Hunter-class frigates and the final eight General Purpose Frigates (GPFs), as well as smaller programs such as landing craft and patrol vessels. Those shipbuilding programs will consume around 11-14 per cent of the total Defence budget.
About $9bn of that is simply a cash contribution to the US’s and UK’s submarine industrial bases, but it still leaves potentially 12 per cent of the total Defence budget needing to get pumped through our shipyards to deliver on the capability plan.
That 12 per cent is driving the tsunami. The US spends less than 4 per cent of its total defence budget on shipbuilding. That might not sound much, but it’s produced the most powerful navy in the world.
However, from the many reports on delayed projects and production backlogs, it’s clear even the US industrial base can’t absorb that spending. Consequently the US government is trying to expand the size of the pipeline (in part with Australia’s cash contribution). In relative terms, we want to push three times as much money through our shipbuilding pipeline. You can be forgiven for wondering whether we can do it.
Another way to illustrate the scale of what’s coming is to look at the tonnage our shipyards will need to produce. Over the past decade, we averaged around 3500 tonnes per year. To achieve the Australian government’s shipbuilding plans, we need to get to around 10,500 tonnes per year by the early 2030s, and around 12,500 tonnes when construction of SSN-AUKUS is up and running in Adelaide. Moreover, there’s not a lot of “easy” tonnes in there since the vast bulk of the work will be highly complex vessels such as submarines and major surface combatants.
While most of that work will need to be done in Adelaide, which has the two biggest projects – the SSNs and Hunter-class frigates, the ramp-up in Henderson in Western Australia will be particularly acute. That’s driven mainly by the General Purpose Frigate program that was announced earlier this year and is going through a rapid selection process. Whichever of the four candidates is chosen, it will be a much bigger and more complex ship than the offshore patrol vessels being built at Henderson. While the first three frigates are to be built offshore, the remaining eight are to be built here and, to ensure no gap in deliveries between those two phases, construction will need to start here in the next few years. By the end of the 2030s, annual tonnage produced at Henderson will need to be nearly three times where we are today.
Fig 1: Domestic naval shipbuilding by tonnage
The tsunami would not be too concerning if it just involved construction of new ships and submarines. But we also need to sustain our existing fleet during the transition period, as well as the new classes when they arrive. The latter are much bigger and by any metric will demand more resources. Moreover, sustainment of the new and old will overlap.
Just in the submarine space, Australia needs to perform the following industrial activities to successfully transition to the future SSN capability:
● Collins “in-water” sustainment (HMAS Stirling)
● Collins mid-cycle dockings (Henderson)
● Collins full-cycle dockings and subsequently life-of-type extension (Adelaide)
● Submarine Rotational Force-West operational maintenance (HMAS Stirling)
● SSN AUKUS operational maintenance (HMAS Stirling/Henderson, later also on the east coast)
● RAN Virginia-class deep maintenance/overhaul, including construction of facilities (location not yet announced)
● RAN Virginia-class operational maintenance (HMAS Stirling)
● Construction of the SSN-AUKUS shipyard (Adelaide)
● SSN AUKUS construction (Adelaide)
● SSN AUKUS overhaul/deep maintenance, including construction of the necessary facilities (location not yet announced)
● Construction of east coast submarine base (Brisbane, Newcastle and Port Kembla are the current shortlist).
Each of these is a substantial industrial activity in its own right. Moreover, as we move towards larger numbers of larger vessels, the requirement in people and dollars will increase; for example, an overhaul of a Virginia-class SSN requires around three times as much work as a Collins full-cycle docking.
Modernisation and automation of shipyards won’t solve this for us. The new shipyard at Osborne, which recently started construction of the first Hunter-class frigate, has been lauded as one of the most advanced and automated naval shipyards in the world. Nevertheless, it will still take eight years to deliver the first ship. Moreover, the cost of the Hunter program has gone from $30bn to $35bn to $45bn, while the scope of the program has been reduced from nine to six vessels, and there’s every indication that reduced scope will come close to consuming the entire $45bn. Technology isn’t driving down cost or schedule.
As always, most attention is focused on the initial acquisition, but sustainment will be equally, or more, demanding. Size is a useful proxy for cost in both the construction and sustainment of warships. We are moving from about 20,000 tonnes of submarine to 80,000, a fourfold increase (and that doesn’t consider the additional overheads involved in safely operating a nuclear fleet). The surface combatant fleet is growing from 50,000 to around 150,000 tonnes, a three-fold increase. Again, we should be cautious about claims that more modern vessels will be cheaper to operate; the cost per tonne of the navy’s new Hobart destroyers is comparable to the ageing Anzac frigates – indeed more if we include the cost of the Hobart’s very sophisticated but expensive US-sourced Aegis combat system. We’re looking at around $12,000-$15,000 per tonne per year for surface combatants (not including the crew or the ordnance). When tonnage is increasing three- or fourfold, it will be a huge cost driver.
Cost is in turn a proxy for work, so there is no doubt that in addition to requiring many more workers to build those fleets, we will also need many more workers to sustain them. Of course, it will be some time until those new fleets are fully delivered, decades in fact, but we are embarking on a steeply climbing curve.
It’s hard to see how we can push all the work, construction and sustainment through the pipeline. Two risks will inevitably be realised. The first is that it will result in cannibalisation of resources, forcing the government to make difficult prioritisation decisions – for example, we simply will not be able to perform all the submarine activities listed above concurrently. Something will have to give.
In fact, we are already seeing this. To free up resources, the Navy has already retired one Anzac-class frigate, eight years before the first Hunter is operational, with another likely soon to follow. It will be the same situation with uniformed personnel. The number of submariners needs to grow from around 800 to 3000. Already submariners are being taken off the Collins, put through the SSN training pipeline and assigned to US or UK SSNs. More submariners are meant to be entering the SSN pipeline alone than traditionally have been produced for the Collins, so we face the prospect of running down the Collins workforce well before our first SSNs enter service.
The other major risk that will be realised is schedule risk; if the work can’t be done, project schedules will lag. As with the first risk, this is ultimately about capability: schedule overrun means capability risk, with ageing platforms forced to serve longer or retire before their replacements arrive. Again, it’s happening already.
These mutually reinforcing risks are putting us in a Catch-22 situation. Take the submarine transition and the Collins life-of-type extension (LOTE). The greater the schedule risk around the delivery of SSNs, the greater the need for the Collins to keep serving. The longer the Collins must serve, the greater the need to keep its capabilities relevant. That means an ambitious scope of upgrades is required for the Collins LOTE, but we know that extensive upgrades to ageing platforms are fraught with technical risk and hence schedule risk. So the more work we need to do in the LOTE, the greater the likelihood that its schedule will blow out, which means fewer Collins will be available to fill the gap out to the SSNs. Plus, whatever resources we put into the Collins are not available to deliver or support SSNs, potentially exacerbating the original problem the LOTE was meant to address; namely, the schedule gap in the delivery of the future submarines.
Recent announcements compound the pressure. For example, the government’s announcement of the General Purpose Frigate may be a desperate but necessary last roll of the dice to avoid the capability train wreck caused by a decade of poor decisions and ensure we maintain a viable surface fleet. But, while the first three vessels are meant to be built overseas (on a very ambitious schedule), the remaining eight are to be built at Henderson. That will compete for industrial capacity with both the conventional and nuclear submarine enterprise. Put another way, the way we have addressed the risks in the maritime capability program also exacerbates those risks.
A well-run company would mitigate these risks to one of its core lines of business by diversifying and investing to develop its other lines. But, as we noted above, with 38 per cent of its investment program dedicated to maritime capabilities, there’s little left over to pursue mitigation strategies in other domains. Defence has just developed the most single-mindedly focused investment portfolio in its history. There’s no Plan B should the tsunami swamp us.
This article was first published in The Australian.