David Fawcett (SA, Liberal Party) Share this | Hansard source

I rise to address the Senate Economics References Committee report, Future of Australia's naval shipbuilding industry. Although I was not a member of that committee, I have read through the submissions and have been involved in this for some time. As a senator for South Australia, who is deeply concerned and involved in our defence industry and our Defence Force, I have a great interest in this topic.

Part of the reason that shipbuilding is important is the capability it gives us in a number of areas around the innovation of design and our abilities to sustain ships in a cost-effective manner and repair and modify ships as appropriate. It is not all ships, just as it is not all pieces of defence equipment, but the important part is that to be a sovereign nation we need to understand the competence and capacity that we need in our engineering workforce—whether they be in industry or in uniform—and in the infrastructure and capacity of the industry to perform certain functions. The way we achieve that moving forward is to avoid the bookended projects we have had in the past and that we have seen in things like our air warfare destroyer and how that start-stop approach has killed off the investment in skills and infrastructure that we build for a given project. The project stops, it all dies and then we face cost and risk when we start to try and rebuild that capacity down the track. There is a clear case to have an ongoing plan.

One of the arguments that I believe is important to take on board is that the defence industry provides one of the fundamental inputs to our defence capability. Very welcome side products of having a defence industry here are jobs and investment in the economy, but we need to bear in mind the government's primary responsibility is the national security of Australia. The reason we should be concerned and should take an interest in the viability of the defence industry is that they are a fundamental input into defence capability. We need to understand what the elements are of the defence industry that need to be viable in order to keep our Defence Force viable. I have put forward a number of papers and discussions around the fact that the Capability Development Group should actually have ownership of planning out over the next 20 years—not just for the life of one project, but over multiple projects, over at least a two-decade period. In a rolling fashion, they should be updating: 'What are the investments that the government needs to encourage industry to make, and, where necessary, the government needs to make, to have the engineering and manufacturing competence and capacity that is required to support our defence industry?' If we get that right, then not only will our Defence Force have more effective and available capabilities; we will have better-informed decision-makers within the military, and within government, which is the basis of being a sovereign nation.

Importantly, if we choose the right projects to invest in, to have that work done onshore, we will have a better return to the economy. I would just like to talk through that a little more. Professor Goran Roos, who is now based in South Australia but has worked extensively overseas, brings a focus to work that has been done in northern Europe, has been done in North America and has been done in the UK, where, for defence projects—and I highlight here that we are talking about defence projects—there is a strong case that can be made that the second-order effects, or those spillover effects, of investing in industrial innovation and capacity in a country, returns to that economy, over a period of time—a decade or more—multiples of anything from around 1.6 in the UK for their shipbuilding, through to multiples of up to six in the US for some of their aerospace projects.

This does not hold for other sectors. People often quote the automotive sector and argue that spillover effects cannot be measured and are not effective—and we just have to look at the money that has been invested in people like Holden and Ford here, and yet they are closing down.

The difference between other sectors and Defence is that, in other sectors, the public have the option to choose whether or not they will purchase those cars. If they want to go and buy a Hyundai or a BMW they can do that. So there is not a certain market. There is also not a certain time frame for a particular product that is developed.

The reason this works and can be quantified for Defence is that you have one customer, who is normally going to operate a piece of equipment for at least 10 to 15 years—sometimes 20 to 30 years—and so you have an almost guaranteed quantity that are going to be acquired. You have a through-life-support program put in place. You have an upgrade cycle put in place. So all the elements that contribute to second-order effects are there in a Defence acquisition. That is why it stands alone compared to others.

So this works for some projects, not all. For projects that are low-complexity and that do not involve a lot of innovation, the theories and the quantifiable effects are not there, which is why we should not necessarily rush to try and do everything in Australia. But there are some areas where complex projects, requiring systems integration and innovation, clearly have—and it is demonstrable and measurable—the spillover effects that will give us those engineering skills that will deliver the ability for us to be a smart customer, to have the sovereign capability as a nation to understand our equipment—its shortcomings; its effectiveness—so that our war-fighters have the best equipment, and the decision-makers—whether they be logisticians, people involved in the sustainment, or at a political level—have the information they need to make decisions that are in the best interests of the nation.

There are a number of examples that I can provide in both the maritime and particularly the aerospace sector, which is my own background, where the ability to understand, modify and certify aircraft has saved the Commonwealth significant amounts of money. Where we have lost those engineering competencies because we have not planned this out over time, we see disaster—for example, the collapse of the amphibious fleet in 2011. Navy has now had to spend a large amount of money trying to recreate and restore the engineering and technical competencies to actually understand and oversee the engineering to ensure the seaworthiness of its ships. So there is an investment that is appropriate for governments to make in the engineering competence and capacity in both uniform and industry, if we are going to sustain the capability. And that, fundamentally, is why we should be supporting shipbuilding here.

Turning to the particular terms of reference of this inquiry: it was looking at the supply ships and looking at why they were not built here in Australia. Looking through the submissions, one of the things that I see, and it is a constant theme, is that people such as BAE Systems and ASC—some of the major shipbuilders here—recognise that they could not deliver in the time frame that the government needed in order to replace the supply ships.

The time frame is important, as we see if we look at the decision points to actually get ships into service. The AWD is currently just past the peak of its workforce engagement. The decision to actually get ASC to be the shipbuilder was made in 2005. The decision on the design going to Navantia was made in 2007. So, 2005 to 2007 to now—we are talking seven to nine years between those two decisions and now. So, clearly, if we wanted a project to continue that workforce and that investment, the supply ships project was never going to cut it because it would not be delivered in time.

That is why the way forward to actually sustain that investment—that has been made, to their credit, by the South Australian government in Techport, in ASC, by BAE Systems and others, in the ability to design and manufacture ships, or to understand the design and manufacture of ships—is the future frigate project. The reason that that is viable is that—with the investment that the government has made, of some $78 million, to establish the viability of integrating the CEA radar and the Saab 9LV combat system into the existing AWD hull—that means that we could commission, early on, the manufacture of hull blocks which will keep those skill sets going when the fit-out of the three AWDs is finished. We then start looking to assemble and fit out the hull blocks for future frigates. What we start generating is economies of scale. We have proven with the Anzac project that we are capable of equalling, if not bettering, world's best practice in productivity. But it always takes a number of ships. So by continuing the lineage of that design around the hull, by integrating Australian systems, we achieve a continuity of build, which gets a return on the investment we have made in those skills and capability. It gives us the kind of engineering competence and capacity to deliver sovereignty to the nation, good capability to Defence and a return, importantly, to the Australian economy, which for South Australia would also have the flow-on effect of those jobs.

I seek leave to continue my remarks.

Leave granted.