Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

This government now faces a critical decision to be made by the end of this month: how it is going to spend some $10 billion on two key shipbuilding projects. On the board are orders for three air warfare destroyers and two amphibious ships or LHDs, the latter costing some $2 billion. Tonight, I would like to steer the government on a safe course with respect to these decisions. I do not want to see taxpayers again marooned by multibillion dollar defence projects that have been strategically ill-conceived, insufficiently costed and wrongly scheduled. Instead, it is better to see a proper balance between risk, schedule and capability.

In recent years I have developed somewhat of an interest in this area of policy. Last year the Senate Standing Committee on Foreign Affairs, Defence and Trade held an inquiry into this very subject matter: naval ship building and construction. I wrote Labor’s additional comments on the committee’s report and I would like to reiterate some of those points this evening. Unless the government makes a balanced and informed decision on these ships, it has the ability to make some grievous errors going into the future. Let us first look at the decision facing the government over the air warfare destroyers. These, if purchased, will be the nation’s most lethal front-line fighting ships. The government must decide on one of two designs for these vessels: the Spanish designed Navantia vessel already in service or the far pricier, yet arguably more capable, theoretical US ship, an evolved Arleigh Burke vessel. As already mentioned, it is largely a choice between capability, schedule and risk.

The government must also decide on the design and construction of two 20,000-tonne amphibious ships valued at some $2 billion. The issue here is whether to go for a local or an offshore build, in whole or in part. The ramifications for the economy of such significant contracts are extensive, and I will address those later. When it comes to the AWDs, the government has already forked out nearly half a billion dollars on their design plans. All three ships are to be built by 2017. They will be fitted with the state-of-the-art Aegis missile system. They will be built in Adelaide by the Australian Submarine Corporation. But which design to choose? Again, it is a choice between risk—the US Arleigh Burke; and capability—the Spanish Navantia. The former is a paper ship, not yet built, while the latter is an actual ship. As I have said in a previous speech in the Senate, it appears the Arleigh Burke paper ship is nudging ahead.

The government originally estimated this project to cost $4.6 billion, but that has now spiralled out to something approaching $8 billion. But this vessel has the bells and whistles to satisfy Navy’s top brass. It has 64 vertical launch missile cells and two helicopters, whereas the Navantia has just 48 such cells and one copter. The utility of the larger cell system relates to the likely eventual purchase of the new theoretical SAM-3 missile system. The Navantia, which docked in Australia earlier this year, is sailing and suitable for our purposes. It is smaller than the Arleigh Burke, it is $500 million cheaper at this stage than its US competitor and it carries more crew. Although in that context I would like to know where any crew is going to come from considering that our fleet is currently substantially undermanned.

If the government abides by the Kinnaird two-step procurement process, the choice is reasonably clear-cut: go for the Navantia. It would be difficult to justify spending the extra half a billion dollars for arguably marginal extra capability without the purchase of a new SAM-3 missile system. It will be interesting to see which way the government blows, but I suggest politics will dictate the decision. Our preference for US sourced product may just tip the balance in favour of the Arleigh Burke.

The indigenous shipbuilding industry is also awaiting the government’s decision on the LHDs. These amphibious ships will be used to deploy land forces on operations. They will be capable of embarking up to 1,000 troops with their tanks, vehicles and equipment. The troops will be lodged ashore for combat or humanitarian missions and supported with the ships’ logistics facilities. It was the procurement of the AWDs that sparked the inquiry back in 2005. At that time, senators wanted to see whether the industry could sustain such construction on a long-term basis. They also wanted to know the most economically beneficial way of maintaining, repairing and refitting such vessels.

The year-long inquiry brought some interesting results. It found there are three critical factors for a viable industry: continuity of Defence demand, long product run and long-term planning. Senators also found Australia has a vibrant, small ship building industry which should be developed more at the bigger, heavier end. Australia has the skills and the workforce to sustain an indigenous shipbuilding industry, but it needs to boost its manufacturing sector—and the defence industry is a ready key to this achievement.

The inquiry found weaponry systems and fit-out was the key to naval shipbuilding, rather than the actual mechanical build of the vessel hulls themselves. So a new paradigm of such shipbuilding is emerging. That is, the vessel’s modules are made at different sites and assembled at one central site. We support the local build of naval shipbuilding, but with one caveat: the government gets the best possible deal for taxpayers. Whatever the decision regarding the LHDs and the AWDs I trust the government makes this call. Based on previous experience, however, I am left wondering—especially, as previously stated, if politics dictates policy. I fear the government will push aside rational considerations such as cost.

Finally, the procurement of the AWDs and the amphibious ships has far-reaching effects and consequences—beyond the positive media from the forthcoming decision, beyond the next election and well beyond the decade—for the inquiry found the indigenous shipbuilding industry to be a victim of cycles. There were years when Defence procurement projects, such as the Collins class submarines, supported a vibrant and expanding industry. But there were also long, lean years with no government contracts. It is hard to insure against these boom and bust cycles within naval shipbuilding. But the government, as the single buyer in this market, is in a prime position to think strategically.

In summary, we have concerns about this massive project. Whatever design is chosen, this project is unlikely to have a long-term benefit for our heavy engineering industry. It is boom and bust. There are few economies of scale. There will be no long-term transfer of intellectual property. Large capital investment will eventually be left idle. Skills developed will dissipate. Design and high-tech capacity will suffer the real option of disappearing. There is simply no long-term plan, just ad hoc decisions. That is a real shame, because we do have a skilled heavy engineering industry in Australia perfectly capable of doing this work—and fortunately it is no longer as dependent on Defence.

I will conclude with a reference to the commentary provided in the Australian article this morning critical of the alliance management model. I believe we should keep an open mind on this matter. We need to realise in this country that as much as Defence might want it, a truly competitive naval ship building industry is not viable. No European nation can do it either and in the US it has taken strong government intervention to achieve rationalisation. A successful model has indeed been built which combines competition between yards, and yet allows those same companies to form consortiums, with the Navy Office closely engaged. The alliance model described here sounds similar. It may be different but it could also be innovative and worth trying for the future. The competition will remain, however, while ever a modular approach is taken to fabrication. It is not a pure model, but it could work if set up properly. It would be even better if the horizon for planning and investment went beyond these five ships. (Time expired)