Assessing AIC commitments under the Hunter Class program

A significant issue is emerging with the Hunter Class and the associated supply chain. The Department of Defence appears to be accepting that primarily the existing Type 26 supply chain will be utilised for batch one of the program; in other words, the first three ships.

This is explained away under the banner of schedule pressures, coupled with additional risk to include Australian suppliers.

The Department then explains that for the second batch of ships a competitive process will be undertaken involving Australian companies and that they will be able to compete for opportunities in this program. 

It is unclear as to why there will be less schedule pressure or risk by following this strategy, arguably there will be greater risk introduced as you not only have all the requirements to have Australian companies in this supply chain, you are now also adding the risk or replacing an incumbent supplier.

It is unclear how an Australian company will be able to compete with this incumbent supplier as it can only be assumed that risk to schedule, cost and value for money remain driving principals for selection.

In other words, if an Australian company isn’t on the reference ship today, the likelihood of it forcing its way into the supply chain seems remote at best.

Ron Finlay AM, a member of the Naval Shipbuilding Expert Advisory Panel, made the following comment at Senate estimates on 1 June this year: “I will pick a very simple example — if you are going to pick a foreign generator for ship one and then switch to an Australian generator for ships two and three, you as a shipbuilder are creating a risk. So the plan would not be to change suppliers from ship one to ship two, for example. The target would be to get into the Australian content as soon as one could to avoid creating a risk for yourself as a shipbuilder.”

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And yet this appears to be exactly the plan that BAE Systems is following with endorsement from Defence.

None of this is what BAE Systems proposed in the numerous industry engagements that they undertook prior to the down selection process and none of this aligns with the Morrison government's strategy to develop a sovereign industrial base.

From what AIDN is seeing and hearing we can only be nervous about BAE Systems Maritime Australia back tracking on AIC.

BAE Systems has stated in recent ADM articles, “The Prime Mover equipment, the Category A and B that BAE refer to, were always things that Australia does not manufacture domestically. We don’t make gas turbines, we don’t make gearboxes, we don’t make shafts in country”.

This, of course, will be disturbing to Australian industry and rightfully so as we actually do produce these types of equipment in-country, what we need to do is invest in the capability that we have, rather than investing in overseas companies, in order to be able to produce the equipment to the standard required.

If we further unpick the Category A and B items, as classified by BAE, there seems to be equipment such as; propellers, valves, HVAC systems, LV switchboards, funnel exhausts, ships doors and shaft lines (to name only a few) that existing companies in Australia have been designing, manufacturing and selling both domestically and internationally on a variety of platform types — both commercial and military.

So, the question that AIDN is asking is — why, when these items actually exist in Australia, being produced by Australian companies as many of these items are simple platform systems, are they being classified as CAT B items by BAE Systems?

Further to this, the question needs to be answered as to why Australian companies aren’t being included in these simple platform items.

There is sufficient time to make these decisions and undertake the required transfer of technology, IP and know how in order to ensure that Australian companies are included into the initial platforms.

BAE Systems itself has stated in their online Australian Industry Plan that they have engaged with and have some 1,600 in-country suppliers, and for the main part, they have utilised many of these companies in their maritime sustainment programs and shipyard operations.

Expanding further on this let’s take HVAC as an example, there are multiple companies located in Australia supplying maritime heating, ventilation and air-conditioning on a variety of Australian military and commercial shipping, including companies based in Western Australia that are already supplying to BAE Systems for their Defence maritime projects in the companies Henderson facility.

Why are these companies not at the very least being provided the system specifications in order to allow them to be pre-qualified for the Hunter Class supply chain? 

This activity will ultimately be required if these companies are going to be allowed to compete for batch two equipment, or will this simply become yet another reason to exclude Australian industry from the program.

After all, a company cannot be considered for the supply chain if it is not qualified to be part of the supply chain.

Ultimately, it is for government through the Department of Defence to ensure that Australian industry is treated fairly on these matters.

Defence needs to reject BAE Systems’ current plan and expect a revised plan that includes Australian industry from the outset, anything less than this is doing a disservice to Australian industry.

Brent Clark is the chief executive of the Australian Industry and Defence Network (AIDN).