PODCAST: De-risking the Type 26 vessel, Nigel Stewart, SEA 5000 managing director, BAE Systems

This week on the Defence Connect Podcast, we follow up with BAE Systems SEA 5000 managing director Nigel Stewart about the progress of the company’s SEA 5000 bid and the UK Navy’s Type 26 build.

Stewart walks us through BAE Systems’ plans for mobilising the Australian industry – should it secure the SEA 5000 project – how it plans to de-risk the build of the vessel and the key role Australian SMEs could play in delivering the Type 26 vessel.

Enjoy the podcast,

The Defence Connect team

Listen to previous episodes of the Defence Connect podcast:

Episode 510: CONTESTED GROUND: Iran’s collapsing sphere of influence
Episode 509: DEFENCE PROPERTY PODCAST: Understanding the ever-changing landscape of regional property investment
Episode 508: PODCAST: A proud history of providing debate and connecting sailors, with Mark Schweikert, federal president, Navy League of Australia
Episode 507: SPOTLIGHT: GWEO – protecting Australian sovereignty, with Lockheed Martin Missiles and Fire Control’s James Heading
Episode 506: CONTESTED GROUND: Ukraine’s freedom of manoeuvre in the information domain
Episode 505: SPOTLIGHT: AUKUS Pillar II – how technology sharing is strengthening our national security, with FAS Stephen Moore and Dr Nigel McGinty
Episode 504: PODCAST: Unleashing Australian know-how to grow military power fast, with John Storey, Institute of Public Affairs
Episode 503: CONTESTED GROUND: The intersection of national security and Australia’s declining economic performance
Episode 502: SPOTLIGHT: Developing risk frameworks for Defence, with Atturra’s Andrew Balmaks
Episode 501: CONTESTED GROUND: Maritime competition drives need for an Australian Coast Guard, with Jennifer Parker

Phil Tarrant: Oh g’day everyone it's Phil Tarrant here, host of Defence Connect Podcast, thanks for joining us today. I've recently spent some time on a Royal Navy frigate, which was in port in Garden Island here in Sydney. HMS Sutherland, which is Type 23 frigate out of the UK, and I was fortunate to have a look around and get a tour of the ship with a couple of officers, along with Nigel Stewart, who is the SEA 5000 Managing Director from BAE Systems.

So I've asked him to come on the Podcast. It's the second time he's been on the podcast, so returning guest, which is good. Our last time we got together was in Glasgow middle of last year, at the steel cutting ceremony for the top 26 frigate in Glasgow. Tune in, go and find the Podcast. We had a good chat around BAE Systems' approach to constructing frigates for the Australian Navy moving forward, and the competition that they're currently involved in, SEA 5000 against Navantia, and Fincantieri. Nigel, how ya going? Good to see you again, welcome back.

Nigel: Great Phil, good to see you too and great to be back on the podcast. Different part of the world.

Phil Tarrant: It is a different part of the world, it was a very gloomy, cold Glasgow last time we got together, even though it was in the middle of summer I think.

Nigel: I think it was, but that was one day of summer in Glasgow. I'm heading back to the UK actually for a few weeks from Thursday, but looking at the weather forecast it's minus seven and snow there, so I prefer Sydney.

Phil Tarrant: Well it's all these beasts from the East is out there at the moment, and that doesn't look like a particularly nice ... so you're on a plane a fair bit these days I imagine?

Nigel: No ... what, sorry?

Phil Tarrant: Are you on a plane a fair bit these days back and forward?

Nigel: Yeah, I'm spending most of the time in Australia, so just need to keep the links back to the UK to make sure for the technology transfer side and to check on Type 26, so I'm doing kind of two months in the Australia, and about three weeks back in the UK.

Phil Tarrant: Okay, so the other weekend I'm aboard HMS Sutherland. Impressive ship, got well looked after by the Royal Navy, which were very nice so thank you very much. I know the guys at the embassy tune into the podcast, so thank you, I did enjoy it and it sounds like the boys had a pretty good five, six days in Sydney as well -

Nigel: Oh they loved it.

Phil Tarrant: Getting around and having a look at what's going on. From what I understand, they're heading up straight north through the South China Sea, and I'm sure you'll see some coverage in the media around it. I think people have been banging on about some sabre rattling on behalf of the Royal Navy, but according to them, they're just sort of sailing home and that's the only way they can go.

Nigel: I think that's slightly over-exaggerated, but I'm sure they'll have a good trip up there.

Phil Tarrant: But I won't pin you on that one, that's not what we're here to discuss about. So SEA 5000, when we got together in Glasgow, we were fortunate to watch the steel cutting of the keel section of the Type 26. So that's nine months ago, where is that now? Where is the Type 26 in terms of construction, how far through is it?

Nigel: Well it's going excellent Phil, if you remember ... as you say, we cut steel in July of last year. The first section went through paint ... first unit in to paint kind of a month or so ago. So, we're well in there, the programs well on track and it's hitting the milestones that it needs to do, and she's well on course for heading into the water around 2020.

Phil Tarrant: Okay, and Australia ... if BAE Systems is successful for SEA 5000, I think you mentioned before we come on air, it will be the fourth vessel as part of the Type 26, is that still on track?

Nigel: Yeah, the Australian program is running about five years behind the UK program. So, full production starts in Australia in 2022. And we think that's an almost ... it's a perfect time scale really to make sure the de-risking happens in the UK program for the first class. But, we're still gonna ensure we've got a really modern design, and a modern vessel to go forward in Australia. So, yep, we're looking at Australia, it should be the fourth class.

Phil Tarrant: So I come from an interesting vantage point within the defence industry, as in I get to speak to all the contenders of this particular program and other programs as well, and I do enjoy it. From my understanding, the top 26, and when we spoke in Glasgow last year, and subsequent to that, you've put together a pretty comprehensive bid for the frigate program. That said, when I speak with people within the industry and your competitors in this, one of the things that's always flagged that this ship isn't in the water, it's still a concept phase, it's getting built the first time. You talk about de-risking there. This criticism that it's not a proven vessel, as in it's not in the sea right now, and it's not proven weathering combat conditions. What's your response to that?

Nigel: I look at it a completely different way that we think that one of the great strengths of our ship is the fact ... how modern it's gonna be. So, it's derived from the Type 23, which we went on the other week. So I think in terms of the how you operate an ASW ship ... some of the basics of an ASW ship, we've got a fantastic pedigree there. We are de-risking a lot of the Type 26 equipment on the Type 23 in the UK, which gives us confidence. But I think where we see, with the Australian program running five years behind the UK program, it really won't be an issue, because it will be de-risked in the UK.

We've got plenty of time to do that, so what the Australian's would get is the most modern and de-risked platform. So we see it as a strength in terms of when the ship goes into service, she's gonna be in service for 30 - 40 years, so having a ship with the growth margins, the design margins, the flexibility is gonna be hugely important for Australia going forward.

Phil Tarrant: What I find interesting about the SEA 5000 program, is how the domestic Navy's associated with it, whether it's the Italians, or the British, or the Spanish. How much their Navy's have got behind these particular bids. I was quite impressed chatting with a lot of the officers on board HMS Sutherland. Just how familiar they were with the Type 26, and how excited they are about this new set of kit. We spoke to some junior officers, and they'll be the guys who are captaining these ships moving forward, but they were very familiar about it. So how has that process happened? Is the Royal Navy really educated or got their sailors involved in the whole process?

Nigel: Yeah, so the way we kind of design the ships now in the UK, when we put an integrated project team together, that's far more than industry and MOD. So in the UK, we've got something like 1000 people ... and have had 1000 people on the program for three or four years through the design phase. The Royal Navy embed a large amount of people in that design team. Because of the modern technology of the digital designs as well, we're able to ensure that the Navy spend a lot of time in the kind of 3D digital environment, making sure that what we're designing and taking forward really meets their requirements.

So a lot of the Navy have spent a huge amount of time with us, so it's very much designed for the ship that the Navy want, rather than the ship that just industry wants to give to them. So that's where you'll see and hear a lot of the Navy guys talking very passionately about it, because they've been a part of the design process.

Phil Tarrant: When you look at the SEA 5000 program now ... I speak to different people all the time, I get a different answer to this question, but when's the announcement gonna happen? What you're intel on this?

Nigel: Intel end of May beginning of June. We generally think we're in the last two months now, so it's getting close to the end. And I think the Commonwealth have done a fantastic job in the other programs, in terms of holding time scales. So yeah I think end of May beginning of June we'll have an announcement.

Phil Tarrant: And what's your sort of feelings towards the competition right now?

Nigel: I think it's a really tight competition. A bit like you, every day of the week I could be told we're either first, second or third, so I think ... we do know that it is very close. We're confident we've got a really good bid on the table, and in terms of the package that we can offer with Type 26, our Australian content, and the kind of 5 eyes, UKPLC backing for it. But, I very much respect the competition as well. I think both Navantia and Fincantieri will have good bids, so it's gonna be very close all the way up to the end. And we'll just keep pushing up until the day before the down select.

Phil Tarrant: And what's the culture like within your team? So you're Managing Director of the SEA 5000 program within BAE Systems. It must be a tough one, because you gotta keep the morale high, and keep the positivity around the bid but knowing that it's a 33% chance of potentially ... you might say it's much better odds. So how do you go about balancing that internally?

Nigel: You know what, it is very, very easy to motivate people on a campaign of this size. You either love or hate working on a campaign, because as you say, you get a cliff edge whether you either win or lose, and it's either a huge upside or a huge downside. And I think the people on the campaign ... if you get the right team ... people like the adrenaline. Certainly I love that at this stage of a project. So, we are very, very focused. I've got just over 100 people on the team. I don't think we've ever had a conversation about what happens if we don't win. We only focus on what happens when we do win. And I think you can motivate people with it's a generational opportunity for both Australia and for BAE Systems globally. And when you see the size of the prize, it's really easy to keep people motivated on that. So, yeah I've got a really motivated team across both the UK and Australia.

Phil Tarrant: So you talk about what you'll do when you do win, I'll use the language, what you'll do if you do win, and if you do secure this program, what do you do?

Nigel: I'll stick to when we win, Phil. So, we've had ... part of the bid is very much been ... there's a campaign element in bidding through the Commonwealth. But we're also under contract for what we call schedule protection activity. So probably two thirds of my team is actually based on mobilisation now. So we've got a mobilisation team in Australia led by a guy called Ian McMillan who was Managing Director for our Henderson shipyard. So there, we're looking at making sure we really understand how we kind of ... how we'll mobilise not only the people side, but the tools, the processes, the technology transfer. We've done an awful lot of work on the resourcing side, so we understand how we'll be ready, where we're gonna get, whether it be combat system resource, program management resource, ship building side.

So, very much we're ready to go. And a good thing of the programme that the Commonwealth have been working on is that the schedule protection activity has allowed us to do that so that we have our plan. As soon as we ... if we do get the down select, then clearly the design side starts in earnest in ... which will be mainly the UK, and then we start mobilising the activities ready for the prototyping phase in 2020 in Techport.

Phil Tarrant: So, if you are successful, what happens the first day? Do you get the call from government? Or however that's communicated. What's that first day? What does it involve?

Nigel: After the celebration we carry on with the design work we actually completed the first design review last week successfully in the UK. So, for most of the team, it won't massively change. Because, as I say, we've got 100 people on the design work is continuing now. What it will mean, is we start mobilising, so we need to increase the team from just over 100, then we start the gradual ramp up to ... which will hit thousands over a period of years. So the main thing we'll do will be mobilisation, and ramp up.

Phil Tarrant: And when will we start seeing ... when will be the official steel cutting of a Type 26 in Australia should you be successful. When would that take place?

Nigel: So, they'll be a prototyping phase starting in 2020. And the idea of the prototyping phase is not only to prove the new facilities, but to prove the new processes that we'll put forward. So there will be steel cutting in 2020, but full production will commence in 2022. So I think they'll probably be celebrating production in 2022.

Phil Tarrant: Okay. And what's our workforce look like in terms of ... you know this is ... One of my memories of spending time in the Glasgow shipyard, was just it is heavy manufacturing. Which requires some very talented and sophisticated kit, but also some very skilled tradespeople to get these things built. Do we have the workforce ready to go?

Nigel: We do. I think the workforce that you've got in Techport today is a fantastic workforce. Now if you look at what they're doing on the Airwolf Destroyer, they're building a ship that is as complex as the frigates that will be built. So I think you've got an excellent workforce, which will be the basis of the workforce that will build these ships. I mean, there's gonna be something like 5000 people ... or the project will create and sustain about 5000 people over its life.

But I think sometimes when you go to the shipyard, we only see the heavy manufacturing skills. I mean something like 65% of a ship of this complexity will come from the supply base. So it's not just the workforce in the ship building industry, or in the shipyard itself. It's very much the workforce that's gonna be around the supply bays, which is why we spent so much time over the last six or nine months making sure we really understand who the suppliers are, how we can create that kind of industrial supply base in Australia to meet the program.

Phil Tarrant: And you might not want to touch this one, because you might not have formulated a response to it yet, but we're recording this podcast on the Monday after the state election in South Australia, and we have a new government down there. What's your view, is that gonna make anything different at all when it comes to ship building or defence work in SA or is it business as usual?

Nigel: I think it's business as usual, Phil. I mean I think there's bipartisan support for the shipbuilding program anyway. So I think whatever happens is gonna be great news for South Australia, so we're not seeing any changes there ... or not expecting any changes there.

Phil Tarrant: Okay. I'll touch that one, I'm quite interested on how that might shape the way in which ... I think personally SA's done a great job in capturing defence industry really. It is the home of defence industry in Australia, and South Australia's been very effective there. So whether or not the changing government's only going to enhance it, I'm not too sure. But we'll watch it with interest and keep reporting on defenceconnect.com.au, so make sure you tune in.

SME's, Nigel ... so, should you secure the SEA 5000 program? The future frigates program? You need mobilisation as you mentioned, and considerable resources to get this underway, including a supply chain which can include a lot of Australia's SME's, and I know you've been very active and proactive in engaging that particular segment of defence industry, and there's some very excited SME's around who are awaiting anxiously to see whether or not BA get the nod. But that said, a lot of them are sort of hedging their bets, and irrespective of who the successful tender is, they're going to be mobilised, which is great for Australian industry. But can you tell me a little bit about where you're at with your SME partners right now. I get a lot of press releases from you guys about a new development that's happened. I know you recently announced some really good stuff with Ultra Intalis I think by memory ... which aren't really SME's. But where are you sitting in terms of the supply chain side of things?

Nigel: So we're focused on probably three areas. Because we don't want to ... the Commonwealth will not want us to change out a lot of the major equipment. Engines, gearboxes, equipment like that ... What's been important is that we've engaged with those original equipment manufacturers on the Type 26 program and make sure that they've been engaging with SME's in Australia. So how we can contract with the original OEM, but actually make sure they've got high Australian content.

So over the course of the last 9 to 12 months, we've had ... well we had 30 at the bid stage, we're probably closer to 40 now in terms of those OEMs that have got really good proposals of how they're either gonna transfer manufacture to Australia, or certainly work in partnership with Australian SME's to deliver their product.

I think you talked about we did one of the road shows ... supply road show events in Sydney a week ago, where we were at Penske. So they do obviously all the work for MTU and the diesels, in terms of repair and overhaul. But they're looking at how they can do not only the repair and overhaul, but they can do the assembly of the MTU diesels if we're successful. So lots of instances like that.   Thales and Ultra have fantastic capability in Australia already in terms of underwater systems. But again, they've got some fantastic proposals in terms of what they can do to go even further with that if we're successful.

So we're focused on the OEMs. Secondly, we've done a lot of work to understand who are those SMEs. And a lot of the issues at this point is making sure who they are, and we can connect those with the right people. Because as the prime contractor, we mainly contract with 30, 40, 50 companies. But it's really important that we've got the supply chain connected. So, we've done ... we've just completed the second round of road shows with the supply chain industry. We've probably touched about 1000 suppliers now over the course of about six months. And we've qualified I think just over 600 of those suppliers. So we've got a number of SMEs who we know where their strengths are, and we know as we go forward over the next two or three years, how we can connect those either with the OEM or where we will purchase directly. So things like steel manufacture or kind of some of the material components.

Phil Tarrant: So from perspective of your experience in the UK, and that's where your home is ... how does an Aussie SME compare to a UK SME. Fundamentally the same, or do Aussies do it slightly different?

Nigel: I think very similar. Although, what I've noticed here, SMEs are classed as you can end it with some quite big organisations in Australia, which is subsidiaries of all the more global organisations who get classed as SMEs in terms of Australia. So you've got some ... not only the very small companies, but you've actually got some SMEs that are part of some big global networks. But I think in terms of how the development and how we operate with them very close to the UK. We look at companies like Marand who we've worked with very closely on the F-35 program, and if you look at where they've taken themselves from, they're now a fantastic business in terms of the global skills and what they do on a program like that.

So we're quite excited in terms of ... the companies like that, that we can take forward. And we're also working very closely with the Indigenous Defence Consortium. So we've made some quite strong commitments in our bid to how we'll work with Indigenous companies. And we've got some really great proposals there going forward. So that's very important to us as well, and getting the support of the IDC to help us make sure we connect with the right people.

Phil Tarrant: When you consider an SME as a potential partner of the BAE supply chain for SEA 5000, what do you really inherently want to see in an Australian SME to choose them as a partner? So what makes them an attraction business, because it is very competitive ... but what are those three or four fundamentals that you need to see in an SME?

Nigel: I think what we like to see from an SME, in terms of the technology ... we start with a good reference ship. But a lot of the innovation and the creativity doesn't come from the large companies, it comes from the SME base. So we'll start with a good reference design. What I'd really like to see from the SMEs is how can they help us take that forward in an environment that's gonna mean not just Australian content, but in terms of, cost, schedule and innovation. That's what we see from the UK side, innovation very much comes from the SME community.

Phil Tarrant: If I was gonna flip it the other way, where do you see ... where do you think SMEs typically let themselves down?

Nigel: Sometimes I think for SME's it's making sure that they understand ... they need to bring the innovation side as opposed to, we just need companies to give you Australian content, so we can achieve Australian content. We want to achieve Australian content not just in terms of value, but in terms of what it brings to add value to the program, and also where they see if we invest in those companies, what's important is not just what they do on SEA 5000, but what are there opportunities then to expand into all the sectors, whether that be in Australia or globally. So I think it's really important that there isn't an entitlement culture, it's the fact that any company that's gonna work with us, it's in terms of what value add they can bring to us as well. And if we can kind of enhance that, with the knowledge of the primes and the creativity and the value from the SMEs, you've got a great partnership.

Phil Tarrant: It is, and it's a generational opportunity for Australian business to get involved in major ship building programs ... we talk about sovereign industrial capability around ship building, continuous shipbuilding, the valley of death. There's so many different terms around this particular concept right now. Just interested, Nigel, on your observations, or your definition of sort of sovereign industrial capability around ship building, what does it mean? What does it mean for BAE?

Nigel: So, we looked at this. We spent quite a lot of time on this as well, Phil in the UK seven or eight years ago, when we went through a very similar cycle to look at a long term partnership, and try and get a good definition of what's involved in sovereign capability. And I ... there's three or four areas that I think are key and will be key for Australia. So I think as well as the base ship building skills, you do need a level of ship building, but not necessarily all trades, you know. We break down the ship building industry ... or the workforce into probably 15 or 20 trades. So you need to look at which one of those are sovereign capable.

Design skills are very important, because it's not just building the ship, it's the ability to then make amendments through life to the ship, and I think long term ... and what we'd like to ensure is that going into the next generation of ships, you've got the ability to not just take another design, but to actual have the ability to design or be a partner of a design house going forward. Combat systems, integration skills, again, are fundamental. Once the ships platforms been developed, that will pretty much stay through life. The combat system will probably go through an upgrade every five years. So it's really important that you've got those skills to develop the technology and you've got the independence to be able to make those changes kind of when you need to do it, rather than be reliant on somebody else. I think for me it's design skills, combat system skills, integration skills ... it is really what needs to be suffering from the ship building side.

And then, of course, more across stages ... whether it's shipbuilding industry, or broader defence industry, you just need those skills in terms of supply chain management, project management, but they're not specific to the defence industry.

Phil Tarrant: I was hoping you could clarify for me ... I know BAE System's been in the trade for quite some time, but I think a lot of our listeners might not be familiar with the history of the business. You guys have been in Aussie for about 65 plus years now. So what's the back story to it all?

Nigel: You're right Phil, we're celebrating 65 years this year in Australia, and at the moment we've got about three and a half thousand people. We do about a billion dollars a year, so it's a big organisation. The history ... and go about the history of BA. BAE Systems came about through almost a 50/50 merger between Marconi and British Aerospace in 2000. Marconi's got a long heritage in Australia through there. And of course, we bought the Tenix business as well a number of years ago. So, as with many defence companies, there's a series of mergers and consolidations that happens, but very much the heritage has been through Marconi, British Aerospace in Australia, and of course, going back to things like the Hawk Aircraft, which British Aerospace did a long time ago as well.

Phil Tarrant: Good. So, I asked the question around what would you do the first day, if you are successful in the SEA 5000. And I hope one of them will be give me a phone call so I'm one of the first to know whether or not you're successful, because we'll be watching with a lot of interest to see how this plays out. We've just been through another major programme, which has been quite interesting to watch from the media perspective. So, if you let us know how you go.

Nigel: Certainly will, Phil. And I look forward to coming back to see you.

Phil Tarrant: Yeah, brilliant. Thanks for coming in, I do appreciate it, Nigel. Remember to check out defenceconnect.com.au if you’re you're not you’re subscribing, so you first know what's happening in defence and defence industry every morning. Defenceconnect.com.au/subscribe. If you like your info from social media, just search Defence Connect across all the normal platforms, and like us, follow us. We'll be back again next time, until then, bye bye.