Minister for Defence - Australian Business Industry Group

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Senator the Hon David Johnston

Minister for Defence

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21 August 2014

It’s a great pleasure to be here today.

Before I spell out the Government’s priorities in the defence portfolio today, I would like to start by thanking Graeme Dunk and his team for the support your group provides to business.

To those of you from our industry, thank you. Thank you for what you do. For being a professional and committed workforce and for equipping our men and women of the Australian Defence Force with the capabilities they need.

Contrary to the public view that Australia is now “out of Afghanistan”, we still have around 400 Defence personnel in Afghanistan undertaking training, mentoring and working in support of the Afghan National Security Force.

Defence continues to prioritise support for operational deployments, involving either new equipment, upgrading existing equipment or in-service support.

Beyond Afghanistan the ADF has shown its ability to engage in the provision of emergency humanitarian aid to far-flung and remote destinations often conducted under the most challenging of circumstances.

The ADF has a well deserved international reputation for being able to mount complex military operations in the face of grave risk, and complex humanitarian operations with just hours of notice.

And due credit must be given here to the magnificent effort of the men and women of RAAF’s Air Mobility Group.

Most recently their skills have been show-cased to the world with the support Air Force has been able to provide with air dropped humanitarian aid to thousands of displaced Yazidi in northern Iraq and to Operation Bring Them Home, the whole-of-government response to the tragic loss of Malaysia Airlines flight MH17 over Ukraine.

This past year has also seen our military provide critical humanitarian assistance, including to the extraordinary multinational effort in search of flight MH370 in the Southern Indian Ocean. The ADF also assisted the Solomon Islands community following severe flooding in Honiara and Guadalcanal, and in the Philippines in the wake of devastating Typhoon Haiyan.

Notwithstanding these outstanding humanitarian and disaster relief contributions, Defence's primary focus remains - to protect and advance the nation’s strategic interests through the provision of appropriately prepared and equipped armed forces to ensure a safe and secure Australia.

The essence of the relationship between defence industry and the defence community can probably best be defined as the timely delivery of essential capabilities to the Australian Defence Force and the importance of a sustainable defence industry that provides value for money.

Importance of a sustainable defence industry

Our local defence industry contributes significantly to Australia’s self-reliance and national security, and is also a major contributor to the national economy.

Of course, for industry to be sustainable there needs to be significant and smart investment from both Government and industry.

Under-investment in Defence by the previous Labor Government resulted in a breakdown in Australia’s long term defence planning.

  • Labor’s 2013 plan out to around 2030 was underfunded by about $30 billion.
  • Labor left 119 key projects delayed, 43 severely degraded and eight cancelled.
  • And it cut or deferred $9.2 billion from the Defence Capability Plan.The previous government failed to deliver on its promises to fund the Australian Defence Force –– and in doing so, unfairly and irresponsibly gambled with the security of Australians.

Those ‘all talk and no action days’ are now over. The Abbott Government’s recommitment to a defence spend of 2 percent of GDP within the decade will call on defence industry in new and demanding ways.

I recall President Obama’s praise for this Government’s decision to increase defence spending at a time when many other countries are cutting military budgets.

He said, and I quote: “Australia, under the Prime Minister’s leadership, is increasing its defence budget, even under tough times, recognising that we all have to make sure that we’re doing our fair share to help maintain global order and security.”

This Government is committed to re-building a strong, capable and sustainable Australian Defence Force to ensure our security and support our strategic interests into the future.

We want a sustainable defence industry able to deliver greater capability and endurance, improved functionality, better through life affordability and innovation into new and existing products and services.

But, this cannot and will not be at any cost. And, there can be no starker an example of this challenge for Government than the current state of the AWD program. My first priority is to restore stability to this program now running 21 months late and more than $360 million over budget.

In June I placed the AWD program on the Projects of Concern blacklist to address the increasing commercial, schedule and cost risks outlined in the independent review by Professor Don Winter and Dr John White.

Working with our private sector partners, the Departments of Finance and Defence have also been directed to bring forward a detailed implementation plan in order to get this project back on track.

Let me be clear. If we cannot get this program back on track then it will be very difficult to advocate for long-term naval ship-building enterprise in Australia.

However, for those who want to work with the Government, who don’t want to engage in petulant pressure politics, there is a viable future and I can absolutely assure everyone here that the Abbott Government, and me personally; we are committed to maximising Australian industry involvement where it represents value for money.

Let me unambiguous about this. I want a sustainable naval shipbuilding industry in Australia. I want eight Future Frigates built here in Australia.

This Government is backing words with deeds. We are providing $78 million in funds for the Future Frigate program this financial year.

This is to ensure everything is in place to allow a continued naval ship-building industry in Australia. All we are asking is that industry demonstrates it can meet an acceptable benchmark for cost and productivity.

Part of the work on the future frigate program is to examine whether we can commit to the construction of some early blocks to ensure there is no break in production overall.

We are now examining all the blocks required for the Future Frigate and whether some of these might be constructed early.

This approach is intended to foster an enterprise level shipbuilding plan providing for the long-term future of naval ship-building in this country.

And when it comes to future submarines I can say that no decision has been made but work is progressing well on options. What this Government can guarantee is that there will be no capability gap.

I will act to ensure Collins remains capable throughout its life and the future submarine is similarly capable and delivered within a realistic budget and on schedule.

As with our ability to sustain our naval capabilities in Australia, part of our overall policy needs to ensure industry can sustain and integrate our capability over its life both within Australia and while deployed. We need to ensure that planning to achieve this occurs early in the capability development process – not just as an afterthought.

Some of these decisions will be quite straight-forward, while others will need to balance up the strategic imperative for local sustainment against cost and potentially security criterion.

We need to do more to encourage entrepreneurship and innovation in our industry and break down any barrier to domestic or international competitiveness. I think many domestic barriers do exist; there are challenges due to processes, skills, cost of tendering to name a few.

I recognise that these challenges are not just domestic. It is intolerable that some very large well known foreign defence companies want free and unfettered access to our markets.

And I commend the effort of DMO’s Warren King to ensure a level playing field for Australian companies bidding for overseas defence contracts.

White Paper and DCP update

The Government has a sustainable plan for Defence.

Right now those key elements are being written into the 2015 Defence White Paper which will underpin a costed affordable plan to achieve Australia’s defence and national security objectives.

The White Paper will align defence policy, strategy and force structure in an affordable and deliverable way. The White Paper will include a costed acquisition program, a 10-year Defence Capability Plan and a new Defence Industry Policy Statement.

This guidance, combined with the Government’s commitment to return Defence spending to two per cent of GDP within the next decade, will in turn improve industry confidence to plan for upcoming projects, including development of infrastructure, skills and capabilities for the future.

Last month I announced the public release of the Defence Issues Paper. The Paper provides an overview of the White Paper process and current information about Defence, including its workforce, resources, capabilities, operations and policy settings.

The expert panel I established, led by Peter Jennings from the Australian Strategic Policy Institute, is using the Issues Paper to conduct community consultations, with input from across Government, industry, the Australian public, Australia's allies and regional partners.

The Paper includes a number of questions on defence industry for consideration, including which industrial capabilities should be located in Australia.

I encourage everyone in this room, if you haven’t already, to consider the Issues Paper, reflect on the questions it invites, and contribute your views on defence. The consultation program will run until 29 October.

First Principles Review Update

Earlier this month I announced the First Principles Review Team, an initiative designed to ensure Defence is fit for purpose and able to promptly respond to future challenges.

The team, lead by David Peever will make recommendations designed to ensure Defence’s business structures support the Australian Defence Force’s principal tasks out to 2030.

The team, being supported by an external consultancy is a balanced non-politically partisan group comprising industry, military and ministerial experience.

This review is aimed at improving the overall efficiency and effectiveness of Defence while delivering a more commercially astute and focused materiel acquisition and sustainment capability.

We are also determined to ensure that the Defence Materiel Organisation implements efficiencies required by Government.

I have asked Mr Peever and his panel to report to me early next year for consideration at National Security Committee as part of the White Paper.

Today, I can also announce that Boston Consulting Group has been selected to support Mr Peever and his team. BCG is ideally qualified to provide the Government with expert advice and guidance to support the First Principles Team and be a valuable Defence partner.

It will result in an improved, more efficient and effective Defence organisation. No doubt, the outcomes of the review will benefit everybody in this room.

Benefits Australian Defence Industry competing internationally

Finally, I would like to make some observations about what can be achieved when we compete internationally because, I believe that a genuinely sustainable and capable defence industry in Australia can only be achieved if the industry competes in the global marketplace.

There are already many capabilities in Australia’s industry that are robust and internationally competitive. Take for example the work done under the Anti-Ship Missile Defence Program.

Developed in Australia, with an industry team comprising BAE Systems Australia, Saab Australia and CEA Technologies, together with Defence Materiel Organisation the program involved the integration of various systems.

As some of you will know, the scope of the upgrade to the war-fighting systems on Navy’s ANZAC frigates had risk attached to it, but is now recognised as a world beating capability. CEA Technologies’ high powered Phased Array Radar technology is a world-leading capability for a system of its weight and size and importantly, is considerably more cost-effective than comparable systems.

Another fine example is the Bushmaster Protected Mobility Vehicle where locally-developed science and technology was applied to tailor the vehicle to our defence requirements, optimised for operations in Northern Australia with the rugged Australian outback in mind.

Deployed to Afghanistan, the armoured troop carrier has saved countless Australian lives in the rugged and unforgiving environment.

Other success stories come from companies located here in Canberra.

Aspen Medical, which currently provides health care and other medical services to the ADF, is expanding its presence in the Middle East.

Locata Corporation with its headquarters in Canberra is working with the United States military, having signed an agreement with the US Air Force Institute of Technology to build and demonstrate radio-location technology for use in GPS receivers.

Then there is Quintessence Labs, a Canberra-based quantum cyber security company, working with NASA on quantum key distribution technology.

Under the Joint Strike Fighter program, some 30 Australian defence companies have so far been awarded contracts valued over $412 million and stand to win at least $1.5 billion in production and support work over the life of the program.

Examples of the work already won by Australian firms include contracts for the manufacture of major aerostructures by Marand and Quickstep and the production of airframe, engine and avionics machined parts by smaller firms like Lovitt Technologies, Levett Enginering and Ferra Engineering.

This type of entrepreneurship and innovation in our industry needs to continue as we further break down barriers to domestic and international competitiveness.

Ladies and Gentlemen, again, I thank you for the work you do and what you deliver.

I am open to take questions.

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