Minister for Defence - Speech - ASPI Australia’s Future Surface Fleet Conference

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It is a great pleasure to address this conference of the Australian Strategic Policy Institute (ASPI).

For more than a decade, ASPI has positioned itself as a significant contributor to the national security debate in Australia and our nation is richer for this contribution.

Your contribution has gone beyond ASPI’s role of providing contestable advice on defence issues.

ASPI’s Executive Director Peter Jennings serves as the Chair of the Government’s Defence White Paper Expert Panel, along with the assistance of Andrew Davies.

The Panel is contributing to the analysis and drafting of both the 2015 White Paper and Force Structure Review, and providing much-valued independent advice to Government.

The Panel has led targeted community engagement to allow members of the public to participate in a constructive discussion about Defence’s priorities and future direction.

They have also engaged on Defence industry matters, such as capabilities that support and sustain Defence, Defence-industry relationships and industry programs for Defence.

So I welcome the opportunity to discuss Australia’s Future Surface Fleet, as the Government is in the midst of finalising its Defence White Paper, Force Structure Review, First Principles Review, Defence Industry Policy, and certainly not least, an enterprise-level Naval Shipbuilding Plan.

Defence White Paper

The 2015 Defence White Paper, to be released later this year, will provide a costed, affordable and enduring plan to achieve Australia’s defence and national security objectives.

The White Paper is being developed in a considered and methodical manner and will reflect the Government’s strategic, national security, fiscal and broader policy priorities.

It will outline a strategy for securing Australia’s strategic interests in the period to 2035 and beyond.

The White Paper will align defence policy with a clear military strategy and a credible, affordable and properly funded ADF structure designed to achieve that policy:

•     it will set out the strategic objectives that the Government expects Defence to be able to carry out
•     which will be underpinned by a fully-costed Force Structure Review
•     and the Government will ensure Defence is properly funded to meet these objectives.

Most importantly, it will propose options for the force structure that ensure the capabilities that enable modern joint operations, such as surveillance, communications and logistics infrastructure, are robust and resilient.

Succeeding in the future operating environment will depend on more than just high-end capabilities.

It’s the ability to integrate and share information between platforms and systems in a timely manner that will make the ADF a truly fifth generation force and one will give us a distinct edge over many other countries.

Along with the White Paper, the Government will deliver a costed acquisition program, a ten-year Defence Capability Plan (DCP) and a new Defence Industry Policy Statement. The DCP will be realistic, affordable and provide project approvals with clear timeframes.

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

It will also restore the compact that should rightly exist between the Government and its Defence Force.

Key to the Government’s considerations are the effects on the overall investment plan of the so-called ‘mega projects’, the future frigate, future submarine and armoured vehicles, that will consume a significant amount of the available capital funding.

The Force Structure Review is carefully considering funding provisions that allow adequate and appropriate backing for all of these projects while preserving an appropriate balance of investment across all necessary areas of ADF and Defence capability.

Frigate capability requirement

The fact that two of these mega projects are naval programs underlines that the development of appropriately capable maritime forces is central to the Government’s strategic objectives that will be laid out in the new Defence White Paper.

Australia’s national security and our $1.6 trillion dollar economy rely on the unencumbered use of the sea.

Seventy per cent of Australia’s exported goods and services, by value, travel by sea, an export trade worth more than $220 billion in 2012-13.

We are a maritime nation and we need maritime security, and maritime security requires a robust surface force capability.

The Navy’s Air Warfare Destroyers will underpin the surface force’s war fighting capability. But with three destroyers in the fleet, the Future Frigate must also be capable of conducting operations independently or in a task group.

The ANZAC class frigates were originally designed as a low intensity patrol frigate but their role has expanded over time.

They have become the workhorse for the Navy, operating across a range of peacetime and military roles, both independently and in task groups.

This required successive investments in new capabilities for the ANZAC fleet to keep pace with their expanding roles.

At a maximum displacement of 3,900 tonnes, the ships are approaching their weight and stability limits which will constrain further upgrades.

Drawing in part from this experience, the Future Frigates are expected to face more demanding operational requirements and will need to be more capable than the ANZAC class.

They will be required to conduct a range of missions, from low-level constabulary roles through to regional conflict, but with a particular focus on anti-submarine warfare and theatre-level anti-submarine operations.

These requirements reflect the modernisation and expansion of regional submarine fleets that is underway, to the extent that by 2030 approximately 300 submarines are expected to be operating in the region.

Operating along Australia’s coastline, northern approaches and throughout the Indo-Pacific, will require the Future Frigate to have the range, endurance, sea-keeping qualities, survivability and weapons load-out to support prolonged operations throughout our substantial region and, when called to do so, globally.

The nature of the threat environment will require the vessels to be equipped with a range of offensive, defensive and self-protection systems.

They need to be of adequate displacement to facilitate a growth path for future weapons system and sensors.

That’s one of the reasons why there is something of a global trend towards larger-sized frigates.

Defence and industry are currently conducting risk reduction design studies to investigate a number of options for the Future Frigate including the viability of an evolved Hobart Class as a possible solution.

Consideration is also being given to a range of alternative foreign designs such as the Type 26 and FREMM frigates, amongst others.

In considering all of the available options, the Government will be guided by a number of key principles, including:

•     the necessity for a well-integrated designer, builder and supplier team
•     preferencing mature designs of vessels rather than choosing to design a new class of vessel from scratch or undertaking large scale modification of existing designs
•     thoroughly testing Navy’s capability requirement against more readily available military vessels
•     limiting the amount of changes to the design selected for ‘unique’ Australian requirements, and
•     spending more time at the beginning of the project on planning the design and build program.

While these principles will in the first part apply to our consideration of the Future Frigate, all future Defence capability programs related to naval ships should be in conformance with those principles, and with the capability and acquisition processes to be recommended by the First Principles Review.

The ANZAC class frigates are planned to be withdrawn from the mid-2020s and at least some of the ANZAC ships are likely to require a modest life extension. There is a strategic imperative to avoid a capability gap during the transition from the ANZAC class frigate to the Future Frigate.

Labor’s Valley of Death

The gap between completion of the AWD project and the start of the Future Frigate project, Labor’s Valley of Death, cannot be avoided and no decision this Government could make now could stop it.

Those decisions needed to be made during the six years in office of the previous Labor Government.

For six years, Labor failed to make the decisions needed in our shipbuilding industry - including decisions on the replacement frigates for the ANZAC fleet but also on the replacement for the Collins class submarines.

And for all their posturing, in six years Labor did not commission a single naval vessel from an Australian yard.

Instead, $16 billion was ripped out of Defence, leading to 119 defence projects being delayed, 43 projects being reduced in scope and eight projects cancelled, risking critical capability gaps.

But while the valley of death can’t be prevented now, its impact can be lessened.

In addition to the Future Frigate the Government is also progressing other projects that will create additional opportunities to move into a design, build, and sustainment phase for Australian ship building:

•     a fleet of Offshore Patrol Vessels to replace the Armidale class patrol boats, and
•     the Australian manufacture of up to 21 Pacific Patrol Boats under the Pacific Maritime Security Program.

Both projects will represent a significant investment in Australian defence industry.

However the size and complexity of the Future Frigates dictate that it’s decisions made on that particular project that go to the very heart of this Government’s commitment to ensure a sustainable Australian naval ship building industry

The shipbuilding plan

The future force we are seeking to develop will be built on the solid foundation that was provided by the Howard Government.

Our air capabilities are being transformed through already agreed plans, the result of which can be seen in the skies over Iraq today.

The last decade has seen substantial investment in our land force with future emphasis on new armoured vehicles, digitisation and enablers.

What we now require is a major program of modernisation for our naval forces, with key decisions to be taken on submarines, frigates and patrol vessels.

We are in the early stages of an ambitious program to procure up to 40 naval surface ships and submarines over the next two decades.

So we have to be in a far better position to understand the ability of Australian shipyards, workers and suppliers to produce, deliver and sustain those vessels at the pace and in the order required by the ADF.

That’s why an enterprise-level naval shipbuilding plan is currently being developed to provide for the long-term future of the Australian naval shipbuilding industry.

This is important work and is being informed by expert, independent advice from the RAND corporation.

Continuous build

One of the options we’re looking at to sustain a shipbuilding industrial base, and avoiding the peaks and troughs we are experiencing - and have experienced in the past - is the feasibility of a continuous build strategy, with a regular pace of delivering new warships.

This would require Defence to carefully manage its acquisition processes and keep the future frigates operational for relatively less time than has been the norm to date.

By adopting such an approach the industry would no longer be characterised by a stop-start approach to naval shipbuilding.

It is now clear that the current approach:

•     was expensive
•     provided no long term certainty to workers, and
•     didn’t enable industry to make the necessary investments, provide the necessary skill base, and build on construction improvements and skills.

For its part, industry also needs to step up to meet the challenge of building a sustainable naval sector.

The only way Australia can continue to have a naval shipbuilding industry is if the industry is properly structured to drive efficiencies and improve productivity.

This will require hard decisions, and a commitment to a productivity-based culture from all parties – including unions.

Our experience with the AWDs has underlined the need for strong shipbuilding capability and complex project management skills in senior management and across the shipbuilding workforce.

Without shipbuilding experience in management, it is difficult to manage a block build across multiple subcontractors.

Moreover, a lack of management experience in shipbuilding leads to inadequate supervision, development and training of the workforce.

Ultimately, a workforce without shipbuilding experience adds a large Australian-build premium.

The Australian naval ship building industry that will build our next generation of frigates will need to be a different industry.

The industry currently isn’t internationally competitive in terms of its productivity, and if this does not change it will not be sustainable.

Australian taxpayers currently pay a price premium of at least 30-40 per cent greater than US benchmarks to build naval ships in Australia, and even greater against some other naval ship building nations.

That price premium is simply too high to make good economic sense.

As it currently stands, it is too high to enable a continuous build strategy to be adopted.

The opportunity cost associated with the defence capabilities which could be foregone, as a result of paying that premium, are too great for any responsible government to consider.

This Government recognises the significant value to our nation of having a skilled naval ship building industry. We cannot afford to see this industry disappear.

The Government will make further announcements in the forthcoming Defence White Paper and accompanying Naval Shipbuilding Plan.

This will include more detail on the commencement of ship construction, the rate the warships will be constructed, and the structure of the naval ship building industry that will be required to support this program.

Conclusion

Unlike the previous government, the Coalition does not want to see the Australian ship building industry disappear.

The plans we are committed to developing will ensure that Australia has a sustainable naval ship building industry that delivers the right capability, at the right time, and for the right price to the ADF and supports ship building jobs in Australia.

We are committed to working closely with industry to bring this about. The safety and security of all Australians demands no less.

Through introducing new management structures, providing the opportunities to invest in new production techniques, and allowing efficiencies in skilled construction to be harnessed from a long term build program, the naval ship building industry will look and operate very differently to how it does today.

I wish you well in your deliberations and look forward to your future contributions to national security debates in Australia.

Thank you.