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Australian naval program sums up dilemmas for 'middle power' nations

Delays and cost concerns on submarine project cast shadows over ship-building ambitions

SYDNEY -- They are an impressive sight for tourists getting off their buses at the harborside vantage point known as Lady Macquarie's Chair, after an early British governor's wife: the two newest ships in the Royal Australian Navy, moored just across a narrow bay at Sydney's Garden Island base.

HMAS Adelaide and HMAS Canberra, at 27,000 tons each, are the biggest ships the RAN has ever owned. Known as landing helicopter docks, they look like aircraft carriers. Swarms of large helicopters can fly off their flat decks, and the jump-jet version of the F-35 fighter can potentially use the "ski-ramp" at the bow. Below is space for a battalion of soldiers and their vehicles, ready to be floated out on landing barges from the stern dock to storm beaches.

But this impressive capability has been immobilized since March, and the ships have taken turns in Garden Island's dry dock for engineers to find out what is wrong. The ships employ a novel form of propulsion in external drive pods that can swivel through 360 degrees. But after less than three years' service, the pods are grinding metal, while faulty seals are mixing different types of lubricants.

It is a deep embarrassment for the RAN, which seems to be heading for an argument with the ship's designer, the Spanish yard Navantia, and the maker of the pods, Germany's Siemens. "It may well be a design issue," Rear Admiral Adam Grunsell, head of maritime systems in Canberra's Defense Department, told media in April. The alternative explanation, faulty maintenance, is not something the department is canvassing.

The problems come at an awkward time, as Australia's government embraces an ambitious program of local naval construction costing an estimated 89 billion Australian dollars ($65.7 billion) over coming decades.

Not surprisingly, the politician in charge of this effort, Christopher Pyne, minister for defense industry in Prime Minister Malcolm Turnbull's government, was initially keen to play down the problems with the navy's flagships. After declaring them "a very minor problem" of "routine maintenance," he has more recently conceded the problems amount to a bigger issue. "It's good that these problems have been discovered now when the ships are not in any kind of active duty," he said recently.

The big question

The history of the ships illustrates the dilemmas of defense equipment spending for this medium-sized economy with a population of 24 million.

Should its defense forces buy items like warships, aircraft, and vehicles "off the shelf" from foreign arms manufacturers to get the price advantage of large production runs, tested technology and -- sometimes -- lower labor costs?

Or should the foreign companies be obliged to build the military platforms in Australia, to create local jobs, infuse new technology into local contractors, and develop local capacity for repairs and updates in a country that is far distant from industrial centers in North America, Europe and Northeast Asia? And if the work is to be done locally, which Australian city gets the work?

The two LHDs were a compromise. Navantia built the hulls in Spain, then shipped them to Melbourne on barges, where a shipyard owned by British Aerospace fitted them out with the Siemens engines and other systems.

Another big warship order, for three cruiser-sized air warfare destroyers, was even more convoluted. Canberra chose an existing Spanish Armada design from Navantia, then got shipyards in Newcastle and Melbourne to build blocks of the hull, in addition to blocks made in Spain, that were transferred to the former Australian Submarine Corp. (now ASC) yard in Adelaide, for fabrication by British Aerospace and insertion of U.S. combat systems. Due to mix-ups in design drawings, the ships are running an estimated A$1.2 billion over the original A$8 billion budget, and delivery is 30 months behind.

Government-owned ASC in Adelaide will now get nearly all the work from Turnbull's new naval shipbuilding scheme, announced in mid-2016, around the same time that the RAN selected the Shortfin Barracuda design of French yard DCNS for its new generation of submarines, rejecting tenders from Germany and Japan.

The idea is for a "continuous build" program whereby the ASC workforce will be kept busy with overlapping programs after the air warfare ships are completed: small patrol vessels for Pacific island nations from this year, new offshore patrol vessels for the RAN from 2018, nine new anti-submarine frigates from 2020, and from 2023 the largest of all, the 12 French-designed submarines costing a ballpark A$50 billion. Design competitions are under way for the frigates and smaller vessels.

On top of the A$89 billion anticipated price tag for the ships, Canberra announced in May it would be spending A$1.3 billion on technical upgrades to the ASC shipyard and a smaller government-owned yard in Perth, which will join the Pacific patrol boat program, and a college to train workers.

Over the last year it has also announced 10-year funding of A$230 million for a new Center for Defense Industry Capability and A$640 million for a new Defense Innovation Hub, both based in Adelaide. In March, Pyne launched an A$730 million Next Generation Technologies Fund to foster "game-changing capabilities" for the defense force.

Pyne's appointment to the new defense industry portfolio, which sits him in cabinet on an equal footing with Defense Minister Marise Payne, came as Turnbull announced his big naval shipbuilding plan -- two months ahead of the latter's first election as prime minister last September.

Whatever the merits of the scheme, it was seen as a giant vote-buying exercise to save Pyne's seat in Adelaide and others in South Australia held by the ruling coalition. Indeed, the latest annual defense budget review by Canberra's Australian Strategic Policy Institute (ASPI), partly funded by the Department of Defense, has on its cover a cartoon of a submarine firing wooden barrels from its torpedo tubes, with the caption: "Pork barrels away!"

'Guarantor' of prosperity

Pyne, who did not respond to an interview request, has made expansive claims about the effect of this spending. It was not just to secure military capability, he said in a speech in February, but "a crucial element in the future of our advanced manufacturing and high-tech industries; a guarantor of national prosperity."

Citing niche export successes in radar systems and missile decoys, he saw Australian industry becoming a major player in global defense markets. "I believe we will be able to grow an Australian defense industry sector that is largely independent of the [Australian Defense Force] for its prosperity."

But analysts say the defense industry is unlikely to be a greater driver of the economy than it already is, with jobs expanding by around 5,000 from the existing 25,000, in a national workforce of 12 million. Much of the spend will go out of Australia, to suppliers of the more sophisticated components like engines, weapons and combat systems.

High-cost Australia struggles to sell warships to New Zealand, an ally close enough for shared maintenance, let alone to countries with their own industries like India, or those in Southeast Asia which are being offered proven, if less advanced, platforms from South Korea and Europe among other suppliers.

The selection of the DCNS submarine in particular has experts deeply worried about cost over-runs and technical difficulties. The proposal is to convert the French Navy's new Barracuda nuclear-powered attack submarine to conventional diesel-electric propulsion.

But the hull remains at about 5,000 tons, which will be the world's largest for a conventional submarine and its limited power supply. "[This] poses challenges and risks which will test the boundaries of physics and engineering," said former ASC chief executive Hans Ohff in an article for The Australian newspaper in May.

However, a coy reference in Canberra's February 2016 Defense White Paper suggests planners have an option in mind should the diesel-electric conservation prove too risky. It said the submarine program would be reviewed in the late 2020s to "consider whether the configuration of the submarines remains suitable or whether consideration of other specifications should commence."

This is widely seen in Canberra defense circles as openness to the nuclear version of the Barracuda. But popular anti-nuclear sentiment and Australia's tiny existing nuclear industry would make this a tough political decision, and one that would need to be made much earlier than the late 2020s.

One industry expert, who asked to be anonymous given Canberra's tight circle of defense officials and contractors, summed up the jitters about the government's largesse: "They are steadily building up a portfolio of risk here that future governments are going to have to reckon with."

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