Australian-French Defense Industrial Symposium in Adelaide: With the Sub Negotiations As the Elephant in the Room

By Robbin Laird

On September 24th and 25th, 2018, the inaugural Australian-French defense symposium was held in Adelaide, South Australia.

Notably, Adelaide is where the shipyard is located where the Collins class is supported and the new submarine will be built.

The Symposium is one of the first projects to result from the Australia-France Initiative (AFinit) framework, which was announced during the visit to Australia by French President Emmanuel Macron in May 2018.

“The Symposium will strengthen industry partnerships and identify opportunities to deepen cooperation and collaboration,” Minister Pyne said.

“Australia’s Future Submarine Program is the cornerstone of our defence industry relationship with France, but the Symposium demonstrates the relationship is set to grow further.”

The elephant in the room at the backdrop of the symposium was clearly the ongoing negotiations with regard to the French-Australian collaboration on the new submarine.

The Australians signed an agreement in 2016 to work with the French in building what the Australian government called “a regionally superior submarine.”

That agreement has seen the first key enabling contract to establish the ship design process, but not yet the build agreement with a target price for the initial submarine.

What has been signed in addition to the agreement on intent and the security agreements in 2016, is a mobilization contract for $5 billion (AUD) which set up the working facilities to work the design process in Adelaide and in Cherbourg.

With the election of President Macron, the French have been forthcoming in focusing on the Chinese challenge and have highlighted the importance of the strategic relationship with India and Australia as well.

Building a new submarine capability in Australia will allow France not only to enhance their partnership with Australia but could allow French forces as well as industry to play a greater role in the region as well.

But the challenge for France is to ensure that the two cultures can find ways to work together effectively in delivering what the Australians seek, which is a work in progress, and no easy task.

And now the agreement with the UK with regard to the frigate is shaping a baseline expectation with regard to the build process for the submarine as well.

The Australians are coming to the new build submarine with several key expectations. The submarine is to be a large conventionally powered submarine with an American combat system on board allowing for integration with the US and Japanese fleets.

The Commonwealth has already signed the combat systems side of the agreement with Lockheed Martin and the LM/US Navy working relationship in the Virginia class submarine is the clear benchmark from which the Aussies expect their combat system to evolve as well.

The new submarine is not an off-the-shelf design; it leverages the French Navy’s Barracuda class submarine, but the new design will differ in a number of fundamental ways.  The design contract is in place and the process is underway, with Australian engineers now resident in Cherbourg working with French engineers on the design.

But design is one thing; setting up the new manufacturing facility, transferring technology, shaping a work culture where Aussie and French approaches can shape an effective two-way partnership is a work in progress.

And agreeing a price for the new submarine, and the size of the workforce supporting the effort in France and Australia are clearly challenges yet to be met.

And with the build of new frigates and submarines focused on the Osborne shipyards, workforce will clearly be a challenge.  Shaping a more effective technical and educational infrastructure in the region to support the comprehensive shipbuilding effort is clearly one of the reasons that the yard was picked as a means for further development of South Australia.

The Aussies are coming at the new submarine program with what they consider to be the lessons from the Collins class. This includes limited technology transfer, significant performance problems and a difficult and expensive remake of the program to get it to the point where the submarine has a much more acceptable availability rate.

Clearly, the Aussies are looking to be able to have a fleet management approach to availability and one, which can be correlated with deployability, which is what they are working currently with the Collins class submarine.

This is clearly one of the baseline expectations by the Australians – they simply do not want to build a submarine per se; they want to set up an enterprise which can deliver high availability rates, enhanced maintainability built in, modularity for upgradeability and an ability to better embed the performance metrics into a clear understanding of deployability – where does the Australian Navy need to go and how will it reshape its con-ops going forward and how do upgrades of the submarine fit into all of the above?

There is a clear focus on building a state-of-the-art facility along these lines with regard to the submarine program as well.

This means that the Aussies are not simply looking to see the French transfer current manufacturing technologies to build the new submarine, but to co-innovate in shaping new and innovative approaches.

By looking at Asian innovations in shipbuilding, the Aussies would like to see some of those innovations built into their manufacturing processes in their new manufacturing facility.

The question is can the cultural dynamics of France working with Australia, an Australia with these expectations, be managed to deliver the kind of long term, cross-learning partnership which Australia seeks in this program?

This is a challenge and the Australian Financial Review has reported that disputes were delaying the signing of the next contract, the key one with regard to production.

A stalemate has emerged between the two countries over the Strategic Partnership Agreement to manage the submarine project for the next several decades. The parties had been working towards an unofficial September deadline but it is now likely to be signed next year.

Among the disputed issues were the length of warranty periods to cover potential defects, the risk that workers needed to maintain Collins-class submarines would be poached for the new project, and fears high-level cooperation and technology transfer would be jeopardised if Naval Group was no longer a sovereign company.

With the impending elections no later than mid-next year, and with a new Prime Minister replacing Turbull, the new Defense Minister, Christopher Pyne clearly wishes to see a deal done before his term ends.  He is from South Australia and a key architect of the submarine decision as well in his earlier capacity as Minister for Defence Industry.

The pressure is on, but the Minister argued that Australia needed a good agreement, not a hurried one.

“It’s extremely important that it covers all aspects of the project and that both sides are comfortable with signing it,” the minister told reporters in Adelaide on Monday.

“It doesn’t really matter how long it takes to negotiate it, it has to be right when it’s signed.

French Armed Forces Minister Florence Parly added that “all steps taken so far had been completed successfully, including the location of 40 Australian engineers in France, and the French government agreed there was “no particular deadline.”

With the holding of the first defense industrial symposium which included participation by the senior French defense industrial leadership, there has been a clear opportunity to make progress.

There is a clear opportunity to move forward with the negotiations or not with the presence of the French side at the symposium.

This event could prove a turning point or not dependent on the outcome of the French visit.

With the forthcoming Euro Naval symposium to be held in October in Paris, progress would be welcome in this major deal.  With no progress, the sub story might also be the elephant in the room.

There is a clear opportunity on the French side as well to have something quite different than French industry has experienced outside of Europe, namely, co-development of new capabilities which provide for two-way technology transfer.

There has been such an experience with regard to Thales in Australia, but what is envisaged here is at much broader level in which a new build diesel submarine enters a combat force within which new build and sustainment capabilities are developed crucial for Australia and interactive with ongoing French defense industrial development as well.

This is not simply fork-lifting capabilities offshore and bringing them to Australia.

Author’s Note: I would like to thank Anne Anne Borzycki for her contribution to this article.

See also the following:

Appendix: The Hon Steven Ciobo MP, Minister for Defence Industry’s Presentation to the Australia-France Defense Industry Symposium.

I’d like in particular to make a very warm welcome to those of you that have travelled from France to be here today. Some of you I would have had the chance to see and speak with when I was in Paris in May. And I want to take this opportunity though to really restate the warm welcome that you have here in Australia. We look forward and take very seriously the opportunities that we will have for collaboration – to drive investment and to work alongside each other in the defence industry space.

For me, I moved into this portfolio following the reshuffle that took place around five or so weeks ago, but it’s a very exciting portfolio to be in. I’ve moved from the space where I made the remark: historically I had a little bit of money spread in a very broad area as Trade, Tourism and Investment Minister, to now having a reasonable sum of money in a very narrow area in terms of defence industry. But what my skill set focuses on and what I’m genuinely still very excited about is what we can do with respect to building investment relationships and ties between our businesses. In this role for me as Defence Industry Minister, it’s the opportunity to focus, to drill down the narrow of the sector that has such incredible potential going forward.

MP Steven Ciabo, Minister for Defence Industry

Those of you from the Australian Defence Industrial Base, those of you from Frances’, will be very aware already that we have a very ambitious program with respect to defence industry in this country. We are increasing our defence spend to 2 per cent of GDP as you know.

We are putting on the table an extra $195 billion over the next 10 years, and we are unashamedly pursuing a policy of driving sovereign capability in this country. I know in terms of France you use the phrase, I’m told, strategic autonomy.

Irrespective of what praise you use. We’re on the same page about making sure that we are getting maximum bang for the buck in terms of the taxpayer dollar when it comes to boosting industry.

Going into this role I had the chance to be – just down the corridor here, speaking at the Land Forces Conference – I made the point that from the Australian Government perspective, from the work that the Minister for Defence Christopher Pyne and I will do together and alongside each other as close friends and colleagues now for many, many years, we’re all putting our shoulder to the wheel to drive a vision for the defence industry in this country.

But it is predicated upon building our capability and exploiting market opportunities.

I want to touch on each of those separately.

With respect to building our sovereign capability, if we’re going to be investing $195 billion into the purchase of new equipment and capability build up, we want to make sure that we do that in partnership with you as industry.

For me, as a Liberal, that means a comprehensive understanding that intellectual property, the knowledge, the practices that you have as industry will be critical.  We want to harness your innovation, we want to harness your ability to be able to plan your labour force, we want to provide you what you expect of government in return, and that is certainty.

To have clarity around what our purchasing guidelines will be and the certainty about what the investment pipeline is going to be. In that respect, the Investment Implementation Plan we see as being a critical and fundamental driver of providing you the certainty that you’re looking for from a commercial perspective.

Likewise, the decision that we’ve made around for example, the Future Submarines program, is a testament to our vision to be able to build off the very best in the world and then to adapt that in the Australian context.

Now, we’ve seen lots of commentary and you all have seen it as well that speaks about whether or not we could have purchased an off the shelf model, so to speak, more cheaply internationally.

But that wasn’t our stated purpose.

That wasn’t our specific intent.

Our intent was to be able to use intellectual property to make sure that we can drive technology transfer and to do so in a way that was good for the – in this case, supplier – in terms of the negotiations that are still underway with Naval, but also look what we can do to boost opportunities for Australian capability and the Australian industry to have its input in the development of that chain – that supply chain. 

The second aspect I spoke of is in relation to export opportunity.

Christopher Pyne in his role as Defence Industry Minister previously put in place, working alongside me as the Trade Minister, as I then was, the Defence Export Strategy.

And one of the key features that we put in place as part of that strategy was a $3.8 billion Efic facility to provide financing to defence exports. Likewise, being able to harness the talents of someone like David Johnston, former Senator, now Defence Exports Advocate, to be out there on your behalf, being an advocate about why Australia has incredibly capability and why we should be building these supply chains to recognise as part of our Defence Export Strategy that we can adapt our intellectual property, and not only harness that we bring into the country but also take that intellectual property we develop here and go and export that abroad. So those are the two most fundamental components of what it is that we’re focused on.

So I talk about $195 billion build-up of capability; that’s terrific news.

But it’s also good to know that we are providing the commercial certainty, I hope, that you’re looking for.

We’re also investing in the next wave of research and development.

Whether it’s in terms of the Innovation Fund or the work that we’re doing with the Next Generation Technology Fund, it’s about making sure that we are providing not only a vision to the future and a sense of what we can achieve together, but also putting our money where our mouth is – I should say your money where our mouth is – with respect to investing in the next wave of innovation as well.

In that respect I reinforce to all of you here, as part of this bilateral symposium around defence industry that we want to work alongside you.

For French businesses that are here in Australia, you need to recognise that we very much view our nation as being incredibly well-positioned in respect to immense opportunity in the years ahead.

I can speak in general terms about the growth across Asia, speak about the fact that we will see around 3 billion middle-class Asians over the years ahead, which creates an incredible consumer market – but more importantly and specifically for the defence sector speak about that the opportunities that will arise off the back of increased defence spending in this area as well.

There will be opportunities both in terms of civilian use but specific defence use as well; that you’ll be able to develop intellectual property, develop processes, develop supply chains, which we then can tap into in this region.

Likewise, for Australian businesses, as we’re seeing increased expenditure, as expected in the European Union, there’ll be increased opportunity for Australian businesses to be part of the supply chain back in Europe as well.

And so for French and Australian businesses, the opportunities to build relationships, to drive collaboration, to look at work that can be done together as joint ventures is one example really speaks to the vision that we want to put in place.

Now, we know France has been incredibly successfully historically as a defence exporter, one of the largest in the world. The public policy settings that France has in place are public policies that Christopher and I, and indeed, the Government – both in terms of its current iteration but also previously – have looked at closely, to look at inspirational ideas that we can adapt that works in public policy as well.

But by the same token, I am very bullish of opportunities for Australian industry.

We have seen some incredible outcomes that have been driven out of Australia. We are seeing some incredible application of Australian ingenuity and innovation, and you will find – especially for those of you that are larger, medium – to large-sized businesses – that having Australian businesses as part of your supply chain, businesses that are quite agile.

I’ve spoken about innovation already. But in a position to be able to readily fit within your supply chain in a timely way and bring with them a wealth of experience in the region which we think enriches both French businesses and Australian businesses.

So, I just wanted to touch on some of those comments in relation to the work that we’ve been doing.

We’ve put an extra $3.2 million down to the existing Global Supply Chain Program because that, in particular, I speak to the Australian SME sector now. That in particular is going to be funding that we’re putting down on the table to help you recognise these opportunities to be able to exploit them in the future with respect to supply chains in the defence industry sector.

There’s a sort of multitude of different examples that we’ve seen – I speak about the success – of course, one of the true national champions that we’ve spoken about and that you would be very well aware of is the incredible work that Austal’s been doing with respect to, even the press release we put out last week around two new Littoral class ships that have gone to the US Department of Defence.

We are seeing Australian businesses really put some runs on the board in that respect.

So, I just really wanted to come today to reinforce from a Defence Industry Minister’s perspective our absolute commitment to not only maintaining the momentum that we have in this space, but reassert to all of you our ambition with respect to what we can do;

to reinforce to all of you that we are commercially focused and that’s why we are trying to outline to you this vision over the next decade to provide you the certainty that you’re after;

to reassert to you that we will provide support and assistance with respect to sovereign capability and with respect to opportunities for collaboration between, in this particular case, France and Australia; and reenergise you all to take advantage of the incredible block of opportunities that only exist domestically in Australia with this $195 billion build-up, not only with respect to Europe and the work that can be done back through France, but also more specifically across the region because we know that we are placed in an incredible part of the world, that we’ll continue to see incredible growth in the years ahead. So, for all of those reasons, can I wish you all a very successful day today.

The morning from what I’ve heard anecdotally thus far has been very good. I look forward to you having a terrific afternoon and dinner this evening, and look forward to the chance to catch up with you again in the near future.

Thank you so much.

The featured photo shows French Minister of the Armed Forces Florence Parly with Mr Pyne during her visit to Adelaide for the inaugural Australia-France Defence Industry Symposium.

Picture: David Mariuz/AAP