Tuesday, May 3, 2016

Australia's submarine decision: Concerns down under, celebrations in Paris

Nigel Pittaway, Pierre Tran and Christopher P. Cavas, Defense News
2 May 2016
Australia’s choice of French shipbuilding giant DCNS to lead the country’s ambitious 12-ship submarine construction program caught most observers by surprise. The quasi-government-owned DCNS – which often competes in international naval programs but rarely scores a major win – had been seen as an also-ran in competition with Germany’s ThyssenKrupp Marine Systems (TKMS) and the Japanese government for the lucrative, Australian $50 billion (U.S. $38 billion, €33.2 billion) Future Submarine contract.
But Prime Minister Malcolm Turnbull’s April 26 announcement that the decision was “unequivocally” in favor of the French design set champagne corks popping in Paris even as Australian politicians and commentators debated the choice.
“This was the absolutely unambiguous recommendation from the Department of Defence that came through the competitive evaluation process,” Turnbull said, adding that all three bids were of a “very high quality.”
The decision came as a disappointment to the Japanese, who had personally been invited to compete by former Prime Minister Tony Abbott in what Australian media referred to as a “Captain’s pick.” Some political analysts now predict a temporary cooling of relations between the two countries.
Turnbull, asked by reporters April 26 about the impact on Australian-Japanese relations, said his government remained committed to the regional alliance with Japan and the U.S.
“Both [Japanese] Prime Minister [Shinzo] Abe and I – and our respective governments and, I believe, our respective nations – are thoroughly committed to the special strategic partnership between Australia and Japan which gets stronger all the time,” Turnbull said. “It gets stronger day by day and we're committed to that. And we are committed to our strong trilateral strategic engagement between Australia, Japan and the United States.”
Andrew Davies, a senior analyst with the Australian Strategic Policy Institute, noted that while “our prime minister has said that he has been on the telephone to Prime Minister Abe ... I expect this will cause a bit of a cooling in the Australia-Japan relationship for a while.”
All three contenders, Davies said, offered a good product.
“I don’t think there was a bad decision on the table,” he said. “I think that whatever we did, we would have ended up with a capable submarine. We were actually in a pretty happy circumstance, with three experienced submarine designers and builders competing.”

French Cheer “Historic” Win

In Paris on April 26, President François Hollande headed for the offices of the naval shipbuilder, where he gave a speech in the DCNS lobby as champagne was served. Walking around to shake hands, he took an unplanned stroll behind a roped off area to wave to junior staff gathered on the floor above. The staff waved back.
“This is an historic program, the largest weapons export program our country has ever undertaken,” the Elysée president’s office said in a statement. The selection was possible, the statement said, due to a government-to-government agreement at a "strategic level" of over 50 years.
France’s share of the prospective deal is €17 billion (U.S. $19.5 billion), according to sources close to defense minister Jean-Yves Le Drian, weekly Le Point reported, while Reuters reported some €8 billion (U.S. $9.2 billion) for DCNS. DCNS chairman Hervé Guillou welcomed the support from the Direction Générale de l'Armement procurement office, Navy chief of staff Adm. Bernard Rogel, Thales, Sagem, and Schneider Electric, a French energy company with a significant business presence in Australia.
The deal is also a win for Thales, holder of 35 percent of DCNS, with the French government holding the remainder. Thales' share of the Australian program is expected to be some €1 billion (U.S. $1.2 billion), with €100 million ($115 million) per sub based on the sale of sonar systems, electronic warfare and periscopes, a Thales executive said.
With the selection of the French proposal, negotiations will begin for a three-year submarine design contract, said Marie-Pierre de Bailliencourt, DCNS executive vice president for development. A contract agreement is expected later this year or early in 2017, she added.
More choices remain for the submarine program, which is specified to have a U.S. combat systems integrator and employ U.S. weapons. Australia reportedly is considering bids from Raytheon and Lockheed Martin – each already working on the Royal Australian Navy’s Air Warfare Defense destroyer, fitted with Lockheed’s Aegis radar with integration from Raytheon.
Installing a U.S. combat system is one of the reasons for building the subs in Australia rather than France, as there is sensitive technology involved, said Robbin Laird of consultancy ICSA, based in Washington and Paris. “It will be interesting for Thales” in Australia he said, as the Australian subsidiary of the French electronics company will work closely with DCNS and the U.S. combat systems integrator.
One of the issues to be worked through is guarding U.S. technological secrets. DCNS has never worked with a U.S. company on this scale.
“I can’t help but think that the U.S. Navy has considered the full intellectual impact on any of the platforms that might be selected,” observed Guy Stitt of AMI International. “I think the Australians will have a process that assures that U.S. intellectual property will be protected.”

The Build Strategy

The Australian government confirmed that all 12 submarines will be built at the ASC facility at Adelaide in South Australia – a choice that drew domestic criticism from other states. Critics pointed out that South Australia is garnering the overwhelming majority of government shipbuilding programs. Along with the submarines, Adelaide will build nine future frigates beginning in 2020 and the first batch of twelve offshore patrol vessels (OPVs) starting in 2018, before fabrication is moved to Western Australia to make way for work on the frigates.
Construction on the submarines, said a spokesman for Defence Minister Marise Payne, is due to begin in 2022 or 2023 following a four-year design phase – a schedule
seen by some as difficult to achieve. Too much of a delay could lead to more work necessary to extend the existing Collins-class submarines the new subs are to replace.
“2022 is probably ambitious,” Davies said, “given that they also want to start cutting steel on OPVs in 2018 and on the future frigate in 2020. There’s an awful lot of production, engineering and facilities work that has to be done in the next few years.”
Construction is not likely to proceed quickly, especially with the first submarines.
“The first boat will be delivered for sea trials around 2028 and probably commissioned into service two years after that, in 2030,” Davies said. “There’s probably four years from cutting steel to delivering a boat for sea trials, so that would be a 2024 start. My feeling is that’s a more comfortable margin than trying to start in 2022.”
Turnbull, in his statement, noted the submarine program “will directly sustain around 1,100 Australian jobs and a further 1,700 Australian jobs through the supply chain.”
“The Future Submarine project,” he added, “is the largest and most complex defense acquisition Australia has ever undertaken.
The impact could be even greater in France. A DCNS spokesperson said the contract would support some 4,000 jobs for DCNS and its subcontractors.

The Future

DCNS and ThyssenKrupp are still in competition for Norway’s six-ship submarine replacement program, a Navy where the companies have a long track record of supplying ships or systems.
For the Japanese, the submarine effort is seen by many as a valuable learning experience. While the French and Germans have extensive expertise in marketing their wares on the worldwide defense market, such a foray was a first for Japan, which by law has been prohibited from selling weapons. Japan has a number of excellent systems, some observers noted, but a certain arrogance was also at times apparent.
“This was the first time they’ve ever done a commercial offering, and there will be a lot of lessons learned off this,” Stitt said.
The Japan-Australia connection was unique, he observed, noting that Abe’s government made a singular exception for the submarine effort.
“This is a strategic ally in the Asia-Pacific region. I don’t know that they’ll be out shopping this around the world,” Stitt said. “I think the Japanese will likely decide to take things on more bite-sized chunks before they offer a complete submarine deal again.”
Nevertheless, Japan seems to be set on a course to enter the worldwide defense market.
“Mitsubishi’s 2015 annual report,” Stitt noted, “reported expected growth in international defense sales.”
Nigel Pittaway reported from Melbourne, Pierre Tran from Paris, and Christopher P. Cavas from Washington.

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