Following the announcement by Defence Industry minister Christopher Pyne that Australian companies will have an opportunity to capitalise on the international F-35 joint Strike Force Program, Steven Impey takes a closer look at what manufacturers can hope to gain from the government’s massive defence budget.
As billions in federal dollars continue to pour into Australia’s defence industry, leaving a legacy for the Australian workforce must be high on the agenda.
In February last year, the government set out a 10-year budget that promises to grow the current workforce to 62,400 by 2026 while investment is set to rise from $32.4 billion spent in 2016‐17 to $58.7 billion.
As part of the government’s Strategic Partnership with Industry, there is a pledge, in writing, to maximise opportunities for competitive businesses and cut the red tape that currently makes it costly for the Australian industry to support Australian defence projects.
Among the most talked about is the F-35 Joint Strike Fighter Program (JSF); a US$1.5 trillion (A$2 trillion) project which incorporates partner countries in building 3,000 fifth-generation fighters designed to perform ground attack and air defence missions.
In March this year, Australia’s minister for defence industry Christopher Pyne declared that there would be opportunity for companies to participate in the production and regional sustainment of the global fleet. However, some industry experts are still sceptical whether the program will have such a major impact for small and medium businesses (SMEs) in the Australian supply chain, prompting Manufacturers’ Monthly to delve a little deeper.
In partnership with the Department of Defence (DoD), it is the job of the Defence Materials Technology Centre (DMTC) in Victoria to identify opportunities in the market and to provide a “commercial pathway” alongside defence contracts such as those connected to F-35.
“It is probably true to say one of the greatest opportunities for manufacturing in Australia is not a particular product line or technology area,” said Dr Mark Hodge, CEO of the DMTC, “but about enhancing collaboration both within supply chains and between the industry and research sectors.”
There are 20 Australian companies currently signed up to international contracts for the JSF Program, opening up export opportunities for industry partners.
The ‘ripple effect’
Meanwhile, more than 50 Australian companies have directly shared in more than $800 million in production contracts since the Howard Government elected to make the F-35 Australia’s fighter jet of choice 15 years ago.
The ripple effect will, it is said, indirectly benefit hundreds more Australian companies up and down the supply chain, with net government spend set to jump to $2 billion by 2023. It has become apparent, however, that the flight-path towards truly understanding what Australia companies can offer the defence industry is still in its infancy.
Research carried out by Graeme Dunk, manager of the Australian Business Defence Industry, shows that around five per cent of government (prime) contracts, by value, go out to Australian SMEs – averaging out at roughly $43,000 per contract.
“This analysis is from data on Australian tender, so only shows prime contracts – not subcontracts – and refers to the combined vale of acquisition and sustainment contracts placed by Defence to Australian-owned companies,” Dunk explained.
Air Vice-Marshal Leigh Gordon heads up the JSF Division within the Capability Acquisition and Sustainment Group (CASG); the DoD’s military equipment purchasing arm.
“Governments globally are looking for their dollars to go further and deliver more for their domestic economies,” he told Manufacturers’ Monthly.
“This presents Australian industry with an opportunity to be innovative in driving down the cost of defence capability inputs.”
This means, with production volumes increasing and the F-35 GSS maturing, defence and industry will continue to work closely together to optimise Australian industry participation in the F-35 Progam.
“There are some challenges ahead, which means Australian industry will have to stay internationally competitive by improving efficiency; driving innovation, supporting skills development and maintaining quality,” Gordon continued.
To do this, Australian companies will specifically need to develop associated intellectual property in Australia to market worldwide and enhance their design, manufacturing and maintenance capabilities.
How Australia is already contributing
Domestically, Adelaide-based defence contractor BAE Systems Australia is the principle partner in the F-35 JSF Program, producing titanium components for the fighter jet’s vertical and horizontal tails – as well as its wing tips and aft fuselage – at its advanced manufacturing facility in Edinburgh Parks. It also delivers key systems and electronics on board the aircraft, including the fighter’s electronic warfare suite, active inceptor systems and Vehicle Management Computers (VMC).
With headquarters based in London, the company’s Australian subsidiary holds around 15 per cent of the industrial work on each airframe, having been assigned the role of sustaining the global F-35 fleet in the Southern Pacific region, which is set to create 200 high-technology servicing jobs over 30 years.
Steve Drury, BAE Systems’ director for aerospace in Australia, explained how its contract with Lockheed Martin Aeronautics – the fighter’s designer – is spilling over into other Australian manufacturers’ laps.
“There has been defence parts produced by people on our site for a long time,” Drury said.
“Moving onto the F-35 programme, we are machining long, slender titanium wing spars up to three metres long, which requires incredibly advanced machinery.
“Over here, we are telling the Australian Defence Force (ADF) that we can make the most intricate parts and we want to do it in Australia using Australian industry.
“That way, you find more companies looking to invest in the high-tech machinery needed, which, in turn, gives them confidence they are going to see a return [in their investment].”
Among those involved externally, companies such as Adelaide-based precision machining company Axiom Diemould and also Marand, which assembles the F-35’s vertical tail from its factory in Melbourne, are both contributing.
BAE Systems is also competing for other contracts in the defence sector. They include:
- Jindalee Operational Radar Network (JORN), to produce an over-the-horizon radar (OTHR) network that can monitor air and sea movement;
- Project LAND 400, to deliver armoured fighting vehicles with improved firepower, protection, mobility and communication;
- SEA 5000 Future Frigate Program, to deliver the next generation of naval surface combatants with a focus on anti-submarine warfare.
“Our involvement in [the JSF Program] proves that we do, in Australia, have the capability and that the Australian industry will invest in the right opportunities,” Drury continued.
“I have witnessed our current government swing around to making sure that Australian industry is involved in what is a huge defence budget.
“When it comes to other long-term projects – including the Future Frigate Program – while the car industry is reducing and, in fact, disappearing, something has to happen to recapture manufacturing for Australia.
“As intelligent working people, we should be looking at the more high-tech areas of manufacturing. Defence is an obvious choice for that.
“Our use of SMEs in Australia – constructing critical components for the F-35 – has proven to the government that we can do it and that Australians are as good as anybody else at manufacturing these components.”
Reasons to question Australia’s defence legacy
There is still scepticism within the ranks, however. According to defence industry research, at most, five per cent of the government’s procurement contracts benefit SMEs overall – with the majority moved offshore.
Jon Bradshaw, who chairs the Sydney Aerospace and Defence Interest Group (SADIG) skills committee, insists more legislation is needed to fuel the fire within Australia’s manufacturing industry.
“Australia is, by any assessment, well inside the top 10 defence purchasers in the world,” he said. “However, those few SMEs that are successful are that way despite, rather than because of, a lack of local interest.
“In the UK and the States, both countries have strong commitments towards a 25-per-cent SME involvement in all areas of their governments’ procurements.
“Currently in Australia, with no legislative arrangements in place … the lion’s share is going offshore to supply chain companies sourced through the foreign-owned primes.
“One of the most direct ways the government can encourage and nurture small businesses is through federal contracts. This is legislation we desperately need to kick-start our sovereign capability; to provide critical mass, support for investment and sustainability.
“It will certainly take a great leap of faith to believe that original equipment manufacturers (OEMs) based overseas will really entertain an appetite to underwrite export market development from Australia in competition with their operations.”
By looking at both domestic and export opportunities – within both the defence sector and other related sectors – programmes such as the JSF are “absolutely critical to clarifying the global competitiveness benchmarks” if SMEs are going to thrive, according to the DMTC.
“It’s long been understood that companies from SMEs right through to primes need a diversified base to thrive,” Dr Hodge, of DMTC, continued.
“The Australian Government’s commitment to the defence sector is certainly very welcome and it’s now a case of the rubber hitting the road as all of the promises in the suit of White Paper, Industry Policy Statement and the Integrated Investment Program start to come to fruition.”