Military upgrade creates new prospects for defence manufacturers

Rheinmetall's Combat Reconnaissance Vehicles (CRVs), known as “The Boxer”, will replace the Army’s ageing fleet of Australian Light Armoured Vehicles (ASLAV).

German defence company Rheinmetall won a $5.2 billion contract in March this year to supply over 200 new combat vehicles to the Australian Army. Tara Hamid investigates opportunities for the Australian manufacturers taking part in the contract.

The government’s ongoing upgrade to the defence force and military modernisation program, introduced since 2016 and estimated at about $200 billion, has provided an unprecedented opportunity for the local industries to expand their global reach and capabilities.

While the global military industry giants compete fiercely to grab the lucrative acquisition projects to replace the military’s ageing fleet with new, high-tech equipment and vehicles, it opens new doors for Australian manufacturers to showcase their capabilities and expand their global reach.

The government announced in mid-March that it has awarded Rheinmetall the $5.2 billion contract to deliver over 200 combat vehicles to the Australian Army as part of the second phase of the Land 400 project, which will see the government acquiring a total of 675 new military vehicles over the next 15 years at an estimated cost of about $14-20 billion.

Under the contract, Rheinmetall Defence Australia will deliver 211 Combat Reconnaissance Vehicles (CRVs), known as “The Boxer”, to replace the Army’s ageing fleet of Light Armoured Vehicle, known as ASLAV.

Rheinmetall will be manufacturing the majority of the Boxer CRVs at its Australia-New Zealand headquarters, referred to as the Military Vehicle Centre of Excellence (MILVEHCOE), which is under construction at Redbank industrial estate near Ipswich in Brisbane.

As a centre of excellence, the MILVEHCOE, will be the focal point for the Land 400 combat  vehicles, Land 121 logistics vehicles, and other complex defence projects being delivered by Rheinmetall. It will also draw on a supply network across Australia to deliver products and services from local industry into Rheinmetall’s global supply chain, according to a company statement.

Rheinmetall has announced intentions to turn MILVEHCOE into a regional hub with an expected program of continuous design, build and support for up to 5000 military vehicles in Australia and the Asia Pacific.

The government’s decision to select Rheinmetall followed a three-year tender process and rigorous testing, which pitted the German company’s Boxer CRV model against AMV35 CRV, offered jointly by the British BAE System and Finland’s Patria.

With Rheinmetall selecting Redbank area as the site for its manufacturing complex and BAE’s decision to set base at Melbourne’s old Holden factory site in Fishermans Bend, both Queensland and Victoria governments had lobbied extensively to support the project, which according to an analysis by PwC, is expected to create more than 2,000 production and maintenance jobs over the vehicles’ 30-year lifespan.

Rheinmetall Defence Australia managing director, Gary Stewart said that selecting Queensland as the home for its MILVEHCOE – which will be their biggest presence outside of Germany – was a natural choice given the proximity to the largest Army presence in the nation, the existing heavy vehicle precinct, the skilled and ready workforce, and the ecosystem of high-tech defence companies already established there.

But while the MILVEHCOE is located in Queensland, the local supply chain is spread across Australia and the economic benefits are not limited to one state. PwC has estimated the economic impact of the Land 400 Phase 2 project to include a $5.1 billion growth in Gross Domestic Product (GDP) from investment in Australian industry during acquisition and sustainment over the 30-year lifespan of the vehicles. According to PwC’s analysis, as much as 69 per cent of the total program costs are being invested in the Australian industry.

The Land 400 is part of the largest peacetime upgrade to Australia’s armed forces in history, which includes expansion of naval, air force and army capability over the next 20 years to boost the size of the Australian defence force to more than 62,000.

The government’s Defence Export Strategy, launched in January this year, sets to turn Australia into one of the top 10 defence-exporting countries in the world by 2028.

The Government’s 10-year defence budget plan grows the defence budget from $32.4 billion in 2016-17 to $58.7 billion in 2025-26, providing an additional $29.9 billion to defence over this period than previously planned.

In January, Prime Minister Malcolm Turnbull announced to the press plans by the government to establish a $3.8 billion fund that will offer loans to local arms manufacturers in a push to rapidly grow Australia’s defence export industry.

The government’s defence export programs will maximise opportunities for competitive and innovative Australian businesses and create new export potentials. The involvement of Australian SMEs and defence manufacturers in the army’s acquisition programs such as Land 400, will place them at a desirable position to benefit from the export markets.

SMEs to win big

While Rheinmetall’s appointment as the supplier of the combat vehicles is significant in terms of high-level job opportunities in Queensland and elsewhere, the biggest winners are the local manufacturers and small and medium enterprises involved in the supply chain, as the deal harbingers a new era for introducing their capabilities to the global market.

More than 40 Australian suppliers are involved in the delivery of the Boxer CRVs, from supplying mechanical assemblies and armour steel to systems engineering and supplying sensors, weapon systems and fire protection systems.

“This is just the tip of the iceberg for the potential that exists for expanding our business and a stepping stone for the manufacturers who will be pushed to develop new products as other defence forces come forward with their upgradation programs,” Ron Mason, director of Redcat Industries, one of companies shortlisted by Rheinmetall, told Manufacturer’s Monthly.

The Queensland-based wheel safety products manufacturer is already supplying to Rheinmetall as part of the defence force’s Land 121 phase 3B project, for which Rheinmetall is delivering more than 2,500 trucks and their associated modules and shelters to the Australian army.

The benefits are not limited to the military manufacturing sector. As most of the supply
chain companies provide, or have the capacity to provide, dual-use goods, the recognition by global manufacturers such as Rheinmetall means more lucrative business deals in other manufacturing sectors.

“We are undergoing rapid expansions and broadening the scope of our business. We recently signed a deal with a Singapore- based public services bus company and we are offering our wheel safety products to the new Mercedes G-series,” said Mason, who believes the global recognition is due to a large part to collaborating in the military upgrade projects.

Since the beginning of the tender process in 2015, Rheinmetall’s executives started building their local footprint by sourcing and qualifying Australian defence manufacturers from all over the country. The process ultimately led to Rheinmetall involving more Australian companies in their Land 400 proposal than they originally expected, to deliver a range of products and services to support the manufacture of the Boxer CRV. This is while Rheinmetall was previously manufacturing the trucks for its Land 121 Phase 3B from its manufacturing facility in Vienna, Austria.

Brisbane-based G&O Kert is another company shortlisted by Rheinmetall. While the scope of the company’s involvement in the project remains to be fully revealed, G&O Kert’s managing director Ian Melville says it is certainly beneficial to get recognition form a global defence manufacturer such as Rheinmetall.

“We will probably need to adopt new quality systems to ensure that our products comply with the Germans’ stringent quality standards,” Melville told Manufacturers’ Monthly.

Apart from sourcing and qualifying companies to assist production in Australia, Rheinmetall also identified some companies that it could engage immediately  to start providing equipment and material into their production lines in Germany, highlighting the huge export potential that remains to be tapped.

This includes Cablex, a Melbourne-based manufacturer that was picked up last year by Rheinmetall to supply electrical wiring harnesses and electrical sub-assemblies for the German company’s Infantry Fighting Vehicle (IFV) Project in Lithuania. Early in 2018 the company also signed a second contract for supply of additional cabling for the same project.

Cablex will be contributing to production of lighting systems as well as harnesses and looms for Rheinmetall’s Boxer CRV, according to the PwC report.

Tectonica, a Melbourne-based defence and security systems integrator, was another successful collaborator whose Local Situational Awareness System (LSAS) technology has been adopted by Rheinmetall to integrate into their Boxer CRVs to improve protection for soldiers.

Tectonica’s managing director, David Levy told Manufacturers’ Monthly that their three-year long collaboration with Rheinmetall has been very positive and has led to opportunities for the company in Germany and UK.

The latest model of Tectonica’s LSAS technology has already been integrated into the autonomous Boxer vehicle in Germany—which is owned by the German Army—and will also be used in Rheinmetall’s deliveries to the Australian Army to assist the crews and operators with better tools to perceive their surroundings.

Opportunities for steel industry

The steel industry could be another big winner of the Rheinmetall’s new contract. Australian steel manufacturers Bisalloy and BlueScope are currently undergoing a certification and qualification process to meet the stringent performance standards of armoured steel required by Rheinmetall for the Boxer CRVs.

Once certified, Bisalloy and BlueScope will be the first companies in the southern hemisphere to be qualified to deliver this grade of steel. Currently, only two steel companies, both in the northern hemisphere, have qualified to deliver this steel.

Once approved, the certification  will open a whole new market for the Australian steel industry, enabling it to supply armoured steel to many countries for their military programs and compete on the global stage.

Bisalloy business manager Justin Suwart says that receiving the certification would bring opportunities to the company beyond just the Land 400 deal.

“Rheinmetall has a strong global footprint, with markets in Southeast Asia and Europe. Qualifying the high German standards of quality would enable us to reach markets that were not open to us before and the scope is very far-reaching,” he told Manufacturers’ Monthly.

Rheinmetall recently placed an order with Bisalloy for the procurement for approximately 15 tonnes of armoured steel. This material will be shipped to Germany for mechanical, blast and ballistic testing as part of the next step in the qualification process for use in the boxer CRVs and in global Rheinmetall programs through the company’s global supply chain.

Additionally, Rheinmetall’s proposed centre of excellence provides a great platform for research and development in area of military manufacturing. Marc Hodge, CEO of Defence Manufacturing Materials Centre (DMTC), told Manufacturers’ Monthly that he was expecting significant benefits to industry as a result of the initiative.

“We are keen to see the centre of excellence to start its work as soon as possible as it offers a unique opportunity for advancements in technical capabilities in the defence industry,” he said.

The first deliveries of the 211 vehicles will happen by 2020, with the first 25 vehicles being manufactured at Rheinmetall’s headquarters in Germany to enable transfer of technology to Australian engineers, as well as to offer enough time for it to build MILVEHCOE, which is expected to become operational in 2020.

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