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Consolidation of Australia's Naval Shipbuilding Industry |
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(Source : Tenix Defence ; issued Aug. 8, 2001)
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 Speech by Robert Salteri, CEO of Tenix Defence Pty Ltd, at the
Australian Industry Defence Network (Victoria) Industry Briefing Breakfast
Hilton on the Park, Melbourne, Wednesday 8 August
Mr Chairman, distinguished guests, ladies and gentlemen.
Eight months ago, the Group Managing Director of Tenix, Paul Salteri, addressed the AIDN Victorian Branch and reported that AIDN’s National President, Terry Kelly, had accepted a position on the National Executive of the Australian Industry Group’s Defence Council.
May I begin today by congratulating Terry on his appointment to the Defence Industry Advisory Council, representing AIDN.
These appointments demonstrate the high reputation AIDN has won amongst defence industry, the Defence Department and the Government.
Tenix is a member of AIDN and a strong supporter of the organisation and its aims, and it is a privilege to speak today.
As most of you would know, there have been a couple of changes at Tenix in the last couple of months. Most recently, on the first of August, we simplified the name of the defence side of the Group to Tenix Defence. We also aligned the structure of Tenix Defence with the structure of the Defence Materiel Organisation, establishing four divisions: Aerospace, Electronic Systems, Land and Marine.
The ANZAC Ship Project is also part of Tenix Defence, but is run as a separate project.
A little earlier, in July, I was appointed Chief Executive Officer of Tenix Defence, and I was delighted that one of my first tasks was to sign the ANZAC Alliance Agreement with Defence and SAAB. This is a milestone event in the way Defence and Industry conduct business.
I am very glad to say that the previous Acting CEO of Tenix Defence, Harley Tacey, remains with the company as Executive General Manager, Strategy and Development. Equally, I am glad to say that changes to our name and structure have not changed our determination to be the defence and technology leader in our region. They underline our commitment to our customers, our employees and the industry as a whole.
Tenix is determined to work with Australian small to medium enterprises to maintain our leadership. The new structure for Tenix Defence will enable us to better pursue the range of opportunities across all Defence sectors.
It will give full scope to the increased systems engineering skills we obtained with the purchase of Vision Abell and the LADS Corporation, and provide a new focus for our skills in the marine, land and aerospace sectors.
The ADF is our primary focus, but we are also maintaining our export commitment with the completion recently of contracts with the US (in simulation and hydrography), Belgium (light armoured vehicles) and the Philippines (search and rescue vessels).
We are very proud to be part of Australia’s defence industry, and we see exciting times ahead. Not only has the Government released a Defence Capability Plan detailing a 10-year, $47b procurement program, but the Minister for Defence, Mr Reith, has also set down the basis for a new strategic approach to defence industry in Australia.
Mr Reith’s message on this issue to Defence+Industry 2001 was strong and clear, and the ideas he expressed broke very valuable new ground with regard to:
--Defence as a monopoly buyer.
--The need to establish a strategic priority for defence industry.
--The Minister’s requirement to see separate defence projects linked together to form a sustainable defence industry in key sectors.
It is now up to the Department and defence industry to turn those ideas into action.
One of the Minister’s messages and the one I have been asked to speak about today concerns rationalisation of Australia’s naval shipbuilding industry. In Mr Reith’s words, and I quote:
… in America, there are now only two manufacturers of surface combatants, one manufacturer of submarines, and only two manufacturers of combat aircraft.
"In the United Kingdom, for all practical purposes, there is only one of each.
"As I have already foreshadowed, the Government’s sale of the Australian Submarine Corporation will create an opportunity for industry to rationalise naval shipbuilding in Australia."
Today’s Australian naval shipbuilding industry is the product of far-sighted Government decisions in the 1980s. Contracts for submarines, frigates and minehunters were awarded to Australian companies, enabling them to successfully transfer technology, build skills and capabilities, and employ thousands of people.
The economic benefits of those decisions are detailed in the report on the Impact of Major Defence Projects, released by the Australian Industry Group last year.
Using the ANZAC Ship Project as an example, the report demonstrated that by building these frigates here instead of overseas, Australia generated:
--At least $200 million in additional, annual gross domestic product ($3 billion over the 15-year construction period);
--At least $147 million in additional annual consumption;
--Almost 8,000 full-time jobs each year of the project; and
--Savings of more than $500 million in through-life support.
The report also found that there were additional benefits from building in Australia. The ANZAC Ship Project is achieving Australian and New Zealand industry involvement of 81 per cent, involving more than 1,300 Australian and New Zealand companies.
By participating in the project, these companies have:
--Become more innovative, through their own R&D and access to overseas technology;
--Improved their business practices, leading to a culture of continuous improvement;
--Increased their export opportunities; and
--Acquired new defence capabilities, giving them a greater role in national security.
The contracts which created this major national industry are, however, either completed or in their final stages. This leaves significant capability around Australia, including shipyards in Newcastle, Melbourne and Adelaide, not to mention systems houses and the SMEs which support all these programs, clearly without enough naval work to sustain them all.
It is not a question now of whether rationalisation should occur it is inevitable.
The question is, how can rationalisation be achieved in a way which strategically advances the nation’s defence industry base?
That outcome involves a number of factors.
The emerging consensus appears to be that successful consolidation of the naval shipbuilding industry needs to result in an Australian-managed and Australian-controlled defence contracting business. That business must, among other things, be technically and commercially capable of building, maintaining, repairing and upgrading surface and sub-surface vessels to the requirements of the RAN.
It must:
--Be more than a shipbuilder, by providing satisfactory through life support for the vessels it builds.
--Have the independence and technical skills to be able to work with any overseas technology partners that meet the various requirements of the Defence Department and RAN, in terms of the vessel itself, its systems and armaments.
--Be willing and able to form a successful and ongoing alliance relationship with the Department of Defence, to meet the expectations of its customer, suppliers and shareholders.
--Have a majority Australian shareholding with an appropriate company structure.
--Rationalise Australia's shipbuilding facilities and ensure that the current Australian-developed engineering skill base is consolidated and enhanced, to meet the challenges of world-class developments.
--Have access to a sustainable and consistent workload, to be viable and to provide the career opportunities needed to attract, retain and train the highly skilled personnel required for the future of the industry.
The new contracting paradigm sketched by the Minister at Defence Industry 2001 involves reduced competition at the prime contractor level (Tier 1) with open competition at Tier 2, to ensure access for SMEs and enhance accountability.
The Minister noted that this would require new “rules of engagement†for industry and government.
He also forecast that there would be more alliance contracting, based on an “open book†approach, with benchmarks and properly structured incentives for customer and contractor.
The new defence contracting business, therefore, will need to be accountable for its performance, operate transparently, meet high probity standards and be seen as a good corporate citizen, able to withstand public scrutiny.
As AIDN members will understand, all this is going to be a major undertaking.
In the last 20 years, Australia has built a high technology naval shipbuilding industry, and created a strong and successful platform for technological and skills development.
Successful rationalisation and consolidation of the industry will ensure we retain its project management capabilities, and its design, systems engineering, systems integration and production skills an important part of the national skills base.
Vitally for AIDN and SMEs generally, it will ensure Australia retains the Tier 1 capability to nurture, develop and support SMEs.
Tenix is closely examining a range of potential options for achieving rationalisation.
We believe it is essential, and we need to ensure our interests, and those of the people and companies who depend on us, are respected.
The Government will crystallise rationalisation strategy when it decides how it will structure the sale of the Australian Submarine Corporation.
It is important that the Government hears the views not only of the Tier 1 contractors, but also of the SMEs, which underpin our defence technology base.
The appointment of an AIDN representative to DIAC is very important in achieving this, and I urge your organisation to take full advantage of this opportunity.
There are other avenues as well.
As well as direct contact with the Minister for Defence and his Department, let other Ministers and Departments, with responsibilities in the industry, technology and science and related areas, know what you think.
And don’t forget to keep your local Federal Member informed of the part your company plays in the national economy, and your views on the development of defence industry.
Thank you again for this opportunity to address you. I look forward to working closely with you in the coming years as our industry continues to grow and develop.
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