PARIS --- As part of the annual budgeting process, the Australian Senate’s Foreign Affairs, Defence and Trade Legislation Committee held hearings on the defense budget request on June 2.
During this hearing, a senator from the opposition Australian Greens party, Scott Ludlam, questioned senior Australian Department of Defense officials about the government’s April 23 announcement that it will buy an additional 52 F-35A fighters at a cost of A$12.9 billion.
The officials’ answers – reproduced below - clearly demonstrated that several of the government’s statements on the F-35 were inaccurate, if not deliberately misleading, and that Australia had committed to the largest defense purchase in its history unconditionally, in the unquestioning belief that the F-35 would be superior to any opposing fighter for the duration of its 40-year service life.
The defense officials appearing at the hearing included:
-- Senator Johnston, Minister for Defence
-- General David Hurley AC, DSC, Chief of the Defence Force
-- Air Marshal Geoff Brown AO, Chief of Air Force
-- Mr Warren King; Chief Executive Officer, Defence Materiel Organisation
-- Air Vice-Marshal Chris Deeble, General Manager Land and Maritime (Acting) and program manager for the JSF program.
As is made clear by the transcript and the related video, these officials did not give a good account of themselves, and left unanswered the most critical question regarding the F-35 program, its capabilities and the reasons for Australia’s commitment to the aircraft.
Some of these exchanges, notably with Air Marshal Brown and DMO chief executive Warren king, are remarkable because of the arrogance and impatience displayed by these officials in responding to legitimate questions by an elected lawmaker during a formal parliamentary hearing.
(Video by Australian Greens party)
Senator LUDLAM: Mr King, regarding the various numbers of aircraft—the two, the 12, the 58 and the speculative 24—that take the Joint Strike Fighter capability of Australia up to 100 aircraft, I want to know how we get out of those contracts if the aircraft continues to be unairworthy? At what point can we cut and run, or can't we?
Mr King : I do not agree with the statement 'unairworthy'. The way we place the contracts is on an annual buy. We foreshadow in advance the number of aircraft we want to buy in a particular year. As we progress towards that year we firm up the price for that year and then we place an order for that year's buy.
Senator LUDLAM: So we do not know how much they are going to cost from year to year?
Mr King : A lot of the commentary you are talking about—
Senator LUDLAM: You do not yet know what I have read. I have not mentioned any commentary.
Mr King : Sorry, that was an earlier question from another senator. It is about the cost of the aircraft, but the costs are now tracking as predicted. In fact, the most recent cost for the aircraft has been slightly under what has been estimated both by the project and by the independent cost agency of the US.
Senator LUDLAM: Let's just work through them. Regarding the two aircraft that were committed to by, I think, Minister Faulkner, we have effectively purchased those—we have paid for those. Is that correct?
Mr King : I am not sure if we have paid for them, but we have certainly ordered them and they will be delivered soon.
Senator LUDLAM: They are committed. What do you define as 'soon' with a project like this? When do we take delivery?
Mr King : July, I think it is for the first aircraft.
Senator LUDLAM: Next month. Will they be in Australia at that point, or will Australian pilots be training in the US?
Mr King : They remain in the US and they are used in a pool in the US. It is our contribution to a pool.
Senator LUDLAM: But from July they are legally Australia's aircraft?
Mr King : They are.
Senator LUDLAM: Tell me about the next 12. How does that work?
Mr King : I will pass to Air Vice Marshal Deeble to go over the detail.
Air Vice Marshal Deeble : I am the program manager for the JSF program. The next purchase is in low-rate initial production 10. We will make the commitment to that in the 2016 time frame, and they will be delivered in 2018. We will commit to LRIP 11 the following year, and they will be delivered in 2019. That will be another eight aircraft. From LRIP 11 we move into full-rate production, and we will be committing to full-rate production 1, 2 and 3 in the subsequent years, and will deliver 15 aircraft at full-rate production. Full-rate production 4 will deliver the last nine aircraft, to give us 72 aircraft, and those aircraft will be delivered in 2023.
Senator LUDLAM: Given the rather troubled production and design history of this procurement, starting with the next 10, beyond the two we will take delivery of in July, what if by 2016 they are not ready?
Mr King : I will start the answer. The description 'they are not ready' is unlikely, because of the milestones that have been established for the program—you might recall it was re-benchmarked about three or four years ago. The project is hitting all of those milestones. It is still developmental in only a number of small areas—they are important but small. So to be not ready would have to require a major setback. But the government's decision is that provided the cost and capability and Australian industry commitments are met, then we will place the orders. If prior to that something went dramatically wrong we obviously would not place an order. Provided it is making all its benchmarked progress, we will.
Senator LUDLAM: Do we have the legal ability to avoid purchasing those aircraft if they are too expensive, not airworthy, too slow—
Mr King : We are not legally obligated until we actually place the order.
Senator LUDLAM: Thank you. That is helpful. Despite the April announcement of Senator Johnston and the Prime Minister, we are still actually only legally committed to the two aircraft that we were committed to in 2009. Is that correct?
Mr King : In terms of signing a contract. Obviously the government has made a commitment to progress the project, to buy the aircraft. And only in the event that something is seriously amiss, we will progress the project.
Senator LUDLAM: These aircraft were originally scheduled for delivery in 2010. So I guess I am bringing to you the proposition that something is seriously amiss, or they would have been here four years ago.
Mr King : You can always say that. I know it frustrates a lot of people, but most defence projects are highly developmental. You just cannot buy them off the shelf without risk. America and other partner nations have put a lot of money into developing the fifth-generation leading aircraft of the world. It did run into a lot of difficulties. They were very public. They are audited in America. But since the re-baselining of the program cost targets, capability targets and delivery targets have all been met.
Senator LUDLAM: Let's come to the announcement—and I might have to put this to you, Senator Johnston, because I genuinely do not understand it. You have said that the new jet fighters do not involve any new spending. You have assured us that the money is already there—this is going back to your press conference of last April. It is money that successive governments have carefully put aside to ensure our nation's defences are strong. Senator Johnston, can you point out for us where in the budget papers this $24 billion has been set aside—in what fund, pool or appropriation?
Senator Johnston: Mr Prior will take you through it.
Senator LUDLAM: As you wish.
Mr Prior : If you were to turn to page—this will not be a satisfactory answer.
Senator LUDLAM: It is really nice to have that foreshadowed, because it so rarely is!
Mr Prior : Not from my doing, but because of the rules of the PBSs. On page 62 of the portfolio budget statement is the Capability Development Group's expenses statement, which includes a depreciation charge, which, in PBS language, is an approximation of capital flows for an agency. The funds set aside for the JSF and other capital items across the future are contained in the budget component for the Capability Development Group. So there are funds set aside in the Capability Development Group for future acquisitions.
Senator LUDLAM: For how many years?
Mr Prior : The PBS—and this is the unsatisfactory part, you might say—is currently a four-year statement. Clearly we have budget plans that go well beyond four years. In fact they go to 10 years. So these statements do not contain budget calculations beyond the four years that are required to be put in this document.
Senator LUDLAM: Referring to the full figure of $24 billion for the purchase, operation and maintenance of the aircraft, when the Prime Minister said that this money has been carefully put aside, he was not referring to the $24 billion at all. The sum in the PBS, from memory, is three and a bit.
Mr Prior : No, in our budgets in Defence we do set aside funds for future capability acquisitions.
Senator LUDLAM: But that money does not exist. It could be changed by a future policy decision of government. There is no actual pool of money sitting there.
Mr Prior : As with all budgeting for all Commonwealth agencies, appropriations are only for the year in which the budget occurs.
Senator LUDLAM: I am aware of that.
Mr Prior : So, if you are saying, 'Has the parliament appropriated money for future years—'
Senator LUDLAM: That is, set aside.
Mr Prior : Clearly they have not. There is no legal appropriation for those funds in the future. Has a budget estimate been made for those future expenditures? Yes, there has been.
Senator LUDLAM: But anything in the out-years is completely imaginary? It could be changed by a policy decision of a future government? There is no big pool of capital sitting there to take us all the way through that acquisition? I know I am labouring the point, but I actually found that press conference entirely deceptive. It is not like we have a fund set aside to buy these planes, which is exactly the intention the Prime Minister was proposing to convey, I suspect.
Mr Prior : I am not trying to labour the point unnecessarily, but a budget, as you know, is a future expectation of expenditure.
Senator LUDLAM: It is different to carefully putting something aside. My understanding of carefully putting it aside is that it exists, not that there is a decision for future governments to continue with.
Senator Johnston: We do not carefully put it aside, because the money would just sit there doing nothing. We actually budget, so that when the money is appropriated it is committed pursuant to what the budget says.
Senator LUDLAM: We are just going to have to agree to disagree.
Senator Johnston: I think we are.
Senator LUDLAM: I am not sure if this one needs to go back to Mr King. Is there a particular heads of agreement or a written document that we have signed either with the US government or with Lockheed Martin. What are the actual clauses, what are the conditions, that we have signed up to?
Mr King : I suppose there are two in effect—I will get the terminology correct. One is that we participate in the program. That was a decision made quite some time ago. That is with the US government and other partner nations. The second one we have signed is with Lockheed Martin, relating to Australian industry opportunities.
Senator LUDLAM: Did the Prime Minister's and Senator Johnston's press conference of April bring with it any new document, any heads of agreement, any MOU or anything at all with either the US government or the defence contractor.
Air Vice Marshal Deeble : It did not need to.
Mr King : I am not sure what you mean by the question.
Senator LUDLAM: Is there anywhere written down the conditions upon which we have signed up for the most expensive defence acquisition in the history of the Commonwealth?
Gen. Hurley : Going back to the point that was made before, the government has made a decision that it will build the air force based on 72 JSFs. We have not entered into contract for that, so the only arrangements we have standing at the moment were when we entered into the JSF program in the early days, and the arrangements, as Mr King has mentioned, with Lockheed Martin. The announcement was not saying, 'And tomorrow we start negotiations for a contract for 58 aircraft.' It was 'It is the government's intention to build an air force based upon 72 JSFs, which we will procure in the manner as described over time and will enter contracts as appropriate when each of those annual purchases are decided upon.'
Mr King : It is not unusual for nearly all of our defence projects. Essentially we go back to second-pass with the government with a business case about the costs, the risks and the capability that is to be acquired. The government then approves that and then the DMO enters into contract negotiations with the supplier. Otherwise you would have a supplier before you have an approval. So there is nothing unusual about that approach.
Senator LUDLAM: I am just trying to get my head around not its unusualness but what is actually going on. What stage of the process are you at now? Second-pass has obviously been through cabinet—
Mr King : That is right—for these additional purchases. We have already had second pass for the original 14. Just using that as an example, we had approval for the first 14 and we have not gone to contract for all of those aircraft yet, because our buy profile is not to be procured until the year after next. So we have those approvals in advance of entering into the contracts.
Senator LUDLAM: I guess you will appreciate why I am labouring this point, in terms of sunk cost and what is actually committed and spent on this project, it is actually only those two aircraft?
Mr King : Plus some other expenditure.
Senator LUDLAM: Some on-costs?
Mr King : Planning and so on. And for being a member of the development phase.
Senator LUDLAM: Where can I find some written criteria on which the government would decide either to delay or abandon the purchase of the aircraft, either in terms of delays in provision of the aircraft, cost or capability?
Senator CONROY: I cannot find the criteria on which we purchased them.
Senator LUDLAM: You were in government. That is a whole separate problem. (end of excerpt)
Click here for the full transcript of the hearing in HTML format (scroll down 9/10th of page, to reach “Senator Ludlam”) on the Australian Parliament website.
Click here for the hearing transcript in PDF format (131 pages; scroll down to the bottom of page 106), also on the Australian Parliament website.
-- June 4 p.m.:
* The wrong link to the html transcript of the hearing was corrected.
* The second part of the excerpt (originally a repetition of the first part) was replaced with the correct text.