OPINION: Industry needs to prepare to grow with Defence needs

The Federal Government has announced a review of defence industry policy, and is also close to making an announcement on its selection of Australia’s future nuclear powered submarines. At the same time relations with China are in the news. Here ADROITA CEO Sarah Pavillard looks at the opportunities opening up for defence industry.

Major announcements will come thick and fast this year that will have profound impact on Australian defence industry, and on opportunities ahead for defence sector SMEs.

The background to this is, of course, relations with our regional superpower China who has recently flown a suspected spy balloon across the United States.

To be announced by March are Australia’s arrangements for acquiring nuclear-powered submarine capability under a truly tripartite agreement with the United Kingdom and the United States, with a potential loan/lease arrangement of life-extended LA-class submarines to commence knowledge transfer and skill up Australian sailors.

It is a hugely exciting time to be an engineer and to be working in the naval sector in Australia—developing naval nuclear capability in Australia is an extraordinary technical challenge and national endeavour that will transform sectors far beyond defence.

I anticipate it will lead to a renewed conversation in Australia about the pros and cons of nuclear power as a fossil fuel alternative.

Then there is news that Defence Industry Minister Pat Conroy has launched an internal Defence review into defence industry policy.

This review should not be feared by Australian industry. Yes, there are urgent needs and investments, but the review needs to be consultative across a wide sector of industry—not just manufacturers—and it needs to be transparent and honest with both the Australian defence industry and the Australian public.

These developments underline trends that we in the defence sector, and emerging defence sector businesses, need to be aware of.

WE ARE GOING NUCLEAR

In case there was any doubt, the nuclear-powered submarine program will be long-term, risky, and eye-wateringly expensive. And we have little to no capability to support the transition in Australia at this time; yet it is strategically necessary and is going to happen.

International SME-to-SME partnerships that can contribute to the nuclear-powered submarine program will be a game changing opportunity to increase Australia’s sovereign nuclear capability over time. Think micro-AUKUS arrangements for mid-market businesses.

A RISING TIDE LIFTS ALL BOATS

The outcome of the Defence Strategic Review that is also underway will be in the public domain soon.

Some programs will see budget cuts or even cancellation to pay for nuclear-powered submarines and urgently required capabilities

Some programs will accelerate and others will await the budget and programming Tetris that will no doubt fall out of the review.

I anticipate that the percentage of Gross Domestic Product allocated to Defence will rise, but government will be pragmatic and allocate dollars to where the capability can be acquired quickly.

Let’s hope the industry review does not add further delays. In any case, there will be an increase in demand for Australian businesses to contribute to the defence sector—although the type of work might look different going forward. Businesses that have positioned in the micro-AUKUS concept stand to benefit if Government decision-making from the Defence Strategic Review tilts towards prioritising ‘speed of acquisition’ through AUKUS-led Military Off The Shelf procurements.

Businesses need to find a way to work with the tsunami of change that is coming our way, rather than fighting against it.

DEFROST OR DEEP FREEZE

The Blinken visit to China was an important step forward in defrosting US-China relations—does the cancellation following the flying of a Chinese spy balloon suggest that the relationship will now ice over instead?

And if so, what does this mean for our region, and are we approaching a tipping point?

ACCELERATING CAPABILITY (not just talking about it)

Given the challenges in the Indo-Pacific, there is a need for urgent acquisition of a range of capabilities—undersea surveillance, hypersonic systems, long range strike weapons, and perhaps other new naval capability that simply can’t wait until Hunter Class Frigates or nuclear-powered submarines are delivered.

Accelerating capability is another way to put it. And not just in Defence, if Home Affairs Minister Clare O’Neil’s agenda on resilience that was announced at a speech to the National Press Club of Australia late last year, ramps up.

I expect that in order to rapidly acquire new capabilities, the way we acquire and sustain systems will need to undergo significant transformation.

Any options to do more, faster, will be on the table. Businesses that can rapidly adapt, but are already prepared to do business with Defence, will benefit.

In summary, Defence is going to have a difficult time balancing the longer-term, nation building agenda for nuclear-powered submarines and other exquisite capabilities with what is needed faster, today.

And spending the dollars quickly enough will be a challenge. The review into Defence industry policy should be seen as an opportunity, not a risk.

But make no mistake—over the next 12 months, Australian SMEs that adapt, that are open to partnering or work sharing, and are willing to move quickly will see very significant benefit; whether they are contributing to long-term programmes or short-term capability acceleration.

If they don’t, they risk withering on the vine.

ENDS

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