This week’s unveiling of the expansionary blueprint for Australia’s future naval surface fleet brings with it a golden opportunity to revive defence cooperation between Australia and its occasionally ambivalent ally, New Zealand. Specifically, the announcement that Australia will acquire up to 11 general purpose frigates opens the door for New Zealand to join the acquisition process for its own Anzac frigate replacement.

When New Zealand defence minister, Judith Collins visited Melbourne recently to attend the inaugural ANZMIN joint ministerial conclave, she invoked the ‘Anzac model‘, in the context of seeking greater inter-operability between Australia and New Zealand’s defence capabilities. In recent times, the Anzac model is most associated with the Anzac frigate programme, which saw Australia and New Zealand acquire eight and two hulls, respectively, from a common German MEKO-design in the 1990s. The Anzacs have proved to be durable workhorses, on both sides of the Tasman, but they are now in the twilight of their operational lives. HMAS Anzac will shortly become the first ship in that class to be decommissioned.

Only last week, the possibility of New Zealand buying into a common hull design with Australia for the replacement to its two, aging Anzac frigates appeared remote. Australia’s Hunter frigate programme, frequently castigated in the media for being overweight, overdue and overbudget, but now backed in by the surface fleet review, remains well beyond Wellington’s more limited means and naval ambitions. Now, Canberra’s commitment to buy an off-the-shelf frigate, of a more modest design has changed the calculus overnight, bringing the Anzac model of a synchronised warship acquisition back into play, after a long recess.

For New Zealand, the economies of scale involved in a joint acquisition with Australia point to one inescapable advantage, lower unit costs. But Wellington would need to come in quickly to have any say over the decision. New Zealand’s next defence capability plan, the first under its new coalition government, will surface in June. That could provide a helpful forcing function for Christopher Luxon’s cabinet to reach internal agreement on whether to join forces with Australia. With contradictory signals on defence spending emerging from the new government so far, it helps to have an eye on the prize.

That prize is a gifted opportunity to recapitalise New Zealand’s surface force at an affordable price tag, with the potential for a modest expansion from 2 to 3 frigates, ensuring that the Royal New Zealand Navy (RNZN) has at least one surface combatant available at any one time—a minimal requirement given New Zealand’s scale of maritime responsibilities.

New frontline frigates, with far more combat capability than New Zealand’s current Anzacs, would bring further strategic dividends, giving New Zealand greater leverage—not only in the alliance relationship with Australia, but enabling a more regular and credible naval presence, from the Pacific to Southeast Asia, where Wellington remains a founding party to the Five Power Defence Arrangements. Three modern frigates, displacing between 3,500-5,000 tons and equipped with vertically launched air defence and anti-ship missiles, would give the RNZN a combat capability that is currently scant not just within the navy, but across all three services.

For Australia, a more capable New Zealand surface force would be an obvious plus, shoring up more aggregate Anzac heft, including in the increasingly contested expanses of Oceania and the neglected Southern Ocean. And while Wellington and Canberra’s threat perceptions do not always align, their interests do broadly coincide. The overlap is big enough to make an interchangeable capability an objective worth aiming for.

Joint crewing of Australia’s Anzac replacements with sailors from New Zealand could be a trickier proposition than joint acquisition and sustainment. But it’s also worth consideration with imagination. Both parties could gain out of an arrangement that enables New Zealand crew to obtain operational experience on Australia’s new frigates before their own enter into service, while potentially helping Australia’s navy to weather recruitment shortfalls as it undergoes a challenging expansion of both its surface and submarine fleets over the next 15 years.

The Enhanced Lethality Surface Combatant review has laid out plans for the Royal Australian Navy to grow larger, with more firepower in the coming decade to ensure that it can meet the challenges highlighted in the 2023 defence strategic review (DSR).

Navy’s surface combatant force will see the three existing Hobart class destroyers proceed with a previously planned upgrade to their Aegis combat system from Baseline 8 to Baseline 9, but this will occur sooner than planned. Of the nine planned Hunter class frigates, only six will be acquired, configured for anti-submarine warfare. This sees a reduction in the number of Tier 1 surface combatants from a planned 12, down to nine ships. However, the review also has suggested the acquisition of six large optionally crewed surface vessels (LOSVs), each with 32 vertical launch missile system (VLS) cells. These will be jointly developed with the United States to provide additional strike capability.

The LOSV sounds like a good investment. It gives the Navy 144 cells across the three Hobart class air warfare destroyers (AWDs), 192 across the six Hunter class future frigates, and a further 192 across six planned LOSVs), 528 cells in all. That compares to 432 in the original fleet plan of three AWDs and nine Hunter class frigates. It’s a step up in firepower across a larger fleet of Tier 1 vessels, yet it can be argued that investment in a capability like LOSVs, that sound like ‘arsenal ships’, should have seen a capability with a far greater number of VLS cells per LOSV. For a reminder of what a real arsenal ship could deliver, South Korea is developing its joint strike vessel that that could each carry 80 missiles of varying types, the US Navy’s Arleigh Burke class destroyers carry 96 cells, and China’s Renhai class cruiser with 112. So, the LOSVs, if configured as planned, seem like a missed opportunity to dramatically boost Navy’s firepower.

There’s also the reality that not every Tier 1 ship will be available for operational deployment at any time—given that three ships are required to keep one on station.
Turning to Tier 2, 11 general purpose frigates will replace the six remaining Anzac class frigates to be retired. Four platforms are under consideration, the German Thyssen-Krupp Marine Systems MEKO 200, Japan’s Mitsubishi Mogami 30FFM, Korea’s Daegu class FFX Batch II and the Spanish Navantia ALFA3000. The general purpose frigate will be optimised for supporting undersea warfare with towed array sonars and, in the wording of the review, ‘provide air defence through a limited number of point and self defence systems’ and provide maritime and land strike capabilities.

That suggests an expansion in fleet size through Tier 2, which is good, but the description so far of each ship suggests only a limited capability to undertake anti-ship missile defence (ASMD). Yet these vessels will be as vulnerable as any to long-range antiship missile capabilities which will only grow more potent in the coming decade. When operating as part of a multinational task force, they will need to rely more on larger ships’ ASMD suites for protection.

The review goes on to sensibly scale back acquisition of the Arafura class offshore patrol vessels (OPVs). But if they are not survivable, why acquire any, especially if funds saved could then support acquisition of a greater number of general-purpose frigates, or even autonomous systems. The review advises looking for other uses for the remaining six OPVs, but perhaps this money could be better spent building up actual combat capability.

In terms of timelines and money invested, there’s certainly additional funding, a good move by government, with an additional $1.7bn over the forward estimates, and $11.1bn over the next decade. The timelines on acquiring specific capabilities—the LOSVs and the Tier 2 vessels are not clear, but the review emphasises that a capability gap must be avoided as the Anzac class are progressively retired.

There are also the workforce and ship building implications, which are as important as the acquisition of naval vessels. There’s a clear commitment by government to sustaining shipbuilding in South Australia and Western Australia. The Hunter class frigates to be built at Osborne, South Australia, and eight of the 11 general purpose frigates and the six LOSVs at Henderson in Western Australia, are good news for the shipbuilding industry. No government could walk away from sustaining such an important industry and seeking to grow jobs within this sector. In that sense the review will succeed politically as jobs are created to sustain, maintain and support a larger navy.
The workforce challenge, and the retention of uniformed and civilian personnel to operate and support these new ships remains the big hurdle in making this review a reality.

At present one, and potentially additional Anzacs, cannot be deployed due to lack of crews. Investing in new naval surface combatants will be for nought if at the moment of crisis, ships cannot be deployed because we simply lack personnel to crew them. Maintaining adequate crewing of the ships, and an ability to sustain them at a high level of readiness is just as vital as getting the number and type of ships right and acquiring them within a reasonable timeframe.

The government’s call for an independent analysis of the surface fleet looks to have succeeded in providing a reasonably coherent and sensible path forward to a larger and more powerful Australian Navy. Whether it will be sufficient in the face of rapidly growing threat capabilities, and a deterioration in strategic circumstances, needs to be determined. There needs to be flexibility in how recommendations are implemented, and a readiness to ‘review the review’ in coming years. As with the DSR itself, the opportunities presented by a biennial national defence strategy mean that if strategic and operational demands suggest that even greater naval capability, that is fully funded, and which can be adequately maintained within an expanded shipbuilding sector, is needed, more ambitious objectives need to be considered.

Both Kevin Andrews, the Defence Minister, and David Feeney, Shadow Assistant Minister for Defence, were kind enough to respond to my criticisms of the Government’s naval shipbuilding program in a recent column, and especially its plans for the Future Frigate. In a striking display of bipartisanship, they both offer very much the same defence of the Government’s plans. Alas, I think they also make very much the same mistakes.

First, both gentlemen seem sure that building our own warships in Australia is strategically essential. Supposedly that’s because it’s much easier to operate and maintain locally built ships. But is this advantage real, and if so, is it big enough to balance the extra cost and risk of a local build?

Experience suggests not. For example, the Oberon submarines were built overseas, but we maintained and upgraded them effectively here in Australia. The Collins were built here and we have struggled to keep them at sea. And the cost and risk difference between local and overseas builds can be huge, as the AWD project shows. We could have bought Arleigh Burkes off the US production line for not much more than US$1 billion each, and we would have them at sea by now. The AWDs are coming in at US$3 billion each and counting, and delivery is still years away.

The Government’s enthusiasm for buying our new submarines overseas shows that they understand this perfectly well. But if there’s no overriding strategic imperative to build our own submarines, why must we build our own warships? Well, we all know the reason, and it has nothing to do with Australia’s defence.

Both Mr Andrews and Mr Feeney are relaxed about this because they say the ANZAC project shows we can build warships competitively here in Australia. But the acquisition strategy for the ANZACs was different from the one the Government has announced for SEA 5000.

The ANZAC project involved stringent competition, with an exhaustive, competitive Project Definition phase between teams of designers and builders leading to fully-detailed tenders for a fixed price contract to a prime contractor solely responsible for delivering the agreed product at the contract price.

Compare this with the AWDs, where the builder was selected before the design, the design was selected before it was fully developed, and responsibility for delivery was entrusted to a committee with no one clearly in charge, and almost all the risks falling on the Commonwealth. That’s why it’s gone pear-shaped.

And yet the plans outlined for SEA 5000 resemble the AWD project much more than the ANZACs. The Government will give the job to ASC, they will select the design from a perfunctory ‘Competitive Evaluation Process’ before it’s been fully developed and before the costs and risks are known, and they will end up with a project managed by a committee, and with the Commonwealth again wearing all the risk.

And don’t imagine that a ‘continuous build’ will solve all these problems. More likely it will compound them. So if we do want to build the future frigates in Australia, we shouldn’t build them the way the Government now intends to.

But the most important question is whether we need the Future Frigate at all. That depends on whether we should build our maritime forces to achieve sea control against highly capable adversaries. Both Mr Andrews and Mr Feeney think we should.

There are two reasons why they are wrong. First, we can’t do it. As Andrew Davies and Mark Thomson explained with startling clarity, defending ships is hard and getting harder as they become easier to find and to hit. This reflects technological trends that began in the late 19th century and are much more likely to accelerate than abate.

This doesn’t mean warships can’t be defended, but it does mean that the costs of trying and the chances of failing both rise to the point that it’s not worth the effort. No matter how much we spend on warships, Australia won’t be able to achieve strategically significant degrees of sea control against any of the highly capable maritime forces now evolving in Asia. So it’s a waste of money to try.

That’s the bad news. The good news is that with careful investment we can turn these tables and deny sea control even to very capable adversaries. All the factors that make our ships so hard to defend make it relatively easy for us to attack an adversary’s.

The second reason we’d be wrong to set our sights on sea control against capable adversaries is that we don’t need it. With effective sea denial we can defend our own territory, help prevent the intrusion of hostile forces into our neighbourhood, and support our allies in the wider Asian region. We couldn’t project land power by sea—but our land forces will always be too small to achieve any serious strategic effects against any major power anyway. So that’s no loss.

Some say we need sea control to protect our trade. But against whom? Not our principle customers, surely? Interdependence and mutual vulnerability mean that the kind of ‘trade wars’ which have framed naval thinking for centuries disappeared long ago. No major power has tried to interdict another’s maritime trade for 200 years, except in the two world wars.

And how could we defend our trade anyway? A dozen frigates couldn’t defend even a fraction of our massive trade flows. A far better way to prevent attacks on our trade would be to threaten retaliation against the trade of our adversary—for which we need sea denial forces, rather than sea control.

Of course warships remain invaluable for operations in uncontested waters, so we need a good-sized fleet of modestly-sized and equipped ships just like the old ANZACs. Let’s build more of those, and build them the way the ANZACs were built. And spend the money we save on more submarines. And if we get the acquisition strategy right, we might even be able to build them competitively in Australia.

Despite press and broadcast reporting that largely focused on the omission of submarines, the RAND report on naval shipbuilding in Australia is a valuable contribution to the discussion of this important public policy issue. No doubt it would’ve been better if the analysis had included submarines as an addition to the baseline surface shipbuilding it examines, but it still answers some important questions.

Perhaps most importantly, it provides a solid estimate of the premium the Australian taxpayer currently pays for local construction, and what the ‘best case’ figure might be in the future. The headline answer for the current premium is 30–40% for ships built entirely in Australia, and less for ships only partly built here. The former figure isn’t surprising, and agrees with estimates I’ve made in the past.

Allan Behm complained on The Strategist last week that there’s too much focus on the economic aspects of shipbuilding, and not enough on the strategic benefits. I’m not sure I share that view, for two reasons. First, and as my writings over several years show, I’m not at all persuaded by arguments about the strategic value of a shipbuilding industry based on its capacity to repair, maintain and upgrade vessels built here. It seems to me that you could substitute ‘ship’ for ‘aircraft’ in the argument and the case would be the same—except for the fact that Australia’s indigenous military aircraft industry disappeared years ago.

Second, each defence dollar can only be spent once, so there’s necessarily an opportunity cost if we decide to spend more on naval shipbuilding. Instead, the correct approach is to look at all of the costs (including those opportunity costs) and benefits (economic and strategic) that accrue, and then make a judgement about the net value of the industry.

To make well-informed and balanced judgements, it’s important not to under- or overstate costs and benefits. The direct and indirect economic benefits of naval shipbuilding (PDF) are often cited as a reason to maintain the industry. But RAND looked at the economic benefits of shipbuilding, and found them to be ‘localized to a large degree’ (which, I’d add, is why state governments value them) and notes that it’s ‘unrealistic to expect that shipbuilders will produce significant favourable spin-offs and spillovers’. At best there’s conditional support from RAND for the economic considerations for local shipbuilding:

‘[t]he economic benefits of a domestic naval shipbuilding industry are unclear and depend on broader economic conditions.’

Given that the best case result will still see us pay a premium for local construction, the benefits will probably have to be found elsewhere. So I can’t agree with most of Allan Behm’s judgements. Where I think there might be some value in keeping a naval shipbuilding industry is in maintaining some diversity in the economy, and in providing a modestly-sized ‘wildlife refuge’ for skilled labour in times of economic downturn.

To see how that might work, let’s start with the RAND comment above. The reason that the net economic value of shipbuilding depends on the broader economy is simply that there are times when skilled labourers, production engineers and project managers are more productively employed elsewhere. The Air Warfare Destroyer project was born into such an environment—with the minerals boom in full swing (and the price of iron ore heading upwards towards a peak of well over US$150 per tonne), the impact of diverting a large number of people with skills applicable to the resource sector was amplified.

But that was then and this is now, with an iron ore price under US$50 per tonne and trending lower. With a commensurate slowdown in investment in further mineral prospecting and exploitation, the opportunity cost is lower. Indeed, there might be some long-term benefit in having a pool of skilled people employed at a time when the resources sector is shedding jobs.

As I’ve probably just amply demonstrated, I’m not an economist. The business case would need to be examined carefully and objectively. I’m not sure how you value sectoral diversity, but my suspicion is that it wouldn’t be a big selling point—Australia’s economic comparative advantages are in areas well-removed from heavy engineering. That’s not a bad thing. Although we rank below 50th in economic complexity index, we rank highly on GDP per capita, which means we’re doing something right.

But it’s obvious that the case for a naval shipbuilding industry would be stronger if (a) the premium could be minimised and (b) it didn’t detract too much from the high value-adding part of the economy. RAND provides a plan that could achieve those outcomes. Depending on how it was implemented, the recommended ‘steady build’ approach might produce a workforce of around 1,500 people, compared to the peak workforce of 2,500 a few years ago. And the premium could be managed downwards, but only by ‘radical changes [to acquisition practices]… focusing on cost-effectiveness’.

I’d say that they’re necessary conditions for improving the business case for local naval shipbuilding. A more detailed analysis is required to see if they’re sufficient. But at least we now know a lot more.

As ASPI’s Future Surface Fleet conference draws closer, we take a look at the three design options, some of the international design contenders and the debate around the build location for Australia’s future frigate under project SEA 5000. Defence is planning to seek first pass approval to conduct a tender process around 2019–2020. With the eight Anzac-class frigates scheduled for decommissioning in the mid-2020s, debates about the future frigate’s design and build location are rife.

It’s likely that the future frigates will be larger than the Anzacs, and will be designed ‘with a strong emphasis on submarine detection and response operations’. As ASW platforms they’ll be equipped with an integrated sonar suite with long-range active towed-array sonar, a maritime-based land-attack cruise missile capability, and be capable of embarking both naval combat helicopters and maritime UAVs.

But what of the design options? In its Keeping Major Naval Ship Acquisitions on Course study, RAND has determined that there are three routes the Government could take to replace the Anzac-class frigates. Read more