From The Source: Andrew Fletcher Chief Executive Officer of Defence SA

With the vast amount of naval work on the horizon, from both acquisition and sustainment sides of the house, ADM Editor Katherine Ziesing spoke to DefenceSA CEO Andrew Fletcher on some of the issues facing the industry as a whole and what the Defence State and local industry is doing to prepare.

ADM: Navy is looking to replace the majority of its surface fleet over the coming decade. What role do you see state governments in supporting this evolution?

Fletcher: From a SA government perspective and the DefenceSA Advisory Board put out a paper on this issue last year (the paper, Naval Shipbuilding - Australia’s $250 billion Nation Building Opportunity, is available for download from the DefenceSA website). But is a quarter of a trillion dollar opportunity and it’s got to be considered as nation building when you consider things like the Snowy Mountains Scheme which in present day dollars is about $8 billion and we’re talking about $200-$250 billion here over 30 years.
So it’s a fantastic opportunity for the nation and it’s an opportunity I think that states have to understand and get involved with from the word go for the success of the program. Certainly in SA that’s our intent; it’s far too big for any one state to handle, therefore it will require several states to support the program.

If it’s properly managed, the rewards to the naval shipbuilding program will be far-reaching. In my view, you could not only build a strategic national enduring naval ship building capability but in the process, significantly boost the Australian economy in that skills base for other related industries.
It’s ambitious but I believe it’s achievable, provided we have the leadership and policy direction to achieve a whole of nation solution I think is the key issue.

In the paper I referred to earlier, we’ve looked at this in some detail and looked at the challenges and how these challenges might be overcome. The key role for state governments is in three areas.
Firstly, understanding the opportunity, the enormity of the opportunity and the potential of the opportunity. Secondly, states can contribute significantly in developing and delivering skilled workers to a wider effort; I think that’s probably the most fundamental role. And the third part is where it makes sense to supply supporting infrastructure at a state level that can be used in the federal interest as we have done at the Common User Facility at Techport.
Otherwise the main player in the defence game of course is the monopsony customer – Defence – and the other key players are in the Defence industry, at every level from small to medium enterprises through to large primes, that supply these services and capabilities to Defence. State governments are really facilitators between these players and can act as agents of support.

ADM: Given the contracting models for both the Air Warfare Destroyer (AWD) and Land Helicopter Dock (LHD), how do you see the Future Frigate and Offshore Combatant Vessel programs coming together over the next few years?

Fletcher:  Well this is indeed the core of this golden 30-year opportunity I just outlined. The key for it is that we ensure that as a nation meet the need to support the market whereby there’s a continuous flow of work where possible. We need to ensure that the skills base in Australia, and even suppliers from offshore, get a continuous stream of work to ensure that they maintain those skills bases, and indeed upgrade them and upskill them, as technology advances and progresses.

And also that whilst we do that we are creating and ensuring that there’s a throughlife support component which is extremely critical to the overall success of the programs, because throughlife support currently sits at three or four times the cost of the initial procurement.
And if there is a direct correlation between those that build a platform (or assemble a platform at least), and put a lot of the technology into a platform and those who maintain it; clearly if you do the building you’ve got the extra people and skills base to maintain.
I think we can handle it as a nation. There will always be room for international cooperation of course on specialist areas but going back to the quarter of a trillion dollar opportunity, this is a wonderful opportunity to provide a continuous work and skills development and industry base for the nation for the next 30-odd years.

ADM: In terms of the Future Submarine program, the White Paper has outlined the fact that it will be assembled in SA, but how do you see the project affecting the SA Defence Industry and also the wider Defence industry in terms of skills and capabilities?

Fletcher:  At the moment in SA we’ve got the commitment to the AWD consolidation and some of the module build, with contributions from other states and contributions from national and international firms in regard to systems and smarts on the vessels. We’ve got the throughlife support program for the current submarine fleet. So there’s two things already in place that Australian industry as a whole can point to, and SA as a consolidator, proving that we can deliver the goods.

I don’t see the Future Submarine program as a challenge for SA anymore than it is for the nation as a whole. All we need to do here is build submarines here on an ongoing basis for the next 30 years, and maybe beyond. There’s a great opportunity to increase or maintain a skills based build-up and maintain a skills base across the platform or across the systems, such as weaponry, sensors etc, and enhance that as each class of submarines improves over the period. We’re not talking about sitting down and building 12 submarines that are identical here; we’re talking about something that’s going to undoubtedly improve over time as technology progresses.
I don’t think it’s a super-challenge; it’s one that has to be managed properly. The effect on wider defence industry is that it encourages businesses supporting a stable industry in which education and groups can feed skills, in which people can forge careers and in which we can strengthen the overall economy of the country.

ADM: Various commentators have raised the possibility of building an Australian nuclear industry around the Future Submarine in the last few months. Do you see this as a viable option for Australia?

Fletcher: There’s two parts to that question I think: firstly, you’re asking me if I think the Commonwealth will reconsider its plans on the Australia nuclear industry, and secondly, are nuclear submarines the best strategic capability for Australia? I don’t think it’s the role of the state government to enter into any of those arguments, but I’ll make a personal observation as an individual.

My understanding from other nuclear experts is I can’t see that the Commonwealth government will make a decision to go into nuclear submarines unless there was an already established nuclear industry in this country; it’s just too small an ask, unless they were outsourced offshore perhaps.
And I guess the other element is that the White Paper, and one has to assume that the Defence people did their homework, has come up with the requirement of 12 conventional submarines and I’m quite prepared to accept that Defence knows what they’re doing in terms of their strategic needs. Therefore I see little support or chance of a nuclear solution for the Future Submarine program.

ADM: Many state governments have skilling and training programs to support and train skilled workers. What else can be done, at either a state or federal level, to make sure that Defence has a large enough talent pool to draw on in the coming decade given all the complex naval programs, for both acquisition and sustainment, that are on the horizon?

Fletcher:  Yes, well it’s clear that the nation as a whole, and in fact the western world, is facing a well documented potential shortage of professionals and trade people, including engineers. We in SA have been working really hard on that. We’ve been working in conjunction with the Commonwealth, the defence industry and education and training systems to address the skills challenge because it relates not just to defence but also to mining and agri-business and a whole range of other complex industries.

I think in SA we’re making headway. We’ve engaged the complete educational system, from primary school through secondary, tertiary or vocational training places and technical colleges, together with parents. We’ve pointed out to each of these groups the professions that maths/science can lead to and I think the approach is working. There’s no denying it’s a massive task and I think each state and the nation as a whole has to tackle it. But I like to think we’re ahead of the game.

It really does come down to primary school; capturing the kids’ imaginations about maths and science, but at the same time convincing their parents that there will be careers for them when they leave, because there still is the perception that they built up over the last 20 years that maths and science are harder than the softer subjects, and we need to overcome that.
In secondary school, we really need to have people who are committed to maths and science and then start choosing career courses, whether that be in the technical colleges or trades-based or graduates or postgraduates, and there are mechanisms that we as a state have put in place to address each of these educational needs at every step of the way.

We’ve done some other things in terms of legislation and policy in the state mandating minimum teaching times for science and maths from 2011, for example, supported by teacher training and development.
We’ve put in a science and maths strategy - $51 million it’s costing the state at the current time. We’re recruiting and retraining up to 150 maths and science teachers in public secondary schools, and we’re building and refurbishing 22 science centres across the state, and there’s a range of other programs that government is working on to address the skills issue in both the short and long term.

ADM: The DMO is looking to introduce the batching concept for the sustainment of its current, and even future, fleets. What do you see as the pros and cons of this approach?

Fletcher:  Overall, I’m all for it. Any initiative which increases workflow and certainty is good news for the defence industry. If you confirm a contract that’s going to last for five years or 10 years as opposed to one year or three years, then you have much more certainty in your ability to invest in the program, to invest in training your people, invest in doing things smarter and learning on the job.
I mean we all know that if you have a major project build, the first few platforms take longer and are more costly than those later in a production; that’s just the learning and cost curves we face. So there’s some huge advantages batching and I think it will deliver to defence a much greater value for money solution, as well as providing companies with long-term strategic opportunities to build their own businesses and capabilities.
It also addresses all those peaks and troughs that we seem to have in the defence industry. I’d say other industries also face these ups and downs when it comes to their workflow, but defence in particular seems to suffer from the problem given the long life of the capabilities involved.

ADM: What role do Priority and Strategic Industry Capabilities (PICs and SICs) have in Defence industry planning, if any?

Fletcher:  If the concept is properly delivered, it speaks to surety for every industry. Just as batching provides a long-term opportunity for investment and for skills training and development, so do PICs and SICs. The nation really needs to make sure that if they define PICs and SICs capability that they create a dual flow that will support it, otherwise you can’t expect industry to invest.
There are examples at the moment in some of the electronic areas where there’s a mention of PICs and SICs but indeed most of the purchases recently have been offshore. So that seems to signal immediately to industry as to whether the PICs and SICs are credible. Defence is not an industry development agency but if it’s about sustaining the PICs and SICs as an in country concept, they need to be more transparent and serious about long term industry planning.
The release of the Defence industry policy last year was a good start. I thought minister for defence materiel Jason Clare’s remarks at the ADM2011 conference about strengthening PICs and SICs were encouraging. I support strongly his drive to improve their definitions and to develop supporting implementation strategies. But we really need to be serious and prove to industry that if they do invest in the infrastructure identified by PICs and SICs that there is a matching flow of work from Canberra.

ADM: The DMO has created a Defence Export Unit and various prime companies have developed their own Offices of Australian Industry Capability (OAICs), but is there still a constructive role that state governments can play in supporting Australian defence exporters?

Fletcher:  Yes, I think there is. The area in which the state governments can play the biggest role is supporting their industries in being effective in the global supply chain opportunities. It’s not that we’re going to build aeroplanes to export or lots of missiles, with the exception of Nulka and so forth, but primarily the way for industry as we see it in SA into exports is through global supply chain.

So we’d rather have, for example, as we do have advanced manufacturing industries, small players that have invested in technology and skills training selling widgets into the Joint Strike Fighter program or the Land 121 Phase 4 Manufactured Supported in Australia program option. This means that it’s not just for the 100 planes that Australia might get but for the 4,000 planes that the world might get, and to us that’s the area where states can support and help their locally based industry get involved.

ADM: With local industry set to receive a declining share of the DMO’s acquisition and sustainment budgets due to the Strategic Reform Program (SRP), do you see a role for state government, or a body such as DefenceSA, in helping both Defence and Industry to achieve the SRP goals?

Fletcher:  Well I don’t necessarily support your thesis that the SRP means that there’ll be less work for local industry.
My understanding is that it’s a program to find $20 billion across the decade to plough those funds back into frontline activities, which means capability as well as operations. I think there’s a role for state governments to help find those efficiencies for industries that are delivering to Defence.
Our examples here in SA are the Common User Facility at Techport where we’ve invested $300 million and another $100 million to supply a technology precinct opportunity, where we invested in a secure electronic common user facility and technology park at Mawson Lake to provide access to smaller to medium enterprises engaged in defence projects, who could normally not afford that sort of infrastructure support. And we’re investing in the RAAF Edinburgh becoming a super base with the 7th Royal Australian Regiment battle group making it their new home.
All those activities by those state reduce the overhead cost to industry and to Defence as a whole and therefore provide a greater value and more competitive product to Defence, the customer.

I think the skills training that states do is fundamental to providing a cheaper or greater value option for Defence when they purchase capability, particularly if they take a whole of life cycle cost point of view.
They’re not good at that at the moment as they tend to look at procurement and then throughlife support and clearly there’s an efficiency to be gained by designing in at the procurement phase consideration for how a platform is supported during its life. Again, to create cost efficiencies that truly do cover the life of type from end to end.