Defence Business: The future of the Defence State | ADM August 2012

Having awarded itself the title of The Defence State, South Australia clearly has no intention of relinquishing its share of Commonwealth defence expenditure notwithstanding the swingeing budget cuts now facing the sector.

Instead, the State has set itself the strategic objective of increasing to $2.5 billion and a workforce of 37,000 the annual contribution to its economy to be made by defence and defence industry by 2020. This will require yearly growth of $108 million and 1,100 jobs.

Preliminary milestones of $2 billion and a 28,000-strong workforce have been set for next year and seem likely to be met, with the 50 or so companies comprising the State’s specialist defence industry earning revenue of $1.8 billion in 2010-11.

This was an increase of 50 per cent since 2007-08, the first year such performance was measured.

South Australia has some natural advantages – the 120,000 square kilometres of the Woomera Prohibited Area make it the world’s largest land-based test facility, while planning is underway to more than quadruple the current 500 square kilometres of the army’s Cultana training range.

Existing defence assets have expanded over the years – 1,300 scientists, engineers and support staff at the Defence Science and Technology Organisation (DSTO) at Edinburgh on the outskirts of Adelaide, and about 6,000 RAA F, Army and civilian personnel next door at RAA F Edinburgh.

Following investment of $300 million by the State government in infrastructure at Techport Australia, the facility now supports the $8 billion Air Warfare Destroyer (AWD) project and Collins class sustainment. It’s also key to the State’s ambitions to capture the lion’s share of future naval construction programs.

Much of this development has followed a deliberate focus on defence by the State government since 2003, kicked off by pitches for the AWD project and the redeployment to South Australia of an Army battalion.

AWD construction is now in full swing at ASC and some 800 members of 7 RAR and other elements of 1st Brigade are settling into impressive new facilities at RAAF Edinburgh, constructed at a cost of $1 billion. Full strength of about 1,100 personnel is expected by 2014.

Success may have many parents, but the State clearly benefits from a unique and cohesive defence-focused infrastructure headed by Defence SA , the country’s only stand-alone State defence agency. This in turn reports to the Minister for Defence Industries

Defence SA is supported by a high-calibre Defence SA Advisory Board chaired by former Chief of the Defence Force, General Peter Cosgrove. It also works in close liaison with the State’s defence industry association, the Defence Teaming Centre (DTC), which receives government backing of $500,000 a year.

“I can generally put someone in front of the Minister within 48 hours,” Defence SA Chief Executive Andrew Fletcher told ADM. “We’re able to ensure that individuals or companies are put in touch with all the relevant government departments; the benefit of a small State is you can get all the players around a table.”

Jack Snelling, who added the Defence Industries portfolio to his responsibilities as Treasurer last October, told ADM that South Australia did not want to be a state that just digs things up, “we also want to be a state that makes things… and it’s the defence industries that are going to be the cornerstone of our advanced manufacturing future.

Snelling acknowledged a looming gap for industry between the completion of the AWD program, the ramp up for assembly of the Future Submarine, and a decision on Land 400 (Land Combat Vehicle System).

The latter he described as a key opportunity for a State with significant experience in vehicle manufacture.

“Without doubt that gap will be a challenge for us and we’re working very closely with and have had discussions with (Defence Materiel Minister) Jason Clare on what we need to do to ensure that our skills base is not eroded in that period,” he said, without giving any details.

For Chris Burns, Chief Executive Officer of the DTC, key issues for industry included the $25 billion cut from the defence budget since 2009, what he described as the broken promise of the 2009 White Paper and subsequent Defence Capability Plans (DCPs), and the Commonwealth’s preference for offshore Commercial and Military Off-The-Shelf (COTS /MOTS ) acquisitions - “ not recognising the value of investing Australian taxpayers’ dollars in Australian industry”.

Burns did not envisage new Commonwealth contracts flowing until 2014 from the White Paper scheduled for the first half of 2013 and the ensuing DCP. “Lots of companies are working on three months’ cash flow, they can’t wait until 2014,” he commented.

This view was echoed by Jim Whalley, Chairman and Chief Executive of Nova Systems, who said in a panel discussion that the problem was not with the Defence Materiel Organisation but with the federal government. Many SMEs could not afford three or so tough years.

“They’ll either go out of business (altogether) or move out of the defence industry and they won’t be there when they’re needed,” he commented.

Disclaimer – Julian Kerr travelled to Adelaide as a guest of AdvantageSA.