Fixing Australia's naval shipbuilding industry | KPMG | AU
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Fixing Australia's naval shipbuilding industry

Fixing Australia's naval shipbuilding industry

Three mega-projects lie at the heart of Australia's future defence capability; submarines, land combat vehicles and future frigates.


Partner, Operations Advisory

KPMG Australia


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Fixing Australia’s naval shipbuilding industry

Three strong steps to mission accomplished

The question of what to do with Australia’s naval shipbuilding industry has long been mired in debate and discussion. The 'problem' involves a confused mix of interrelated issues, a classic complex problem that won’t be solved by standard linear remediation activity.

The issues are all too familiar; workforce productivity challenges, demand 'valleys', international competition pressure, domestic premiums, infrastructure restrictions, ailing alliances, learning curves and expensive 'Australian-isation'. The disagreement on how we came to be in this position is real and substantial. But there is little to be gained by raking over the issues here.

"We think fixing the Air Warfare Destroyer Program will enable government to
deliver the rolling program for SEA5000, the Future Frigate and beyond. To
succeed involves reversing the order of the approach and start with fixing
Australia's shipbuilding industry."

Mike Kalms
Lead Partner, Defence Industry

Instead, we suggest that in crafting solutions, we can gather forward momentum and break free from current back-casting to move beyond the current stumbling blocks.

In our view, the approach should be underpinned by three characteristics:

  1. Risk should be moved to the party most capable of managing it.
  2. Elements of the problem need to be addressed concurrently. It’s a complex problem.
  3. Different thinking is required to unlock entrenched positions.

The proposal in the visual below involves three overlapping 'strong steps' to a viable naval shipbuilding industry in Australia. Each step is difficult. No party is a winner.

The different thinking is found in two aspects.

Firstly, current thinking on the issue adopts an 'inside-out' approach. That is, today we seek to 'fix' the issues with the Air Warfare Destroyer (AWD) Program, and then deal with ASC. Once that is resolved, we finally turn our attention to establishing a sustainable naval shipbuilding sector. The approach is an 'outside-in' alternative. Deal with the shipbuilding sector first, then ASC. The final step is the AWD Program, which in our view will be far easier to deal with once the broader sector dynamics are resolved.

The second area of different thinking is addressing Williamstown via a radical asset swap. There is no precedent and while not easy to frame commercially, we do think it's feasible. In essence, BAE Systems would acquire the liabilities of the AWD Program, and government (the Commonwealth, perhaps transferred to Victoria) would acquire the liabilities of the Williamstown facility, creating a new Common User Facility or redevelopment. Equalisation payments may be required.

We are under no illusion the proposed three strong steps will be universally admired and accepted. There is simply too much invested in various positions for there to be consensus now. But if it goes some way towards reshaping the thinking on options for this critical mega-project – that would be mission accomplished.

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