Page 73 - Australian Defence Magazine Nov 2020
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                    NOVEMBER 2020 | WWW.AUSTRALIANDEFENCE.COM.AU
BUDGET OVERVIEW 73
ABSORPTION RATE
So how can local defence industry absorb that money and also deliver the capability the defence force needs? The first thing is to emphasise that defence spending is primar- ily about delivering and sustaining military capability, not preserving jobs. When we’ve reached the point that we are spending many billions more to deliver warships slower in order to guarantee steady work, as the 2020 Force Structure Plan (FSR) admits, something has gone seriously wrong.
The second point is to acknowledge that local assembly of platforms designed overseas, whose high-value compo- nents are also sourced overseas, is not going to get us to a $10 billion local spend. Even in the best case, local ve- hicle production isn’t going to result in more than 50 per cent local content. That’s been confirmed by the economic impact study into the Boxer CRV. It’s hard to see how lo- cal assembly of South Korean self-propelled howitzers and support vehicles will get close even to that number.
So if large local assembly projects top out at 50 per cent, and we will still be acquiring things like aircraft and missiles directly from overseas, raising the total local spend above the one-third mark that it’s been stuck at isn’t going to happen. We need to do things very differently.
We need to move beyond focusing on establishing big steel projects and invest much more heavily on the systems that go on them. Those are the things that are key to future warfare—and they may not need to go onto big platforms in the first place.
First and foremost, we need to break out of the cost-capability spiral that is driving up the cost of manned platforms to exqui- sitely unaffordable levels. The current conflict in the Caucasus confirms once again that conventional manned vehicles are increasingly vulnerable to guided weapons, including ‘suicide drones’ that have proliferated to the point that they are saturat- ing the battlefield, even one fought in minor states. It’s possible to improve the defences of those manned vehicles, but again this comes at cost, driving up the cost capability spiral.
JUGGLING THE NUMBERS
The result of this can be seen in the trajectory of De- fence’s infantry fighting vehicle project (Land 400 Phase 3) that surely has reached a tipping point in terms of its value for money calculus. Its funding provision has grown from a breath-taking $10-15 billion in the 2016 Integrated Investment Plan (IIP) to a gobsmacking $18.1-27.1 billion in the 2020 FSR. If we take the mid- point, it means the 450 vehicles Defence wants average out at $50 million. What is the cost of a suicide drone or guided anti-tank missile that China, Russia, Turkey, Israel, and others can produce in industrial quantities?
Moreover, what conflict are the IFV’s for? The 2020 De- fence Strategic Update (DSU) warns of China’s capabilities and assesses we can’t match a major power adversary. How, then, are we going to deploy them over a ‘2,000km zone of death’ (to use Albert Palazzo’s term) in the teeth of China’s anti-access capabilities. That suggests they are primarily there for wars against low-tech, non-state adversaries—but how is it consistent with the strategic update to prioritise such massive investment for what are essentially wars of choice? To return
to our elephant analogy, this is a massive white elephant. It’s time for a deep breath and reassessment. There’s a similar story occurring with ships and anti-ship missiles.
From an Australian industry perspective, rather than sali- vating over the dollars that Land 400 Phase 3 might spend in Australia, we should turn it around. Since armoured vehi- cles projects likely won’t get beyond 50 per cent local spend, we can already see that there’s $9-13.5 billion that won’t be spent in Australia.
Let’s leverage the government’s coming $270 billion in- vestment in future capability to grow Australian indus- try’s ability to design and build the technologies that will characterise future warfare: autonomous systems, guided weapons, space, AI, cyber and so on. There’s lots of evi- dence Australian industry and academia can get there. But trickle feeding innovation funds isn’t going to do it. The $1 billion program foreshadowed in the FSP for local guided weapons manufacturing is a very good start. Let’s hope there’s more like that to come.
Dr Marcus Hellyer is the Australian Strategic Policy Institute’s senior analyst for defence economics and capability. ■
   BUDGET THOUGHT BUBBLES
KATHERINE ZIESING | CANBERRA
 ■ ThePortfolioBudgetStatements(PBS)haschangedhow they present their figures under a new model known as ‘net cash funding’ that separates operations vs acquisition funding lines. If you’re used to the old format, it’s confusing on the first reading. Upon closer inspection and getting ones brain in gear, it is now easier to see what the funding lines are per outcome stream: e.g. who’s doing what and where for each of the groups and services.
■ The foreign exchange adjustment figures amount to $800 million this year. What does the government expect the currency to do in the coming 12 months?!
■ Army Aviation flying hours do not reflect any reduction in the rate of effort of any of its troubled platforms. Nor does it see any estimates for the new special forces helicopters which will be ostensibly delivered in the forward estimates timeframe.
■ TheClassicHornetfleetwillsayitsfarewellsin2022-2023 with no flying hours scheduled. Another end of an era right there. But in the same year, the Peregrine Guld Stream EW platform will start flying with the Triton RPA the year after.
■ Land 400 Phase 3 does not appear in the Top 30 acquisition program list. Perhaps they have yet to hit the funding level to make the list but I find this surprising.
■ The Top 30 acquisition programs have $1.2 billion slippage margin for the year ahead. That’s a big shell game to keep track of.
■ TheshinynewVIPfleetisnotgettingthehoursintheair as planned thanks to ‘actual Falcon FX flying hours in 2019- 20 has been impacted by reduced demand to support Government’ - ie COVID means people are flying less.
   










































































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