Obervations

by CMDR F Geoffrey Evans OBE VRD

SHIPBUILDING A PROBLEM FOR SMALL NAVIES

An article and follow-up correspondence in recent issues of the United States Naval Institute's journal PROCEEDINGS concerning naval shipbuilding in that country has some relevance to Australia and other countries with relatively small Navies who, for reasons ranging from national pride to security issues, wish to build their own major warships. It is well known that national armed forces have become more and more costly to equip and maintain: Not only has equipment become more expensive with unceasing advances in technology, but the people needed to operate and maintain the equipment are hard to find (and to retain when found) and must be recompensed and provided with appropriate facilities and a 'lifestyle' earlier generations of sailors, soldiers and airmen could only dream about. The author of the PROCEEDINGS article, Captain David H Lewis USN, on the staff of the Commander Naval Surface Forces, San Diego, California, maintains that ship price changes outpace inflation, that the Navy is unable to articulate a shipbuilding strategy acceptable to Congress and that over the past decade "...the industry consolidated from six independent, largely undercapitalised companies down to two large, well capitalised, diversified corporations both of which are quite profitable ". In subsequent comment by Rear Admiral Stuart F Plant USN (Rtd) it is stated that Northrop Grumman Newport News and General Dynamics Electric Boat are the only two companies capable of building capital ships for the USN and that they co-operate rather than compete for contracts. Captain Lewis maintains that shipbuilding prices are controlled, by two major factors - combat capability and economics - and that the latter has become the major factor in ship affordability issues. As examples he quotes the budgeted cost of a competitively awarded Aegis cruiser in 1985 as USD$884 million and a similarly awarded Aegis destroyer, incorporating many combat capability improvements, at USD$918 million in 2001 - an increase of only 4% over 16 years, well below the rate of inflation. In comparison, a competitively awarded nuclear-powered attack submarine budgeted at USD$638 million in 1987 had risen to USD$2.5 billion in 2005 for a cartel-built nuclear submarine, an increase of nearly 300% in 18 years.
The cyclical and capital-intensive nature of shipbuilding are discussed in the article, together with various ways in which the industry can operate today:
. Full competition. Many suppliers, many customers; price and quality, innovation and cost control maximised. The situation existing in the commercial shipbuilding industry today.
. Limited competition. Two or three suppliers for one customer, the latter driving innovation and cost control. The situation prevailing in America until recently.
. Monopoly/Cartel. One company dominating the industry and able to set prices and control production. If protected by government it becomes a national monopoly: Submarine, aircraft carrier, amphibious shipbuilding today.
. Regulated. Government may establish a regulated monopoly; in return for a guaranteed customer base lower profits and a higher degree of customer involvement are accepted. A situation similar to utilities.
. Publicly owned. Profit and marketing issues eliminated. Public financing of capital improvements may occur; permitting better innovation and price control than in a monopoly or regulated industry, but possibly less than in a competitive industry.
The Aegis-equipped American cruisers and destroyers were built under the' limited competition' model but given the present trend towards monopoly/cartel shipbuilding and ever-increasing costs, inevitably influencing the size and quality of the USN, the author concludes that limited competition for both surface ships and submarines is the best solution of the problem.
America's industrial strength and the size of its Navy make it hard to relate naval shipbuilding in that country to shipbuilding in Australia, or indeed any other country. Nevertheless increasing costs provide some common ground and in this regard, to look at the Opportunity for competition in the local industry.
Australia has quite a large number of shipyards that have built and/or are building ships for naval purposes over the years, but only four could be considered relevant at the present time to the RAN's current requirements:
. Tenix Defence - currently completing an order for 10 Anzac class frigates for the RAN and the RIIZN at the Williamstown Dockyard in Victoria. The only 'Yard at this time with the facilities to build major surface combatants such as frigates and destroyers.
. Australian Submarine Corporation (South Australia) has built and is maintaining six Collins class submarines but at present lacks facilities required to build surface combatants.
. Incat in Tasmania and Austal in W A. - have built and are building high-speed aluminium multi-hull vessels for commercial purposes and for the United States Navy (see THE NAVY April-June 2005 issue p20).
It therefore appears that so far as surface combatants and submarines are concerned, there is no prospect of real (economically sound) competition in the local shipbuilding industry otl1er than in the sub-contracting area. The recent 'competition' to build three air warfare destroyers (AWDs) for the RAN was somewhat unreal in the sense that although the Aegis weapon system, a very expensive item in the overall cost, had been chosen, the design of the ship into which it was to be fitted had not been decided and in any event, only one Yard (Tenix) had the facilities to build on hand - and was not selected.
With regard to Defence's requirement for two large amphibious ships, although Australia has built quite large merchant ships in the past, including the former RAN training ship JERVIS BAY, converted from the roll-on/roll-off merchant ship AUSTRALIAN TRADER which was built at the State Dockyard in Newcastle, a one-off order now for only two ships may cause some problems: In this respect it is possible Incat and Austal could be considered as competitors, depending on experience gained by the United States Navy and more importantly, whether or not aluminium multi-hull vessels would meet Defence/RAN requirements.
Given the fact that the process for building the AWDs locally has already commenced, it is probably too late to suggest other, less c,ostly, ways of acquiring such ships for the RAN. In the distant past it was customary to select a (usually tried) Royal Navy ship or design, to modify as necessary for Australian conditions and build in either the government's Williamstown Dockyard or the privately owned Cockatoo yard. In the more recent past, apart from the Anzacs, combatants have been acquired 'off-the-shelf' from American yards or built locally to an American design. The FFG- 7 frigates and Perth class destroyers were successful acquisitions.
Australia's main problem as a naval shipbuilder is, and always has been, lack of continuity in orders for ships, making it difficult if not impossible for shipbuilders to hold a highly trained workforce together. If costs are to be kept within bounds in future it would seem Captain Lewis' "regulated" private shipbuilder is the model for relatively small Navy countries such as Australia.
While the Navy could no doubt plan its requirements a sufficiently long way ahead, enough to provide the shipbuilder with reasonable continuity of work, could the gaze of governments stretch the same distance?

GIFT WILL BENEFIT CADETS

A generous gift to the Navy League by Mr John Strang to honour his father, the late Donald John George Strang, AG, has enabled the League, among other events marking the 200th Anniversary of the Battle of Trafalgar, to establish an essay competition for Australian Navy Cadets: The winning cadet will receive $1,000 and the cadet's Unit a further $1,000.
The Strang name is well known in shipping circles, both in Australia and overseas. The original fIrm of stevedores bearing the Strang name was established by John's grandfather, Captain Francis Strang in 1928 and now known as the Strang-Tradex Group, has been managed by successive generations of the family ever since.
John Strang's father had a diverse range of interests apart from business, including the Australia-Polish Chamber of Commerce of which he was the Foundation President, the Latrobe University Council, the Victorian Rugby Union and the Australian Institute of Political Science, in all of which he held office.
Honorary public service is clearly a family tradition and John is a member of a number of organisations including the Australia-Russia and NIS Business Council of which he is President, the Global Foundation, the Australia-New Zealand Business Council (past Chairman) and the Australia-Papua New Guinea Business Council; he is also a member of the Navy League's Federal Advisory Council.
The Navy League and the Australian Navy Cadets, once known as the (Navy League's) Australian Sea Cadet Corps, have been well served by its members over the years; long may the spirit of service without pursuit of reward, continue.

PREVIOUS OBSERVATIONS

THE BUDGET AND DEFENCE

The Federal Treasurer's address to Parliament on 10 May was unusual in that no mention was made of the defence force, in bygone age one of the major items of Commonwealth expenditure; The Opposition Leader in his address in reply also ignored the subject. The Treasurer did however, refer to increased spending on intelligence, border protection and measures related to possible terrorist activities, a matter of course from which Defence is not divorced. Following a lengthy period of diminishing defence expenditure, both as a percentage of Commonwealth outlays and in, real terms, in the last few years of the 20th century* Defence has faired much better in the annual allocation of funds and in the current year is expected to receive some $15.6 billion, a substantial increase on the recent past even when increased material and other costs are taken into account. Even so, if published figures are to be believed, the defence vote is a little over 6% of Commonwealth outlays, similar to that devoted to education ~d considerably less than the nearly 38% to be spent on social security and welfare. Given that Australia's prosperity is dependent on a variety of circumstances over which the government has little or no control - overseas events, climatic changes etc - if the writer has any concern it relates to the looming cost of projected new defence equipment, not least destroyers and aircraft (reported to be in the vicinity of $6 billion and $16 billion respectively - why these two so-called "big ticket" items were allowed to fall due at about the same time is, to say the least, regrettable) together with the cost of existing and possible future overseas involvements. Maybe "Future funds" will have some unexpected demands made upon them!

NEW NAVY CHIEF

Among the changes to ~e place in the senior ranks of the ADF in July is that of Chief of Navy. After completing three years as Chief, Vice Admiral Chris Ritchie will retire from the RAN and will be replaced by Vice Admiral Russ Shalders who has been serving as Vice Chief of the Defence Force (VCDF) under General Peter Cosgrove who will also retire and be replaced by Air Marshal Angus Houston. The only Service Chief to remain in place is Lieutenant General Peter Leahy, the Army's Chief. The careers of the admirals were outlined in the October- December 2002 issue-of THE NAVY. Both officers have had significant naval and defence appointments as senior RAN officers and one might expect the Navy to continue to be well- led during VADM Shalders' tenure of office: He has the added advantage of being the first Director General of Coastwatch with the responsibility of bringing together the several governments and organisations engaged in supervising and policing a host of maritime activities ranging from customs and immigration to health and the environment; apart from organising ability the task required infinite patience and tact, virtues fortunately possessed by the inaugural Director General. After two years with Coastwatch VADM Shalders went to Defence Headquarters as Head of the Personnel Executive, thence as VCDF: In his appointment he achieved another first by becoming, in March 2004, the inaugural Commander of a newly-formed Joint Operations Command which replaces HQ Australian Theatre. A thoughtful man who discharges his responsibilities quietly and without fuss, VADM Russ Shalders will take a wealth of experience with him to his new appointment as head of a vital component of the Australian Defence Force; it may well be needed in the coming years. · Addendum to the (1997) Defence Efficiency Review

MANY HAPPY RETURNS

Shortly after this issue of THE NAVY is published, on 30 July one of Australia's best-known naval officers, Vice Admiral Sir Richard Innes Peek KBE CB DSC RAN (Rtd) - "Peter" to his friends and colleagues - will celebrate his 91st birthday. Peter Peek has devoted the greater part of his life to the Navy. He entered the RAN as a cadet midshipman on 1 January 1928 and served in all the Navy's key appointments, retiring as First Naval Member of the Naval Board and Chief of Naval Staff on 30 November 1973. His early years were served in a variety of RN and RAN ships; during World II these included the battleships REVENGE and ROYAL SOVEREIGN and the cruisers HOBART and AUSTRALIA " (in which he was wounded when the ship was struck by a Japanese kamikazi aircraft in Leyte Gulf. His first command came in 1951 when he was appointed to the frigate SHOALHAVEN in command and as Senior Officer 1st Frigate Flotilla; other commands were the destroyers BATAAN and TOBRUK - the last-named twice, the second as Captain(D) of the 10th Destroyer Squadron - and the carriers SYDNEY and MELBOURNE. His final sea appointment was Flag Officer Commanding HMA Fleet. Admiral Peek had a number of shore appointments including DTSR (Tactics, Trials & Staff Requirements) as a Lieutenant Commander, D of P (Director of Plans) as a Commander, DCNP (Deputy Chief of Naval Personnel) as an Acting Captain, and as a Flag Officer - 4th Naval Member, 2nd Naval Member and DCNS (Deputy Chief of Naval Staff). Quite a career! Peter Peek farmed near Cooma (NSW) on retirement before eventually settling at his present home in Canberra with the ever-patient Lady Catherine Peek. His interest in the Navy has not however waned in the slightest as several members of the Parliament and others are well aware. As Chief of Naval Staff Admiral Peek believed in and supported the Navy League in its efforts to promote maritime awareness in the community and he has continued to actively support the League in retirement. We are grateful and wish him many more productive years to come. F.G.E.