Pillar Two of the AUKUS technology-sharing agreement offers more immediate benefits than the parallel, decades-long nuclear-submarine effort—but not until we fix serious shortcomings in its execution.
It has six capability workstreams—undersea robotics, quantum, AI and autonomy, advanced cyber, hypersonics and counter-hypersonics, and electromagnetic warfare—plus widely applicable efforts on innovation and information sharing. Unlike AUKUS’s submarine-focused Pillar One, these offer near-term opportunities for Australian companies to design, test and integrate technologies directly into allied systems.
Done well, Pillar Two will lift alliance capability, strengthen sovereign industry and position Australia as a trusted developer of high-value technologies.
The challenge, raised by a new report from the Australian Industry Group (Ai Group), is that Pillar Two still feels like a policy conversation rather than a capability program. Industry has welcomed the ambition, but funding is buried in existing Defence budget lines. The exact amount of money and the pathways and timelines are uncertain. Companies can hardly judge when or how to invest. Without visible, specific Pillar Two budgets, there is no clear market signal.
And, without that, Australia’s strengths in several of Pillar Two’s focus areas can’t be turned into deployable capability.
Similar to ASPI’s own Innovation Advantage series of articles, the Ai Group report points to a familiar problem in defence innovation more broadly: the valley of death between early-stage research-and-development and operational capability. Establishment of the Advanced Strategic Capabilities Accelerator, an initiative housed within the Department of Defence, has helped address the speed of acquisition, but it alone is not enough to address Defence’s broader innovation challenges.
Alignment is one. The AUKUS Pillar Two working groups have run joint innovation challenges, which is progress. Yet companies are still evaluated and funded through national processes, so projects often move on three tracks rather than one. That keeps timelines out of sync and makes standards harder to lock in. The trilateral working groups that set capability priorities operate government-to-government, with limited visibility for industry.
The Ai Group report also highlights a wider enabling environment than Pillar Two currently reflects. Workforce availability, clearance portability, cyber standards, intellectual property rules and procurement settings all shape investment decisions. Without reform in those areas, policy foundations will not support capability delivery.
International examples show what works. The Lockheed Martin F-35 program demonstrated the value of clear technology-sharing frameworks and deliberate supply-chain participation across partners. The US Defense Innovation Unit has shown how flexible contracting and early operator involvement can move commercial technology into service at speed. NATO has several new multinational capability delivery initiatives as cost-effective ways to acquire capabilities quickly and in large scale. Twelve NATO nations are committed to a project on joint acquisition, storage, transport and recycling of defence critical raw materials to secure supplies of essential materials, such as lithium, titanium and rare earths.
Strategist articles in the Innovation Advantage series explain that getting from policy to capability is fundamentally about execution. That means publishing a clear Pillar Two strategy with milestones, priorities and dedicated funding. It means creating acquisition pathways that are agile enough to keep pace with technology. It means widening reform beyond export controls to include procurement rules, security clearances and workforce skills. It also means establishing structured industry engagement at the trilateral level, not just within each country.
Funding should be visible and tied to fielding. Create two Pillar Two lines in the Defence’s acquisition spending plan, the Integrated Investment Program: one line for near-term capability packages, and one for uplifting and improving supply chains. Give each package a named lead, quarterly trials and a first-use date. Release money in tranches against milestones and reallocate if milestones are missed. Publish a quarterly scorecard on funds and progress.
These steps align with what industry has asked for in the Ai Group report: put out a public strategy with timelines and measures. Define the pathways from lab to unit. Create dedicated and streamlined funding for near-term delivery and for supply-chain uplift. Harmonise supporting policies across cyber, procurement and workforce. Improve coordination between the three governments and with industry so plans turn into capability.
While seemingly easier said than done, ASPI’s Innovation Advantage series unpacks the core lessons that need to be applied: speed comes from early user engagement, disciplined choices and contracting that is simple and repeatable. Pillar Two is where to prove that AUKUS nations can innovate both in technology and in delivery approaches quickly and at scale needed to meet mission requirements.
Pillar Two has the potential to deliver advanced capabilities into the hands of AUKUS militaries faster than our competitors can field theirs. That is the benchmark that the warfighter will judge it by and the one that Defence should set for itself. If Australia can help drive that shift from policy to capability, it will strengthen its own defence industry and make the entire AUKUS enterprise more credible. This is precisely why ASPI is advancing AUKUS Pillar Two through industry engagement and strategic research.
If you’re an AUKUS Pillar Two industry partner interested in being part of a trusted ecosystem that strengthens Australia’s sovereign capabilities and advances shared strategic interests, contact [email protected].