Today’s order: subs with the lot
25 Feb 2016|


Correction: a previous version of this post incorrectly conflated figures in press reports of the CEP process with those provided earlier in a public address by TKMS. The error is the responsibility of the author, who unreservedly apologises to TKMS for any misunderstandings caused.


The single biggest headline story from today’s White Paper launch—one that has already appeared—is the scale of the future submarine project. Design and construction is costed at a whopping figure of ‘over $50 billion’. Even allowing for that being expressed in out turned dollars over the period 2018–2057 (according to the new Integrated Investment Program), it’s still over $30 billion in today’s money, calling into question the credibility of reported leaks from the CEP process. It’s also substantially higher than the German bidder TKMS suggested when they claimed that they could build the fleet of 12 for $20 billion.

For those who have been following this story for years, the number is close to ASPI’s 2009 estimate of $36 billion, based on the historical trends when significant capability thresholds are crossed. So it’s also another piece of evidence that recent attempts to rein in ambitious requirements haven’t been successful. An earlier pointer was the size of the French company DCNS’s proposal in the form of their 4,500 ton Shortfin Barracuda concept—a displacement 50% greater than a Collins class submarine.

It appears that we’re shooting for the moon again, a conclusion reinforced by the recurring language of a ‘regionally superior’ submarine in both the White Paper and at today’s launch. Just what that means isn’t clear. After all, Australia’s future submarines will find themselves in waters patrolled by nuclear attack submarines operated by China, India, Russia and the US. A diesel-electric boat can aspire to being stealthier or better networked, but it’ll always be outclassed by a nuke in terms of speed and endurance.

When it comes to the region’s conventional submarines, there’ll be an increased number of Japan’s own submarines operating in Asian waters, as well as boats supplied to other regional countries by the same European suppliers bidding in the Competitive Evaluation Process. So we’ll have to be clever to get ahead of the pack. To do that, we’ll have to fuse the best available conventional submarine design technologies with advanced American weapons and combat systems.

Other regional submarine fleets won’t be standing still, and any capability edge we generate will tend to be ephemeral unless there’s a continual effort to maintain it. That might be the thinking behind the announcement that there will be a build of 12 new submarines, when only a few months ago the rumour-of-record was that the number was likely to be pruned back to eight. By moving to 12, a continuous building program begins to make more sense.

Continuous build means that there’s always one or more submarines under construction. As new technologies emerge, designs can be modified to produce steadily more capable boats in batches of three or four before the next suite of modifications is ready to be introduced. Occasionally a brand new class will be required when the cumulative modifications no longer fit comfortably within the existing design. It’s a model that Japan has successfully applied for the past few decades, and it has worked very well for them—albeit with a larger fleet of 16 (soon to be 22).

In capability terms, that’s the upside of the announced continuous build. Of course, there’s also a considerable upside for the industry engaged to produce the vessels. The downside is that it’s likely to cost the Australian taxpayer more, a lot more, in the long run to keep such a program running. Proponents of continuous build will no doubt point to potential lower per-vessel costs as the workforce gains experience and becomes more efficient—the learning curve effect. And in any properly managed shipbuilding enterprise that’s going to be the case. Ideally, we’d track down the curve to world’s best performance. In practical terms, given Australia’s lack of comparative advantage in heavy industry, we’ll almost certainly end up higher than that. RAND’s review of Australian shipbuilding concluded that we’ll likely end up paying a premium price, even with significantly better productivity than we’ve been able to generate of late. At least the premium for local labour is lower at an exchange rate of US71c than the 90c that prevailed when RAND did their calculations.

But there’s another factor to keep in mind. To keep producing subs and keep the number at 12, we’ll either have to build really slowly (one every two and half years if each sub has a 30 year service life), or we’ll have to dispose of boats at shorter intervals. Either of those approaches means that capability costs more overall—either shipyard productivity is hard to maintain because of the pace, or we amortise the acquisition cost over fewer years of service.

That said, many of the same problems will arise in the surface fleet continuous build, and submarines remain a better bet in terms of being able to operate in an increasingly sophisticated and dangerous regional environment. But it’s a big stakes investment—$50 billion up front for the first 12 and then probably one and a half to two times as much again to support them over their lifetime—hence the new $150 billion headlines.