National Defence Committee on Feb. 14th, 2017

[The Chair, Liberal, Stephen Fuhr]

I call the meeting to order.

I'd like to welcome Peter Jennings from Australia. He is the executive director of the Australian Strategic Policy Institute. We're just winding down our look at the Royal Canadian Navy, naval readiness, and the defence of North America.

Australia has come up a number of times throughout our study. It looks as though the timing is good. We heard you were in town, and it was timely that you would come to give us your perspective on how your country does things. Best practices would be appreciated, and certainly you can share with us things that maybe haven't worked out so that we can perhaps avoid some pitfalls that we may face in what we're trying to achieve.

I want to thank you very much for coming. I apologize for being late. You have the floor for your opening comments.

[Peter Jennings, Executive Director, Australian Strategic Policy Institute]

Mr. Chair, thank you very much indeed. It's an honour to be able to address the committee. This is the first evidence I've given in front of a Canadian parliamentary committee. I've spoken many times to your equivalent in Australia, and it's a pleasure to be here.

I should apologize to some members of the committee. Like most Australians, I speak only English—some people would say badly—so forgive me if I make my presentation in English.

I'm speaking in my capacity as the executive director of the Australian Strategic Policy Institute. We are a non-partisan think tank in Canberra, set up about 15 years ago, to provide government independent and contestable advice on matters of defence and national security. We have been heavily involved in the public debate around Australia's plans for new naval platforms, such as the next-generation submarines and the plans for new surface combatants.

I understand Canada is planning to build a new class of up to 15 frigates to replace the Halifax and Iroquois classes. It makes a lot of sense, Mr. Chairman, for Australia and Canada to compare notes on our respective shipbuilding strategies and our common maritime environment, so I'm pleased to be able to contribute today to what I hope will be a continuing and closer discussion between two countries on the subject.

I will state for the record that the opinions I express here are my own and don't represent the positions of the Australian government.

Mr. Chair, as part of the Australian government's plans to modernize and expand the capabilities of the Australian Defence Force, the Australian navy is at the beginning of a very significant recapitalization. In the last few years the navy has commissioned two Canberra-class landing helicopter dock/amphibious assault ships. These are the largest vessels our navy has ever operated, at 27,000 tonnes. Later this year, the first of three new Aegis radar-equipped air warfare destroyers will enter service with the navy, with two more scheduled for delivery by 2020. The Australian government and the Department of Defence are now planning the next stage of the navy's recapitalization, which includes a new class of nine frigates with an anti-submarine focus,12 new offshore patrol vessels, and a new submarine fleet, which is doubled in size from the current six to 12. All of these platforms are now expected to be built in Australian shipyards.

In Australia we have had two broadly distinct but connected conversations regarding the next generation of naval vessels. The first is a debate about what kind of capabilities the navy needs to be an effective force in the coming decades, given our rapidly changing strategic environment. For example, the decision to double the size of our submarine fleet was made in 2009, in response to the proliferation of submarines in the Asia-Pacific and to maintain our capability to project power into contested areas, as we saw increasingly sophisticated sea-denial capabilities proliferate in the region.

It would be preferable if there were more focus in Australia on those driving strategic issues, because they are the things that should shape our future naval capabilities and also give us some sense about the urgency of the task, but our national attention focuses more on the second conversation, which is around how to establish a program for continuous and enduring naval shipbuilding within Australia. This marks a quite decisive departure from the boom-and-bust cycle of past years, in which the shipbuilding industry atrophied between major shipbuilding projects. Over the past century Australia has alternated between acquiring vessels from overseas suppliers and building them ourselves, but the mood at the moment in government and in the wider Australian community is for local build. Most if not all of the major decisions about improving the Australian Defence Force over the coming years have had bipartisan support in Australia's Parliament, which includes our plan for a strong domestic shipbuilding industry.

The strategic challenges we face and the industrial challenges we face are significant in and of themselves, but they're entwined in ways that can complicate planning. What I mean here is that the sense of strategic urgency we have in the Asia-Pacific region has increased significantly in the last 10 years, and that seems to be accelerating.

This is the urgency that informed decisions to expand our submarine and surface fleet. However, that has to compete with the desire to establish a stable shipbuilding industry against a delivery timetable that is well spaced in order to sustain production. The strategic urgency I'm suggesting, Mr. Chairman, is at odds with a shipbuilding program that, for example, expects to deliver our 12th submarine around the year 2050, which means that the crew of that boat are not even born yet.

There are also short-term challenges in standing up the industry program, which requires starting design and construction of three new ship classes in the next 10 years. The Australian government has planned to begin construction of new offshore patrol vessels of about 2,000 tonnes in 2018, and then to begin construction of the future frigates, of about 6,000 tonnes, in 2020. This is a very tight time frame, and it was intended to reduce the impact of reducing shipyard workforces in Adelaide, South Australia, following the end of the construction of our air warfare destroyers. The loss of shipyard jobs has acquired the politically unpalatable label of the “valley of death” in the Australian press.

The 2018 start date for patrol vessels, I'm afraid, is already slipping, because we have yet to select a design partner from any of the three contenders. The future frigate is also likely to suffer delays due to the significant engineering work required to confidently lock in the final design before construction commences.

The Australian government has said that it will develop a plan for a continuous or rolling production of naval vessels. A sustainable construction program for Australia's surface combatants would suggest a roughly two-year production rate and a 24-year service life for each vessel. The same could be true for the fleet of 12 submarines.

What that means, Mr. Chairman, is that these fleet sizes are probably the smallest numbers that we could maintain to be consistent with rolling continuous production, and then only marginally. With any fewer vessels, either the production rate would have to be inefficiently slowed or we would have to shorten the lifetimes of the vessels in service.

Because of the minimalist nature of this program, it's highly likely that one single shipyard will perform all of the shipbuilding work for major vessels, and that brings with it challenges associated with monopoly supply.

The Australian government currently owns its own ship and submarine yards in the form of ASC Pty Ltd. in South Australia, which it has recently split into three business entities. What it will do with these entities remains to be seen, but it has quite a lot of flexibility in terms of selling or retaining these various components.

My view, Mr. Chair, is that strategy should drive policy rather than industry policy driving strategy. On the strategic front, we're in a period of rapid change in development in the maritime domain that is particularly striking. Regional militaries are modernizing and expanding, and submarines are proliferating. These trends are especially visible in China. The Obama administration's pivot to Asia has only partially delivered, and the Trump administration's plans for engagement in Asia are not yet clear.

Like Canada, Australia has responsibility for a great deal of maritime territory. In order to augment our naval platforms over the coming years, defence is also receiving new air capabilities. It's worth mentioning that they include P-8A Poseidon anti-submarine warfare and maritime patrol aircraft. Our air force will also be the first service, other than the U.S. Navy, to operate the unmanned Triton drone, a high-altitude, long-endurance maritime patrol aircraft.

The air force capitalization is occurring on what is an appropriate time scale for our strategic circumstances, but then we're not building the aircraft in Australia; we're buying them from overseas. The committee may also be interested to note that we are acquiring at least 72 F-35 joint strike fighters for our air force, and we will soon take delivery of 12 Growler-equipped Super Hornet aircraft.

This is worth mentioning because of the significant joint and allied capability effect of employing all of these systems. However, one of defence's biggest challenges remains working out how to integrate these various platforms into a single fighting capability.

Mr. Chairman, I'll move through some of my other comments here, and end by saying to members of this committee that I've long thought Australia and Canada could only benefit by developing closer relations in terms of defence strategy, planning, acquisition, and sustainment.

We have the great benefit of organizing and running our defence forces in very similar ways. They are also of a comparable scale, which means that our acquisition problems and successes can offer useful lessons for each of us.

We have substantial defence ties, but these are actually mostly around military training and secondments. I think we could do better in terms of strengthening our engagement on strategic thinking and on sharing best practices around equipment acquisitions and industry engagement.

With that, I'll conclude my comments, Mr. Chair. I'm very happy to take questions.

[The Chair, Liberal, Stephen Fuhr]

Thank you very much for your testimony today.

Just for committee admin, we'll do one lap of formal questions—that takes about an hour—and then we'll have 30 minutes for committee business administered by the staff here. That will be enough to get through the drafting instructions. Then, of course, there's my paper. If you get the paper, it means you have 30 seconds to wrap up your thoughts so that I can keep everybody on time. It seems to be working, so I'll continue with my paper strategy.

The first seven-minute question goes to Leona Alleslev.

You have the floor.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Thank you very much, Mr. Chair.

Mr. Jennings, thank you very much for being here. I couldn't agree with you more that there's a lot we can learn, and what a privilege it is to have you here to help us with that.

You highlighted a sense of urgency in the recapitalization of the navy. You also highlighted the importance of military industrial capability as part of sovereignty and being able to make this a success. Could you give us some more insight into the value and importance and how you are ensuring that you have that domestic capability for the navy?

[Peter Jennings]

Thank you for your question.

I think the Australian government had a threshold moment in about 2014-2015 when it concluded decisively that it wanted to maintain a domestic shipbuilding capability for the navy. There had been a decades-long debate about the merits of offshore purchasing versus onshore construction. Now, I think for the first time in 30 years, we have a largely bipartisan agreement that onshore construction is the right way to go.

I think it is acknowledged that this can come at a price, because we are, comparatively speaking, a very small manufacturing base relative to other large producers of warships.

One of the challenges for government and for the defence organization is how to do this in the most cost-effective way possible. The answer seems to be through a process of continuous construction, which allows you to gain efficiencies with pretty much every platform you produce. You can expect something like a 5% saving against each platform as it comes off the production line.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Would you say that it's limited to shipbuilding, or does it also extend to the command-and-control combat systems?

[Peter Jennings]

In our case, we have a mixed defence industrial base. This enables us to do some elements of systems integration and produce high-level radar capability indigenously, and that is now featured on a number of our warships, but we have tended to go to the U.S. for combat systems and weapons systems. For example, our torpedo is actually a joint Australia-U.S. Mk 48 torpedo.

The real challenge for Australian industry is how to integrate all of these capabilities onto one platform. In the case of a submarine, for example, the new submarine, a French design, will have American weapons systems integrated in Australia. That's quite a challenging task.

Where our industry needs to be really strong at the high-tech end is in those integration capabilities, rather than in the weapons system design, for which we're quite happy to go overseas.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

You would argue that there's a value to systems integration as a sovereign capability for weapons systems.

[Peter Jennings]

I'm a little cautious about the use of the term “sovereign capability”, because in my mind at least—

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Domestic.

[Peter Jennings]

—the best capability we can have is being part of international value chains, which link Australia into the capabilities of other countries.

An example, not in the maritime domain, is in the joint strike fighter. We manufacture components of the joint strike fighter for the entire fleet, not just for our own. I would call it being a part of international value chains, but I think there is enormous value for us to have capabilities resident in Australia that we know we can draw on even during times of crisis. I would want to buy more to the higher end of systems and systems integration rather than the metal-bashing involved in hull construction.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Perfect.

Now can we go over to procurement a bit? With sole-source procurement, you're looking at keeping those costs down and keeping that timeline working. Our system is a little different from yours, so could you share with us some of the relationships and the roles and responsibilities of each of the players in that scenario? I'm personally very interested in your acquisition and support group.

[Peter Jennings]

I don't know that we've necessarily cracked this nut terribly successfully in the past. We have had examples of significant cost overruns and time delays, for example, in the construction of our air warfare destroyer.

The current approach is to argue for a new type of relationship between defence and industry. For shorthand, we refer to as industry as a fundamental input to capability. Inherent in that idea is that government and industry have much closer conversations that enable spiral development of technology to take place, so that in a 12-submarine build or a nine-frigate build, you expect the improvements to happen as you go with each platform.

It's a subtle difference, but it's actually an important one compared to the old way of doing business, which was really about delivering on the contract on time, and it didn't matter if the specifications in the contract were now 10 years out of date; just deliver on that. That's the relationship that industry has had with the defence organization in the past.

Now we're looking for a closer form of engagement. I think the key to delivering this is the building of trust among the defence department and the navy and the industry environment. That can only happen over a period of time.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Who does the acquisition support group report to?

[Peter Jennings]

They report to the Minister for Defence, or they report to the secretary of the defence department and the chief of the defence force. They are an organic part of the defence department. Then at the political level, we now have two ministers. We have a minister for defence and a minister for defence industry, both of whom sit in cabinet, and through a magical process of osmosis, reach agreement on priorities in industry construction.

[Leona Alleslev, Liberal, Aurora—Oak Ridges—Richmond Hill, ON]

Could you give us an idea of the responsibility—

[The Chair, Liberal, Stephen Fuhr]

I'm going to have to cut you off on your time there.

Mr. Paul-Hus, you have the floor.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

Welcome to the meeting, Mr. Jennings.

I would like to get back to the shipbuilding system you use.

Australia is currently able to deliver its ships fairly quickly. We talked about weapons systems from other countries. That is to be expected since you purchased systems from the United States or other countries. I would like to know, however, whether ships are assembled at the same yard from start to finish.

If not, do you assemble turrets or other parts that are manufactured elsewhere?

[Peter Jennings]

The first thing I can say is that you're being too kind. In terms of the judgment about the quick delivery of our vessels, we have had some significant delays on major construction projects, including the largest one under way right now, the air warfare destroyer.

Up until now, we have used a strategy of modular construction. Modules are constructed in a number of yards around the country, and then the final assembly takes place in Adelaide in South Australia. I think as we move into the future, though, we will see a consolidation of the shipyard numbers down from the two main yards at the moment to one, that being in South Australia, with a smaller capability for offshore patrol vessels operating out of Western Australia, so we will sort of have a base of one and a half shipyards. Adelaide will become the sole source of construction for the submarines and the new frigates and for sustaining those vessels through their life.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Okay.

In the committee's study of shipbuilding in Canada, we have noted that there are some major players that share contracts and others that would like to get contracts.

You are here today to tell us about how you have improved your approach. You said that shipbuilding contracts are now divided up among a number of shipyards. As you pointed out, however, the government tries at times to concentrate work in one or one and a half shipyards. Shipyards are private companies and therefore belong to private interests. Will the shipyards that are at risk of losing contracts have to close? If not, are there other options for them? In short, how do you manage the awarding of contracts to just one or two shipyards, given that others would like to get their share?

[Peter Jennings]

In Australia, this is the central political challenge of allocating contracts. I think that the government, as well as our opposition, has finally bitten the bullet on the realization that if we are going to maintain a viable shipbuilding industry at all, we will have to consolidate the overall number of yards. That's clearly painful for some local areas, but I think it does reflect a realistic approach to understanding whether Australia can maintain this capability at all.

I think the future layout of our shipbuilding industry will be a big yard in Adelaide with two construction lines—one for submarines and one for frigates—and a smaller yard in Western Australia that will concentrate on vessels below the 2,000-tonne size. There will be opportunity for subcomponent work for a smaller number of manufacturers around the country, but we will see some consolidation, most likely in the state of Victoria. It's very hard to see how that can be avoided, if the government follows through with this path of a long-term sustainable industry base in the country.

[The Chair, Liberal, Stephen Fuhr]

You have another couple of minutes.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Our perception and information is that policy considerations were disregarded in the Australian process. I note, however, that the decisions are still being made at the political level and by departments. We are trying to understand this.

Let's suppose, for instance, that Australia decides to build four submarines. Two or three years later, could a new government cancel that contract? That is the type of thing that is problematic. Does Australia have a policy to prevent the cancellation of a contract so it can plan for construction in the long term?

[Peter Jennings]

Yes, it has mostly been the story that governments have continued with past contracts, but every fresh government has a chance to redesign and rethink how it wishes to proceed.

I don't know how it works here, but certainly one of the biggest challenges we face now is the lobbying influence of state governments seeking to attract work to their states. That has become a much stronger feature than we've had in the past in Australia—somewhat unhelpful, I must say, from a federal perspective, because it often means that the decision gets taken on the basis of which state government needs the most help before a state election.

[Mark Gerretsen, Liberal, Kingston and the Islands, ON]

We don't have that problem here in Canada.