What impact does the nuclear option have on Australian submarine contractors and jobs?

© Provided by ABC Business Experts say large amounts of the work on Australia’s proposed nuclear submarines, such as the hull, will likely be done at the Adelaide shipyard that built the Collins class. (ABC News: Angelique Donnellan)

There have been two overwhelming reactions from the local defence industry to this week’s announcement that Australia will tear up its contract with Naval Group and build either US or UK designed nuclear submarines instead. One is relief, the other fear.

Nigel Hennessy from defence consultancy Project Alpha Plus — which had worked for Naval Group — explained that, from a strategic perspective, a nuclear submarine made more sense for Australia.

“Australia shouldn’t have diesel submarines, it should have nuclear, because we need the range to get around the whole of the country as covertly as possible, and the only way to do that is with a good nuclear submarine,” he told ABC News.

Brent Clark is the CEO of the Australian Industry and Defence Network (AIDN), and he shares Mr Hennessy’s point of view.

“It’s a tremendous package from a national security perspective, and that’s what we want governments to do,” he said.

Entering the ‘valley of death’

However, Mr Clark was also aware of the financial pain and fear many of his members will be feeling after Naval Group’s contract was torn up.

“There are a lot of companies that have contracts with Naval Group,” he told ABC News.

“They will have been issued cease work orders. That will be devastating for them.

“We are staring down the barrel of nearly three years from when people get work. How are those companies going to be looked after?

“How are we going to ensure that they survive? Because we need them to survive, because they’re going to be required going forward. How are we going to manage the workforce?”

Those questions resonate with Audra McCarthy, who runs the Defence Teaming Centre, which helps industry get involved in the sector.

“Our initial response was complete shock,” she told The Business.

“We are now thinking about the significant investment many of our members have been making to be involved in the future submarine program, at personal cost in some cases. Where does it leave those businesses now?”

Even though the design phase of the project was yet to get underway, due in part to contractual disputes between the French company and Australian government, some work was already being contracted and hundreds of people employed in Adelaide.

“They were on track to employ about 500 people in Adelaide by the end of this year, including about 50 people who are overseas training in France, and on track to award about a billion dollars worth of work to Australian companies,” noted Greg Ferguson, also from Project Alpha Plus.

“All that work is going to stop and the so-called ‘valley of death’, which has been a source of worry for a lot of companies, is going to continue, because it’s going to be a few years before we see any work begin on the new submarines, whatever they are.”

Ms McCarthy was worried that many businesses burned by missing out on work with Naval Group may throw in the towel.

“We’ve seen an influx of new companies transferring from existing adjacent sectors to enter into the defence sector,” she observed.

“I think we’re likely to see a number of companies will exit from the defence industry sector.”

Mr Hennessy said the decision to abandon a $90 billion contract may also make big multinational defence contractors cautious to bid for future work.

“We’re going to struggle to get another contract out of France for a long time,” he warned.

“I think many of the other countries will start thinking twice about working with Australia, when the government does what they’ve done here.”

This view appears to be confirmed by France’s angry reaction to the announcement.

‘No logical reason’ Australia can’t build most of the subs

However, while the next few years will be tough, Mr Clark was confident there would be plenty of work in Australia once the construction of the submarines eventually gets underway.

“We’re building another submarine — and there’ll be an extra bit, a very sophisticated, very costly, extra bit called a nuclear reactor — but the rest of the submarine, there’s no logical reason why Australia can’t be involved in that,” he said.

“I don’t see the government having the appetite to build any of its submarines except for the nuclear part overseas, and I think the general public will get quite upset if they actually did that.”

Both AIDN and Project Alpha Plus agree that Australia had all the skills, technology and experience necessary to build key components of the submarine, including the steel hull, parts of the combat system, sonar, propellers, the torpedo handling system and much more.

“I think we probably will need to have to build overseas initially, in order to get the timeline reduced,” Mr Hennessy said.

“But I think, longer term, you will probably find it will be of that order of 70 per cent or more local content by the end of the final builds.”

Mr Ferguson noted, from his experience scrutinising the Collins class submarine project, that most of the money spent in Australia was outside South Australia.

“The reality was that 75 cents, at least, in every dollar that went into the submarine project, went straight outside the state again,” he observed.

“So any any big project of this kind is a whole-of-nation project.”

However, while Project Alpha Plus could see the overall benefit of the change in direction to a nuclear submarine design, Mr Hennessy was perplexed why the government tore up the French contract and damaged the relationship with that country.

“The original submarine they purchased was a nuclear submarine, which they then converted to a diesel. Why didn’t they get Naval Group to actually use the original design?” he asked.

“That defies logic, because they’ve cancelled the contract, destroyed the relationship and, in turn, they’ve now got to go back to the drawing board and put the program behind by five years.

“So I don’t understand that logic.”

Video: Nuclear-powered submarines a ‘terrible decision’ which will make Australia ‘less safe’ (Sky News Australia)

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