Submarine Proliferation

Australia Import Behavior

Capabilities | Import | Export

In 1982, the Australian government decided to replace its aging Oberon-class submarines. Howaldtswerke-Deutsche Werft (HDW), Thyssen-Nordseewerke (TNSW), Kockums Submarine Systems AB(Kockums), Cantieri Navali Riuniti (CNR, now Fincantieri), Rotterdamsche Droogdok Maatschappij (RDM) as well as Vickers Shipbuilding and Engineering Ltd (VSEL, now part of BAE Systems) submitted proposals; Kockums and HDW were short-listed. The Australian government required the construction to take place domestically to facilitate significant technology transfers by including local contractors. Australia would thus gain the industrial capacity to build, service and modernize submarines indigenously.[1]

Collins SSK. Source: US Navy Website, http://www.chinfo.navy.mil

In 1987, Kockums' submarine design was selected and a contract awarded to the Australian Submarine Corporation Pty Limited (ASC), which Kockums had founded with Australian partners. The Swedish company initially held 30 percent in ASC, the state-owned Australian Industry Development Corporation (AIDC) possessed 25 percent, and the remaining 45 percent was held by two private Australian entities. In early 1990, the latter companies sold their shares to Kockums and AIDC. As the Australian government required majority ownership to remain in Australian hands, James Hardie Industries Ltd (JH) acquired 2.5 percent from Kockums, guaranteeing an Australian majority position in ASC with AIDC and JH holding a total of 51 percent.[2,3]

The submarine deal was controversial from the start, and beset by problems. Irregularities regarding the selection of Kockums' design were reported. A significant reassessment of estimated submarine performance characteristics was undertaken by Navy officials five weeks before a decision was to be made, during which HDW performance estimates were downgraded and Kockums' assessments upgraded.[4,5] In addition, the Australian National Audit Office detailed excessive budgetary overruns.[6] However, an evaluation by HDW later attributed these project cost increases to frequent requirement changes by the Australian Ministry of Defense.[7]

Since their commissioning, the submarines have continued to face technical difficulties. In 1999, an official report identified numerous problems, among which an outdated combat system and cracked propeller blades featured most prominently. The report concluded that the submarines did not meet combat requirements and were unfit for service.[8] These findings confirmed a 1998 report by the US Navy Undersea Warfare Center. As a result of this earlier report, the Royal Australian Navy requested US assistance, and was supplied an interim solution for the combat system by the US Navy (USN).[9] In 1999, this cooperation was further intensified when the Australian government decided to fund new propeller designs, hull improvements, and a USN combat system.[10]

In 1998, at the same time that it was pursuing increasingly close strategic cooperation with the USN, the Australian government began to divest itself from its involvement in ASC.[2] The following year, HDW reportedly reached an agreement with Australian officials concerning Kockums' 49 percent stake in ASC. HDW was in the process of acquiring Kockums and was interested in its involvement in ASC as well. However, the Australian government had the right to purchase Kockums' shares in the case of a change in ownership. In November 2000, the Australian government overturned its alleged agreement with HDW and decided to execute this right and acquired the remaining shares in ASC from Kockums and JH.[11] However, this was undertaken with the clear intent of divesting itself from the acquisition at some point in the future.[3]

This decision appears to be related to the intensifying defense cooperation between Australia and the United States, with both countries interested in the interoperability of their navies.[12] Australian and German sources alleged that the United States pressured Australian officials, suggesting that access to US technology would be negatively affected were HDW to acquire all or part of ASC.[12,13,14] At the time, several Australian submarines had already been equipped with an interim USN combat system and the United States had also provided assistance on hull design. Canberra feared that this and future technology could be compromised if HDW took over ASC. Declaring that the acquisition of ASC was intended to guarantee access to technology and thus servicing for its submarines and thereby ensure a sustainable Australian shipbuilding industry, Australian officials opted for the continuation of the close strategic relationship with the United States.[11,15] Subsequently, a statement of principles on enhanced cooperation between RAN and the USN concerning submarine issues was signed. It gave Australia access to US technology, and eventually led to a common combat system used by both navies.[16,17,18] Reportedly the USN is interested in ASC as a potential repair and maintenance base for its own submarines. It also sees the Collins-class vessels as a valuable addition to joint operations by two navies.[19,20]

While Australian officials initially stated that HDW's future participation in ASC would be possible, this idea was evidently dropped in 2000, when invitations for plans for the future of ASC as a service provider were only sent to two US submarine shipyards, General Dynamics' Electric Boat Division and Northrop Grumman's Newport News, the UK submarine builder BAE Systems, and Australia's largest defense companies, Australian Defence Industries Limited (ADI) and the Tenix Group.[21,22,23] Given the United States' concern about technology transfers and Australia's interest in a continued strategic defense relationship with the USN, the Australian media predicted that Electric Boat would most likely be chosen as a joint venture partner or owner.[24,25] The signing of a statement of principles with the US Navy enabling closer industrial collaboration between the two countries was a definite step in this direction.[26] In October 2002, a Capability Agreement was signed, engaging Electric Boat to assist ASC in its transition from a submarine builder to a "through-life support" service provider.[27]

The Australian government's intention to divest itself from the ASC has encountered continuing difficulties. Beginning in 1998, steps were taken to privatize the yard. A June 2000 announcement that it would be sold within months was followed by the decision to take the ASC off the market in December 2001.[25,28] A similar announcement of an impending sale was made in May 2003.[29] However, problems over unresolved intellectual property questions with Kockums have been aggravated by the discovery that the Australian government sent propellers and their designs to the United States for modification in 1998 and 1999. These shipments only came to light during Kockums' unsuccessful litigation attempt to prevent a third propeller from being sent to the United States in 2001 after arbitration had failed.[30,31,32]

The court "declared that the US had agreed, at a high government level, to provide similar security in respect of any classified defence information that might be supplied to it by the Australian government," which is ironic given that Kockums had just sued the Australian government over alleged breaches of its intellectual property rights.[33] Furthermore, the modified propellers are classified, preventing Kockums from inspecting them in the future.[34] This behavior stands in stark contrast to the Australian government's stance on US intellectual property concerns regarding HDW involvement in ASC.

In 2001, the submarine Collins was beset by additional difficulties when over 11,000 surface and 550 subsurface welding flaws were discovered during a general overhaul of the submarine. The sections with flaws had been produced in Sweden, while corresponding sections built at ASC did not display any such problems. It remains unclear which party is to bear the costs: Kockums claims that all cost issues were addressed in the mid-1990s, while the Australian government expects reimbursement. This conflict is further aggravated by diverging expectations concerning outstanding intellectual property payments, with Kockums demanding a substantially higher amount than the Australian government expected.[35,36]

An addition challenge facing ASC is the excess in production capacity at Australian shipyards. Government contracts are likely to remain critical to shipyard viability as the industry is rationalized.[24,37,38] While the ASC could and is likely to engage in naval shipbuilding as well as commercial endeavors, the acquisition of a specialized submarine construction facility was a costly endeavor. To recoup this expense, ASC will likely do more than the merely service and modernize Australian submarines in future.

However, it is unclear whether Australia received a sufficient degree of technology and knowledge transfers to design submarines indigenously. If not, a new owner will have to bring in such expertise in order to make investment in the ASC profitable. An HDW official has stated as much.[21] According to one Australian source, the United States may be interested in advancing its non-nuclear submarine technology. If so, this could justify engagement with the ASC.[15]

Sources:
[1] Derek Wollner, "Procuring change: how Kockums was selected for the Collins class submarine," Research paper No. 3, 2001-2002, Information and Research Services, Department of the Parliamentary Library Web Site, http://www.aph.gov.au/library/pubs/rp/2001-02/02RP04.pdf.
[2] A.W. Grazebrook, "Collins Class comes up down under," Jane's Navy International online edition, http://jni.janes.com, 1 January 1998.
[3] "Background Information," Australian Submarine Corporation Web Site, http://www.subcorp.com.au.
[4] Ian McPhedran, "Navy inflated subs' design claims," Daily Telegraph, 9 October 1998; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[5] Lincoln Wright, "Billion-dollar boats sub-standard, says ex-naval officer," Canberra Times, 25 May 1999; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[6] Mark Metherell and Amanda Vaughan, "Subs are still not shipshape as project wallows in sea of red ink," Sydney Morning Herald, 2 July 1999; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[7] Peter Seidlitz and David Murphy, Business Times (Singapore), 10 February 2000; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[8] Peter Cole-Adams, "Sunk without a fight - the $5-billion submarine," Sydney Morning Herald, 10 July 1999; in "Report: Australian submarine project 'shambles'," FBIS Document LD0207114799.
[9] Gwen Robinson, "Sydney hopes on submarine fleet holed by US report," Financial Times, 9 October 1998; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[10] Peter Cole-Adams and Mark Metherell, "Shake-up in store for weapons buying," Sydney Morning Herald, 2 July 1999; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[11] Max Blenkin, "Fed: Government to continue discussions with Germans over subs," AAP Newsfeed, 6 April 2000; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[12] Geoffrey Barker, "US warns of conflict over subs," Australian Financial Review, 4 April 2000; in "Daily views Australian Sub Corporations future, US ties," FBIS Document SEP20000403000121.
[13] "'Handelsblatt: USA gegen Kauf australischer Werft durch HDW," AFX News Agency, 11 April 2000; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[14] Michel Richardson, "Australia struggles to get its submarines shipshape," International Herald Tribune online edition, http://www.iht.com.
[15] Trevor J. Thomas, "New prospects for Aussie Submarine Corporation," Defence Systems Daily online edition, http://defence-data.com, 29 November 2000.
[16] Radio Australia, 17 July 2000; in "Australia: Troubled submarine project to gain from US technology," in FBIS Document SEP20000717000049.
[17] Ian Bostock, "Sale of Australian submarine builder hits snags," Jane's Navy International online edition, http://jni.janes.com, 1 September 2003.
[18] Defence Systems Daily, 11 September 2001; in "General Dynamics to become capability partner for Australian Submarine Corp.," Defense Daily International, 4 October 2002, Vol. 2, No. 48.
[19] Derek Wollner, "Getting in early: lessons of the Collins submarine program for improved oversight of defence procurement," Research paper No. 3, 2001-2002, Information and Research Services, Department of the Parliamentary Library Web Site, http://www.aph.gov.au/library/pubs/rp/2001-02/02RP03.htm.
[20] Tony Parkinson, "Subs repair base mooted for Australia," The Age, 26 July 2001; in "Australia: Critics of government express concern over closer naval links with US," FBIS Document SEP20010725000102.
[21] Robert Garran, "German firm out of submarine race," The Australian, 23 October 2000; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[22] "Commonwealth acquires full ownership of the Australian Submarine Cooperation," Australian Defence Ministry Web Site, http://www.minister.defence.gov.au, 30 October 2000.
[23] "General Dynamics to become capability partner for Australian Submarine Corp.," Defense Daily International, 4 October 2002, Vol. 2, No. 48.
[24] Robert Garran, "Naval shipyards consolidation plan," The Australian, 28 June 2001; in "Australia: Report notes government plan to consolidate naval shipbuilding," FBIS Document SEP20010627000099.
[25] "Sale of government-owned Australian Submarine Corporation postponed," Radio Australia, 19 December 2001; in FBIS Document SEP20011219000067.
[26] Interview with Rear Admiral Kevin J. Scarce, RAN Head Maritime Systems by Jan Wiedemann, "Procurement programmes of the Royal Australian Navy," Naval Forces, 2001, Vol. 22, No. 6, pp. 87-90; in ProQuest Information and Learning Company, http://ProQuest.umi.com/pqdweb.
[27] Ian Bostock, "Australia signs up Electric Boat as submarine partner," Jane's Defence Weekly online edition, http://jdw.janes.com, 16 October 2002.
[28] Melissa King and James Grubel, "Sub firm to be floated; Federal plan to sell half the shares," The Advertiser, 28 June 2000; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[29] "Fed: Gov't could sell ASC within months, despite dispute: Hill," AAP Newsfeed, 6 May 2003; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[30] "Top secret propellers sent without designer's permission," AAP Newsfeed, 15 March 2001; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[31] Gavin Lower, "Subs' secret design given to Americans," The Advertiser, 16 March 2001; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[32] David Lague, "Sweden goes to war: Australia blasted over submarine secrets," Sydney Morning Herald, 29 December 2000; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[33] "Secrets are safe, court assures submarine designers," Sydney Morning Herald, 12 April 2001; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[34] "Germany HDW considers future in Aust after propeller case," AAP Newsfeed, 21 March 2001; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[35] Leanne Craig, "Submarine dispute heading to court," The Advertiser, 4 July 2003; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[36] Geoffrey Barker, "Subs saga plumbs new depths," Australian Financial Review online edition, http://afr.com.
[37] Christopher Jay, "Important decisions on shipbuilding put on the backburner," Australian Financial Review, 4 July 2002; in Lexis-Nexis Academic Universe, http://web.lexis-nexis.com.
[38] "Naval Shipbuilding and Repair (NSR) Sector Strategic Plan," Australian Department of Defense Web Site, http://www.defence.gov.au/dmo/msd/NSR_Sector_Plan_WebsiteVersion_26Sep02.pdf pp. 40-41.

This material is produced independently for NTI by the James Martin Center for Nonproliferation Studies at the Monterey Institute of International Studies and does not necessarily reflect the opinions of and has not been independently verified by NTI or its directors, officers, employees, agents. Copyright © 2007 by MIIS.