Defense Industry

	TOP 10 DEFENCE CONTRACTORS	Sales ($ M)
2007
1	Thales Australia	757.5
2	Tenix Defence Pty Ltd	650.0
3	Raytheon Australia Pty Ltd	593.0
4	BAE Systems Australia	560.0
5	Australian Aerospace Ltd [EADS]	527.8
6	Boeing Australia Holdings Pty Ltd	400.0
7	Spotless Group Limited	400.0
8	ASC Pty Ltd	312.4
9	Defence Maritime Services Pty Ltd	253.0
10	Austal	241.4
SOURCE
2004
1	Tenix Defence Pty Ltd	600.0
2	ADI Limited	594.5
3	BAE Systems Australia	475.0
4	Australian Aerospace Ltd [EADS]	351.9
5	Raytheon Australia Pty Ltd	325.0
6	Spotless Group Limited	285.0
7	The Boeing Company	284.0
8	Australian Submarine Corporation Pty Ltd	255.9
9	Serco Sodexho Defence Services Pty Ltd	132.0
10	Saab Systems Pty Ltd	123.0

The smallness of the Australian military forces has always been an inhibiting factor on the manufacture of indigenously conceived weapons and equipment; for small production runs the costs per unit are naturally high, and at most times there has been a national reluctance to enter the export market. This factor together with the desire for standardization can to some extent be overcome by multi-lateral development with the larger friendly nations, and this has, in fact, been found to be so with several of the projects.

In the 1990s the core of Australia�s defence industry was locally owned and controlled. In 1996, of the three leading contractors (ADI, Transfield Defence, and the Australian Submarine Corporation (ASC)) two were wholly Australian owned. By 2006, Thales had taken over ADI and third, fourth and fifth ranked firms (BAE Systems, Raytheon and Boeing) were local subsidiaries of overseas firms. Following delivery of all six Collins Class submarines, ASC had become a much smaller player (ninth in the rankings). This major shift towards direct or indirect foring ownership was reinforced when BAE Systems bought Tenix (previously Transfield) in 2008, leaving government-owned ASC as the only major company with a significant Australian ownership.

The U.S. is closely involved with the Australian defense industry, providing a range of modern hardware and systems. Australia is also linked strategically with the U.S., primarily through the terms of the ANZUS Alliance. The two countries share military training, exercises, intelligence exchanges, and cooperation in defense science and technology, communications and logistics. Australia is a stable, strategically placed partner in a rapidly changing region. The presence of U.S. companies is generally readily accepted, and further investment is invited, particularly in partnership with local companies, where there is some transfer of technology or some commitment to investment.

The Australian Department Defense is a major influence on the industry, being the largest single customer and accounting for one third of turnover. Through its large purchases, the Department stimulates research, investment, and fosters the growth of niche suppliers and repair and maintenance establishments. The Department, through government direction, is able to stimulate industry investment, research and development, and facilitate Australian SME entry into global supply chains. The most fruitful example of this is the decision by Australia to participate in the System Development and Demonstration Phase of the Joint Strike Fighter project. To date, it has opened up opportunities for nineteen Australian enterprises to supply various components for the new fighter. The US DOD is a major supplier to the Australian military through the Foreign Military Sales Program, and most major US aerospace defense contractors are either represented or have subsidiary operations in Australia.

Attention turned to consideration of Australia�s defence policy in the mid-1980s, after the return of a Federal Labor government on 5 March 1983. The government�s conclusions on defence policy were set out in the 1987 Defence White Paper. One significant result was the move to corporatise a broad range of activities previously undertaken within the Department of Defence. This involved the dismantling of what was then the Office of Defence Production with corporatisation of the government aircraft factories and the arms and munitions factories and the sale of the Williamstown Naval Dockyard.

Hawker de Havilland [HdH] and Commonwealth Aircraft Corporation [CAC] were merged on 09 July 1986. The merger produced a streamlined organisation but, importantly, gave the two companies the range of skills and a large enough workforce to compete internationally, and to countenance risk-sharing projects. But the merger also left GAF, already the odd man out as the only Stateowned manufacturer, as the distinct outsider. As a State-owned concern, GAF's dependence on Government work, and particularly defence work, was even greater. GAF was overmanned and unprofitable, yet technologically probably more advanced than any other Australian aerospace firm. The Government Aircraft Factories were incorporated as Aerospace Technologies of Australia Pty Ltd in November 1986 and became operational in March 1987.

Tenders were sought for the Williamstown Naval Dockyard in April 1987 and in 1988 it passed to Transfield Defence Systems, later renamed Tenix Defence Systems. The several munitions, explosives and clothing factories formed Australian Defence Industries (ADI) Limited that was incorporated on 21 July 1988, and became operational when it took control of the defence factories and Garden Island Dockyard on 3 May 1989.

These three initiatives reduced civilian employment in the Department of Defence by 15,000. The initiative aimed to create an armament industry that was far more competitive than previously. Consequently, unions at the Williamstown shipyards were reduced from 23 to three, with a consequent increase in efficiency. ADI made major efficiency gains in closing munitions factories at St Marys near Sydney and Maribyrnong in Melbourne, and building a new factory at Benalla in country Victoria. Virtually new facilities built on the northern area of the former explosives factory at Salisbury close to the DSTO laboratories were relinquished.

The Australian Department of Defense initiative to compete a range of defense activities with the private sector, the Commercial Support Program (CSP), was initiated in 1991 at a time when a need was being recognized for greater efficiency and effectiveness in defense activities, not just in Australia but in countries such as Canada, the U.S. and the U.K. The use of civilian contractors from these three countries to provide on-the-ground support to operational forces during Desert Storm had proved the effectiveness of a civilian-military partnership. A comparison can be made between the CSP and the Private Public Partnership in the U.K. (previously Competing for Quality), the Alternative Service Delivery in Canada, and A76 (now the Defense Reform Initiative) in the U.S.

In early 1992, the Australian Minister for Defense, Science and Personnel undertook an overseas study tour, and observed that in all three countries there was an appreciation of both the value of contracted support, and mutually beneficial relationships arising from this activity. The Minister was convinced by what he saw, that the commercial support initiative would make defense managers more business-like if they were required to compete with industry. Defense support activities in Australia paralleled those being contracted in the countries visited. The CSP in Australia, therefore, became analogous to defense forces in other countries using national industrial capacity to support and complement defense capabilities. Defense began to question the value of training soldiers to mow lawns or to become cooks, at a time when greater austerity in defense spending was calling for funds to be directed to the "sharp end".

The CSP exposes "in-house" defense support activities to competition from the private sector. It promotes the transfer of activities between the Australian Defense Force (ADF) and industry, where it is operationally feasible, practicable and cost effective to do so. The program is designed to be wide ranging, and to include any activity not designated as "core". Core activities relate to the performance of the ADF military mission and whose inclusion in the CSP would undermine the viability of essential defense capabilities.

Prime Minister of Australia John Howard and President George W. Bush signed the U.S.-Australia Treaty on Defense Trade Cooperation in Sydney on September 5, 2007, immediately before the Asia-Pacific Economic Cooperation (APEC) summit. Proponents view the treaty as bringing what are already very close allies even closer together by facilitating defense trade between the two states and members of their respective defense industries. The treaty would ease restrictions associated with the International Trade in Arms Regulations (ITAR) by creating a comprehensive framework within which most defense trade can be carried out without prior government approval.

The Treaty created a secure circle comprised of the US Government, the Government of Australia and both countries' respective defense companies that meet specific requirements. Most US and Australian defense articles will be able to be exported into, and within, this circle without prior government approval as long as the exports are in support of certain combined U.S.-Australia military or counterterrorism operations, U.S.-Australia research, development, production and support programs, Australian Government-only end-uses, and U.S. Government-only end-uses.

The Rudd Government [2007-2010 Labor] recognised the important role that defence industry plays in support of ADF capability, from the provision and maintenance of military equipment to the delivery of a wide range of support services. Growing the capacity and competitiveness of local defence industry is a policy objective of the Government and will require ongoing investment in skills development, workforce growth and improved productivity.

Total self-sufficiency in defence industry capabilities would be impractical for a nation of Australia's size, and is not necessary in any event. The Rudd Government was committed to ensuring that certain strategic industry capabilities remain resident in Australia. Defence would not pay a premium for local industry work, unless the costs and risks of doing so are clearly defined and justifiable in terms of strategic benefits. Choices were necessary when identifying which local industry capabilities should have priority.

To this end, Government decided to establish priority industry capabilities (PIC), which are defined as those industry capabilities which would confer an essential strategic capability advantage by being resident within Australia, and which, if not available, would significantly undermine defence self-reliance and ADF operational capability. The Government is prepared to intervene in the market to ensure that PICs remain healthy and available.

The Government monitored a broad range of industry capabilities, such as:

• 'high-end' system and 'systems of systems' integration capabilities, including for EW development, the protection of networks and computers, including in the field of cyber defence, communications security testing services and through-life support of cryptographic equipment, and system life cycle management capabilities to maintain and extend the service life of ADF systems;
• naval shipbuilding, including specialist design and engineering services; warship repair, maintenance and upgrade capabilities, and essential facilities; submarine design and construction, repair, maintenance, upgrade and overhaul capabilities; selected development, production, upgrade and through-life support of underwater acoustic technologies and systems;
• development, repair and precision machining of composite and exotic materials, signature management capabilities and coatings, and anti-tampering capabilities;
• the ability to produce selected ballistic munitions and explosives; repair, maintain, test and evaluate guided weapons; repair, maintain and upgrade capabilities in relation to infantry weapons, small arms and remote weapons stations on combat vehicles;
• through-life and real-time support of mission and safety critical software; system assurance capabilities for both ICT hardware and software; the repair and maintenance of specialist AEW&C systems; the development and through-life support of JORN and phased-array radars; secure test facilities and test ranges; the development and support of targeting and precision navigation capabilities;
• development of capabilities in the field of combat clothing and personal load carriage equipment;
• repair and maintenance of armoured vehicles; and
• the repair, maintenance and upgrade of rotary- and fixed-wing aircraft.

With the exception of the Bushmaster and high speed engineering vehicles (which ADI produces at its Bendigo facility), all of Army�s armored vehicles are imported. This pattern is likely to continue in future.

The aerospace sector comprises a few large aerospace companies and several hundred small to medium enterprises across a diverse range of specialist and technical businesses that form part of the critical supply chain to the prime companies and assembly operations. Australia's aerospace industry employs around 11,000 people with a turnover of $1.7 billion as of 2007. Imports average around $3 billion per year, depending on the phasing of large aircraft purchases. Imports from the US over the three years 2004-2006 averaged $1.8 billion, however the trend was downward. The decision by Qantas to include Airbus aircraft in its fleet, and the Australian Department of Defense transition from American to European helicopters is eroding the traditional dominance of US manufacturers in the commercial and defense segments. Spares and parts may not be so adversely affected as the US is still regarded as the best source for these.

The Spotless Group, ranked number 6 in 2004 and 2007, is more than just commercial cleaning service, Spotless has over 30 years of experience supporting more than 30 defence bases and sites across Australia and New Zealand with services that are responsive, efficient and flexible. With revenues of $2.8 billion and operations in 30 countries, Spotless is an international services company specialising in outsourced facility management. Through the Defence Support Group (DSG), Spotless provides the Australian Defence Force (ADF) with over $400 million worth of services each year, including servicing Defence's fully combined Base Services contract in Queensland and the Australian Joint Operational Command Headquarters (HQJOC) a PPP contract. In addition to delivering catering, cleaning, facilities management and laundry support, Spotless also provides more specialised services for defence customers, including engineering operations, stores management, fire fighting and rescue, call centre services, security and airfield support.

Defence Maritimes Services (DMS), ranked number 9 in 2007, was formed in 1997 to service a complex 10-year contract delivering a very diverse range of Port services and equipment and vessels for the Royal Australian Navy. Under the Port Services and Support Craft (PSSC) contract, DMS provides a comprehensive and wide range of support activities to the Australian Defence Force (ADF).Support to Naval activities ranges from recruit basic training to the sophisticated requirements of submarine rescue operations. DMS operates 8 ocean going vessels, some up to 2000 tons, and over 100 assorted harbor craft. DMS has developed the infrastructure, management and support skill necessary to successfully manage complex output-specified contracts and was selected in 2003 as prime contractor to the Australian Government for delivery and through life support of a fleet of 12 Armidale Class Patrol Boats for the Royal Australian Navy.

Serco Sodexo Defence Services (SSDS), ranked number 9 in 2004, is a dedicated prime contractor to the Australian Defence Organisation. SSDS is a joint venture company formed in 1993 between two global service support companies: Serco - an international service company that improves services by managing people, processes, technology and assets more effectively and Sodexo - a world leader in comprehensive onsite service and motivation solutions. SSDS now has over 15 years experience providing facilities management support services to Defence.