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Smith discusses Defence equipment -

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ALI MOORE, PRESENTER: Here is our interview with Defence Minister Stephen Smith who's in Washington
with a range of major Defence issues on his plate.

Chief among them is Australia's order for Joint Strike Fighters, F-35s, a project now behind
schedule and running into the headwinds of massive US Defence spending cuts, and the replacement
for Australia's spectacularly underperforming Collins Class submarines is also exercising Mr
Smith's mind.

The Defence Minister spoke to me from the American capital just a short time ago.

Stephen Smith, thanks for joining Lateline.

STEPHEN SMITH, DEFENCE MINISTER: My pleasure, Ali.

ALI MOORE: Among your meetings in Washington, you've held talks with the head of the Joint Strike
Fighter program, David Venlet. How far over budget and behind schedule are the F-35s?

STEPHEN SMITH: Well, it's still difficult to make that judgment. There are a range of unknowns.
We're dealing here with a very high - highly complex, high development project.

What we do know is that when Australia made its decision to join the Joint Strike Fighter program
and essentially said that we would, in the first instance, order 14, we did a number of things.

Firstly, we chose the conventional version, which was a sensible thing to do - that's had the least
of the difficulties. But we also made sure that in our own planning there was plenty of
pre-planning for slippage on schedule and slippage on cost. But, we're now starting to rub up
against both of those issues, and I've made that clear publicly and privately.

In terms of schedule, there'll be an exhaustive review done before the end of this year, so I think
by the first quarter of next year, we'll be in a much better position to know whether we need to
start really seriously planning for a gap in capability, and cost will also be impacted upon by
future decisions in terms generally of United States Defence budget cuts.

It's quite clear that there will be further cuts and these may have an impact on the number of
Joint Strike Fighters that the United States itself orders. So that will have an impact on cost,
but, again, we won't know that variable for a bit more time yet.

ALI MOORE: Indeed, you talk about gaps, but would Australia ever pull the pin? I mean, at what
point does the cost/benefit analysis for these planes just fail to stack up?

STEPHEN SMITH: Well I'm confident of a couple of things. Firstly, I'm absolutely confident that in
the end the project will get up, and that's because the full weight of the United States Defence
industry and administration is behind it. Everyone wants the project to succeed, and the United
States itself can't be left without a capability.

The greatest danger for us, in my view, is that there is a gap in capability, that we slip further
on the schedule and as a consequence we have to look at whether we need further transitional
arrangements before the introduction of the Joint Strike Fighter. And the obvious - the obvious -
and I'm not saying anything other than the obvious option is further Super Hornets so far as
Australia is concerned, but that's not to say that we've made a decision, but that is one of the
obvious options.

ALI MOORE: And I know that you've met with Boeing executives while you're there. Those Boeing Super
Hornets, we've got 24 that are entering service now. They have been on budget and they have been on
time.

If you bought more of them, what does it do to the plans for the F-35s? Because while you say we're
contracted to buy 14, the plan is ultimately for 100 at a cost of some $16 billion.

STEPHEN SMITH: Well, a range of things there. Firstly, yes, we are very pleased with the Super
Hornet. It's giving us a very good capability in our own region and generally, so we're pleased
with that.

Secondly, we shouldn't get too far ahead of ourselves, both in terms of numbers of Joint Strike
Fighters or alternatives. What we do need to ensure and what I'm absolutely committed to and the
Government is absolutely committed to is that we don't want to see and we won't allow a gap in our
capability. Now that may mean - down the track it may mean more Super Hornets, but we do have to
take that step by step.

In terms of the actual number of Joint Strike Fighters, we've made it clear that our initial order
is 14. We're part of the program. But any future numbers will be subject to further consideration.
14 effectively gives us one squadron. You would want to have more than one squadron of Joint Strike
Fighters, but we'll take that step by step.

The Defence capability plan talks in terms of around 100, but that is very indicative. It's not a
firm number and not something that either Defence or the Government is attached to or will
necessarily adhere to.

ALI MOORE: The question, I suppose, has to be do we need an F-35? What's wrong with Super Hornets?
What's wrong with other alternatives? Are there more cost-effective alternatives?

STEPHEN SMITH: Well, Australia has been very well-served by its air strike capability. The F-111s
in the first instance, then the Hornets and now the Super Hornets.

But we do need to ensure, particularly in our own region, but also generally, that we have a highly
competitive capability. And all of the advice that I've received is that, yes, we do very well with
Super Hornets, but in airplanes, as in Defence capability generally, capability develops, other
nations move on, and we need to ensure that we are protecting our interests so far as the adopting
of modern capability is concerned. So, we are ...

ALI MOORE: So what does a strike fighter give us that the Super Hornet doesn't?

STEPHEN SMITH: Well, it gives us a capability that will match the growing capability of other
nations in our region and generally into the future. Defence capability does not stand still.
National security considerations do not stand still, so we are sensibly moving ...

ALI MOORE: Is that China you're talking about?

STEPHEN SMITH: Well we don't refer to any one particular nation. We obviously pay very close
attention to the capability that our alliance partner, the United States, have, that our other
friends and partners in the region have.

We pay very careful attention to developing an emerging capability in our region. That's a sensible
thing to do.

But in terms of the ultimate decision, the number of Joint Strike Fighters, what we may or may not
do, we will make those decisions at the appropriate time and we'll make those carefully taking into
account the cost to the taxpayer, the value to money, but also having a capable air force to
protect and defend Australia's air and national security interests.

ALI MOORE: Submarines are another area that you're talking to the Americans about, with Australia's
plans to build 12 subs as part of a new fleet. Given the problems that we've had with the Collins
Class subs, which you've announced a review into, and given that in your words Australia's
conventional submarines will complement America's nuclear fleet, why not just buy a sub off the
shelf? Why reinvent the wheel, if you like? Plenty of countries have got non-nuclear-powered subs?

STEPHEN SMITH: Well firstly, the one option I have ruled out is nuclear-powered submarines, so
we're not proposing to go down that path. And that's because we don't have any expertise or
capacity in that area. But, yes, you're quite right, our conventional fleet complements a United
States nuclear fleet.

Secondly, other than committing ourselves to 12 submarines and assembling those in SA. Effectively
all options are on the table. And we have not discounted what people might describe as an
off-the-shelf option.

But what we have to do again is to work our way very carefully through all of the issues. Now, yes,
we have our Collins Class submarine and we've had longstanding and well-entrenched maintenance and
sustainment difficulties with those submarines, and recently I announced a review by John Coles, a
UK expert, to try and do in our maintenance and sustainment what the Rizzo Report has and will do
for the maintenance of our amphibious fleet.

But when it comes to submarines, it's also very important that we pay very carefully attention to
our weapons system, to communications system and to the interoperability of that with our alliance
partner the United States.

So, this will be the single largest Defence capability project that Australia has embarked upon and
so we're going very carefully through the planning of that. And in my visit here, I've met both
with industry and also with government officials to go through some of the ...

ALI MOORE: But why do they have to be built here?

STEPHEN SMITH: Well, any off-the-shelf option would have to be complemented by a weapons system, by
a communications system. We have not discounted that option, but I have to tell you there is no
magic solution so far as that is concerned.

We're also looking at whether it is possible to develop a new submarine which uses all of the
experience and expertise that we have gained from the Collins itself. So we're working our way
carefully through this, as you would expect us to do. In any Defence capability project, you've got
to get the planning at the outset right. You also have to have an eye for maintenance and
sustainment, not just to acquisitions, so we're working our way through those.

ALI MOORE: Just finally of course, you're in Washington at a rather unusual time; what's your sense
of these crucial budget negotiations? You've talked obviously about expecting more cuts to the
Defence budget, and certainly the debt situation in the US is - well, bad is probably an
understatement. Do you think that there will be a resolution before next week?

STEPHEN SMITH: Well, it's not for me to comment on the detail, but there are always - there's
always interest in Washington and always perceived difficulties when a president doesn't have the
support of the Congress in terms of the political party mix.

One thing I am absolutely confident about is that in the end there will be a resolution. It's the
nature of these things, not just in the United States, but also in Australia, that invariably these
things are resolved at the last possible moment.

So there will be a resolution and the president and the Congress are working their way through
that. But it - my own judgment is it will be resolved, but it'll be resolved at the death knock
rather than with days or weeks to spare.

ALI MOORE: Well of course if the US did default, it would have ramifications for Australia,
wouldn't it?

STEPHEN SMITH: Well, the US defaulting would have very significant and serious domestic and
international ramifications, but we'll leave it to the president, the administration and the
Congress to resolve it in terms of the detail.

ALI MOORE: Stephen Smith, many thanks for talking to us from Washington tonight.

STEPHEN SMITH: Thanks, Ali. Thanks very much.