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Transcript of doorstop interview: 6 September 2012: Air War Destroyer



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Minister for Defence Stephen Smith, Minister for Defence Materiel Jason Clare and Minister for Finance and Deregulation Penny Wong - Transcript - Door Stop - AWD Keel Laying - 6 September 2012

6 September 2012

TRANSCRIPT: DOOR STOP - AWD KEEL LAYING

TRANSCRIPTION: PROOF COPY AND E & OE

DATE: 6 September 2012

TOPICS: Air Warfare Destroyer

STEPHEN SMITH: Well thanks very much. It’s a bit windy so we’ll be brief, but there are a

few customers for you. I’ll make some remarks, then I’ll ask the Premier to make some

remarks and then Penny Wong the Finance Minister and Jason Clare will also make some brief

remarks, and we’ve also got Ray Griggs, the Chief of Navy here with us.

Well, firstly, it’s a very significant day for Navy, for Defence, and for Australia’s ship building

industry generally. And we look very much forward now to seeing the Air Warfare Destroyers

come online; three Air Warfare Destroyers progressively from now until 2019. An $8 billion

project, seeing lots of work, not just in Adelaide and South Australia, but also in Melbourne

and Newcastle. We’re very pleased with the way in which Defence and Navy and industry

have worked very closely together to bring us to where we are today. We also very much

appreciate the longstanding support for shipbuilding and for this project by successive South

Australian Governments.

Today Minister Clare and I are announcing a re-base-lining of the project to see the ships, the

three ships come online on the timetable that I’ve indicated between now and 2019. We’ve

done that in very close consultation with industry. And one of the reasons we’ve done that is

to make sure that there is a smooth flow of work and a retention of skills, not just for this

very substantial project - the current largest project we have - but also for the Landing

Helicopter Dock project, two Landing Helicopter Docks with the first of those about to arrive

in Melbourne for integration work. And, subsequently, the very significant Future Submarines

program, 12 Future Submarines to be assembled here in South Australia.

And so I was very pleased to hear remarks from the podium today about industry welcoming

the consultation and also the re-base-lining to enable that smooth and steady flow of work.

The Navy shipbuilding industry and the shipbuilding industry generally has in the recent

period been under a fair amount of pressure, but I am optimistic about the industry’s future,

and optimistic about the quality and the success of the projects.

The three Air Warfare Destroyers, our two Landing Helicopter Docks, and subsequently the

biggest Defence procurement project the Commonwealth has ever seen, the Future

Submarines project. And I’ve announced today with Minister Clare the basing in South

Australia, in Adelaide here, of the Future Submarines project systems centre. This is on

model of the Air Warfare Destroyer project and will see that project sensibly based here. I’ll

ask the Premier to make some remarks and then Penny Wong to make some remarks and

also Jason Clare. Jason will give you a bit more detail on the systems centre. It will be

headed up by the Defence Materiel Organisation for which Jason has Ministerial responsibility.

Thank you. And, Jay, you make some remarks.

JAY WEATHERILL: Thank you Minister, and can I begin by welcoming and thanking the

Minister for these two incredibly important announcements for South Australia.

First, the decision to respond to a very significant issue which was a gap that looked like it

was going to emerge in relation to the projects that would be flowing here in South Australia,

a gap which threatened to create real issues for workforce sustainment over a longer period.

We now have a smooth plan of works here at Techport which will allow us to retain the

workforce, the skills and capabilities which are so essential, not only for this industry but for

our ambitions to create an advanced manufacturing sector in South Australia.

The second announcement that we welcome is the announcement in relation to the Future

Submarines project. The Commonwealth have confirmed that the Future Submarines project

will be based here in South Australia. And today they’ve taken a very important step in that

direction with the basing here inSouth Australia of the Future Submarines project systems

centre. This will create hundreds of jobs, high level jobs, bringing new skills, new capabilities

to South Australia, and is a further step along the path of the final decision in relation to

those 12 new submarines to be assembled here in South Australia.

Can I say that both of these announcements assist us in realising our ambition to transition

the South Australian economy from an old manufacturing sector to an advanced

manufacturing sector. This has happened before in our state’s history, and it promises to

happen again. But the truth is that we cannot continue to compete in a low-cost, low-value

manufacturing sector against some other low-cost jurisdictions around the world. We have to

be a high-value, high-technology, high-innovation manufacturing sector, and the Defence

industry is a vital platform to allow us to realise those ambitions.

We’re attracting into this state some world-leading Defence contractors who are also

interested in being here to realise ambitions in the mining sector. This is building our skills

and capabilities to allow us to participate in a modern, internationalised economy that will be

resilient to all the peaks and troughs of world economic conditions and give us a long-term

sustainable future. So I welcome these two incredibly important announcements for South

Australia’s future prosperity.

PENNY WONG: Thanks very much Premier. I’ll be very brief. I’m here in two capacities. I’m

the shareholder Minister for the ASC, and I want to congratulate the ASC on their work in

bringing this project to this point, in being the principal shipbuilder on the AWD project.

They’re doing a great job and we’re very proud of them.

But I’m also here as a Minister and a Senator of South Australia, and I want to very much

endorse what the Premier has said today. The Defence industry is critical to South Australia

continuing to develop and deepen our advanced manufacturing base. This is critical forSouth

Australia’s economy, not just for today and tomorrow but for the decades ahead, for long-term sustainable high-skilled jobs which ensure a strong and sound economic base for South

Australia. And the Government, the Gillard Government absolutely understands that, and

that’s why we’ve made it such a priority to ensure an ongoing Defence projects capability

here in South Australia.

Thank you.

JASON CLARE: This is great news for South Australia. This facility, Techport, is a world-class

facility and it sets us up for the future for naval shipbuilding and for the submarine work that

we will do. The decisions that we have made today protect South Australian jobs and protect

the skills that we’ve established here. It means that work will continue here in South

Australia building these destroyers until 2019. It protects jobs and it protects skills. It helps

to bridge the gap between the work we’re doing in building these destroyers, and the work

we will do in the future on building the Future Submarines. It takes a lot of hard work to build

those skills, and so the decision today is going to help to protect the skills, both here in South

Australia and also in New South Wales and Victoria that have been established over the last

few years.

We’ve also announced today - as Minister Smith has noted - that we’re establishing the

submarine systems centre here in South Australia. This cements South Australia as the home

of the Future Submarine project. The centre will be officially established this year, and over

the next few years hundreds of workers will be based here at the systems centre doing work

like design work, engineering work, logistics work, pre-production work, to plan and prepare

for the submarine project. And if you travel a couple of hundred metres from here to the

roundabout you’ll see the AWD systems centre and you’ll see what I’m talking about; a

centre here that will be the home of the submarine project here in South Australia, the home

of the Future Submarine project.

So a very big and important announcement for South Australia on the biggest Defence

project Australia has embarked upon to date, the Future Submarine project.

STEPHEN SMITH: Thanks Jason.

All right. We’ll take a few questions before we all get blown away.

JOURNALIST: Minister, can you just take us through the change in timeframes from what was

originally envisaged [indistinct]

STEPHEN SMITH: Well, you might recall that back in 2011 last year, about the middle of the

year, Minister Clare and I announced a rescheduling. And that rescheduling would have seen

the Hobart commissioned by the end of 2015, the Brisbane commissioned by the first quarter

of 2017, and Sydney commissioned by the middle of 2018.

The re-base-lining will see Hobart’s schedule pushed out by three months, Brisbane’s

schedule pushed out by six months, and Sydney’s schedule pushed out by nine months. And

so you’ll see the commissioning of Hobart in March of 2016, Brisbane in September of 2017

and Sydney March of 2019. So essentially it’s a three and six and nine months - to use the

jargon - push to the right. And that’s being done in very close consultation with industry, you

would have heard the remarks by the AWD Alliance today. One of the things that has been a

challenge for industry and a challenge for Defence and the Defence Materiel Organisation and

Navy has been to try and get a steady and smooth flow of work. So we’ve done this in

consultation with industry and it will see a better retention of skills, a better workflow, secure

work here until 2019. And at the same time, not in this yard but in other yards, we’ll see the

Landing Helicopter Docks, which are two very big ships to integrate here, and then the

planning for the Future Submarines.

One of the things we’ve been very conscious of for the Future Submarines has been to make

sure that we’ve got the skills to do that job. So Minister Clare, together with the Industry

Minister Combet, have been working very hard on a skills retention and skills enhancement

package, and the system centre that we’ve announced today is very much part of that. So in

terms of Budget implications, there is no additional cost to the budget or no additional cost to

the cost of the project. It comes in at just under $8 billion, it’s about $7.9 billion. In terms of

Budget implication, it pushes to the right about $100 million in the forward estimate year. So

of an $8 billion project it’s a relatively small amount, but the key outcome so far as we’re

concerned is that smooth and steady flow of work integrating with the Landing Helicopter

Docks and the future submarines project.

In terms of capability, there will be no capability gap. The three Air Warfare Destroyers will

replace our current Adelaide Class Frigates, and in the recent period we’ve seen the Adelaide

Class Frigates, our four Adelaide Class Frigates, be upgraded both in terms of radar and

combat systems. So we don’t have a concern so far as capability gap. But when these come

online they will be the most effective Air Warfare Destroyers or destroyers that the Australian

Navy has ever had.

JOURNALIST: So is the delay a direct result of Budget cuts? Could you just outline the

reasons for the further delay?

STEPHEN SMITH: Well, as I’ve said, there are a number of aspects for it. They all, if you like,

coalesce into a sensible outcome which is a retention of skills. It’s also-

JOURNALIST: Is that the reason for the delay, to get that outcome-

STEPHEN SMITH: Well, there is that, and that’s been done in consultation with industry,

firstly. Secondly, there is also, given that we’re going through a very difficult Budget time, a

time of fiscal constraint, that the movement out of the forward estimate years of about $100

million does help us so far as our Budget surplus and forward estimate requirements are

concerned. So those-

JOURNALIST: [Indistinct] basically it’s pushing it out?

STEPHEN SMITH: Well, I don’t describe it in that way, I don’t describe it in that way. We had

to do two things. We had to make sure that together with industry we had a smooth and

steady flow of work. Some of you may have heard the phrase from industry that they were

very concerned about what they described as a valley of death, which was the completion of

a lump of work and then a gap before new work came online, a gap between the Air Warfare

Destroyers and the Landing Helicopter Docks or the Future Submarine program. So it gives

us a better and more steady flow of work and retains the necessary skills. The fact that it

also gives us a Budget benefit in the context of a very tight fiscal year and a very tight fiscal

period is also, from my perspective, an added beneficial outcome. The cost of the project

overall is not increased; that’s a good thing. And, as you’ve heard the comments today,

industry have very much welcomed the arrangements that we’ve now put in place in

consultation with them.

JOURNALIST: Are you saying that this delay would have happened even if you weren’t under

those Budget constraints?

STEPHEN SMITH: Well, industry have been in consultation with us for some time generally

about, as I’ve said, what they describe as the valley of death, which is a large pile of work

and then no work being done, a loss of workforce, a loss of skills, a loss of momentum, and

then having to crank up for a new project. And from the moment I’ve become Minister for

Defence, nearly two years ago, that’s one of the points that industry has made to me, that

they want to see a smooth and steady flow of work. And Jason Clare as Defence Materiel

Minister has been almost in constant conversation with the industry about that, as has the

Defence Materiel Organisation led by Warren King.

So I can’t give you an answer to the hypothetical. There is a coincidence in we’re going

though a tough fiscal period, so moving some $100 million to the right has a benefit so far as

the forward estimate years is concerned, but it’s also being done in a way in which industry

not only support it, they welcome it, and they see that as giving them a better run through

both in other states where work is being done on the landing helicopter docks but, more

importantly from South Australia’s perspective, running into the future submarines program.

JOURNALIST: So what will the employment implications be?

STEPHEN SMITH: Well, there are no adverse employment implications. On the contrary, for

people in this yard it means steady and secure work until 2019. So the employment

consequences are security of employment and benefits to employment.

JOURNALIST: But to keep your costs the same does that mean you’ve got to employ fewer

people?

STEPHEN SMITH: No. I’m using some Defence and Defence Materiel jargon here today, but

you may have heard the phrase moving a project to the right, the schedule moves to the

right. That’s simply a time schedule. There are no adverse cost implications, there are no

adverse employment implications. On the contrary there are beneficial employment

implications and there’s a benefit to industry because it gives industry a smoother flow of

work. This would not be the first occasion, I can assure you of that, this would not be the first

occasion where a Defence project has moved to the right for reasons to do with Defence and

industry coming to a sensible and better conclusion about a flow of work.

JOURNALIST: [Inaudible question]

STEPHEN SMITH: Well when the project was originally embarked upon, and this project

started in its inception in the 2000 White Paper, was reaffirmed and endorsed in the 2009

White Paper, at second pass when it was formally approved, the original timetable - and that

was done back in 2007 under the previous Government - the original timetable would have

seen for example the Hobart be commissioned at the end of 2014.

And so there has already been some delay from the original timetable. That’s not surprising.

There are two things that you have to be very careful of if there is a delay in a project; a gap

in capability. There’ll be no gap in capability here because our four Adelaide Class Frigates,

which these Air Warfare Destroyers will replace, have in recent times been upgraded both in

terms of combat systems and radar system, and that’s been a very successful upgrade. And

cost implications. The overall cost of this project will not increase. The benefits I have gone

through which is steady and secure employment here and other yards until 2019, and a

smooth flow of work through to the other projects, in particular the submarines.

JOURNALIST: [Indistinct]

STEPHEN SMITH: Firstly, yes, Defence has made a contribution of $5.4 billion in the course of

the forward estimate years, but it’s not the only Commonwealth department or agency which

has also made a contribution to returning the Budget to surplus. Every Government

department or agency made a contribution in the last Budget to bring the Budget back to

surplus. And that’s a very important economic imperative. Having a strong economy is good

for the country, it’s also good for Defence. And, yes, we’ve got a challenge to manage the

Budget constraints in Defence, but as this demonstrates today we continue to move ahead

with our core capability.

Since the Budget, I’ve announced the acquisition of ten C-27J tactical military airlift aircraft.

Last week I announced the acquisition of the Growler Electronic Warfare System. So our key

and core capability continues to progress, as does this. And Budgets for Defence, as they are

for other departments, are invariably cyclical and so in due course we’ll return to a better

fiscal position for Defence as we will for the Commonwealth, but it’s absolutely essential that

we meet our overall objective of a budget surplus to retain strength in our economy.

JOURNALIST: Can you just explain how it works in practice that we’ve laid the first keel today

but the project is delayed by three months, I think you said. So do they just work more

slowly in the interim or how does it actually work now that the work is back to the-

STEPHEN SMITH: Ray, do you want to-

RAY GRIGGS: We’ve got Rod here as well.

STEPHEN SMITH: Is Rod here? Okay, Rod. Rod can take you through the forensic detail of

that?

ROD EQUID: The next phase of the program is to finish the consolidation. There’s new work

in that period of time, we can change the profile of ramping up that new work including hiring

on certain trades. So it’s about reshaping the workforce, it’s about doing the work over a

more sensible period of time. The biggest benefit of [indistinct] separating the hulls into a

longer keel to keel time though is we remove the conflicts. For example, at a shorter keel to

keel time we’d have to deal with two ships alongside. We’d have two ships out here on the

hard stand. So it allows us to spread things apart and focus on the work that we’re doing.

JOURNALIST: But it would have to have an employment impact then because you wouldn’t be

hiring people at the time when you would necessarily have been hiring them previously.

ROD EQUID: We will probably hire some people on a slower profile later, but the workforce

has still got to grow by about 200 people on this site. So those are the things that we can

work with so that there’s no net cost increase. So it’s a great outcome.

JOURNALIST: The valley of death you described [indistinct], is that a problem [indistinct] by

moving the submarine project to the right earlier on?

STEPHEN SMITH: Well it’s a cause of concern or complaint that Australian Defence industry

has made for a long period of time, and it’s not necessarily related to any particular project.

For as long as I can - for as long as I’ve been Minister, for as long as Jason has been Minister

and for as long as I can recall, defence industry have said one of our biggest problems in

Australia is trying to get a steady flow of work, that it comes in peaks and troughs, and so

you have a peak of work and then a trough. That’s what the industry called the valley of

death because what happens then they’ve got to lay off staff, staff go to other industries,

they lose employment and they lose employment skills, and then when a project comes along

they’ve got to crank up. So it’s, if you like, stopping a production line and then having to

restart it, which is not cost effective, not efficient and it has very serious deleterious effects

for the workforce.

So it’s not a view that industry ascribes to one particular project, it’s been a constant

challenge, and we think that the Defence Materiel Organisation, Navy, the Air Warfare

Destroyer Alliance and industry have done a very good job in coming to what Rod just

described as a sensible program to smooth that workflow, not just for this project itself so

that, as Rod has put it, you’re dealing with one keel rather than two at the same time; not

just for this project itself, but a smooth flow of work into the other projects. For here it’s the

future submarines project and in other shipyards throughout the country it’s the integration

of work from Air Warfare Destroyer and the Landing Helicopter Docks which is about to start

in earnest.

JOURNALIST: [Indistinct] wanting to avoid that gap. What sort of [indistinct] actual

construction of the submarines [indistinct]?

STEPHEN SMITH: Well currently we’ve got first part scheduled for 2013-’14 and second part

scheduled for 2016-’17. We’re going through exhaustively all of the four options that I

previously detailed to you, from military off the shelf through to a brand new design through

to what’s described as a derivative or a son or daughter of Collins. So we’re doing that work

intensively. And we think we are on track to meet those timetables. But, as Jason has made

the point, there is a substantial amount of work to be done just by the mere creation of the

systems centre here, that will see over time the employment of an additional couple of

hundred workers here across the board in the fields that we require.

The submarine project will last for very many years, will last for decades. And one thing we

have been assiduous about - and I make no apologies for it - is making sure that all of the

detailed planning work is done right upfront. We know from previous experience that when

you have issues or difficulties in projects you can source them all back to mistakes that are

made early in the project, 90 per cent of the problems come from mistakes made in the first

10 per cent of the project. We are learning the lessons from Collins, we are improving our

maintenance and sustainment arrangements so far as Collins is concerned, and all of that

knowledge is going into our planning for the future submarine projects.

And I think everyone is just about getting blown away by the wind so unless we’ve got

something new - Jay?

JOURNALIST: Can I just ask a question [indistinct] - any further cuts or shifts [indistinct]?

STEPHEN SMITH: We’ve just done the 2013 Budget and in May of 2014 - we’ve just done the

2012-13 Budget in May 2012, and in May 2013 we’ll do the 2013-14 Budget.

JOURNALIST: [Indistinct]

STEPHEN SMITH: No, I expect that in May of 2013 we’ll deliver the 2013 Budget, together

with the four forward estimate years of those. And my advice to people who are interested in

future Budgets is to wait ‘til Budget night.

JOURNALIST: [Indistinct]

JAY WEATHERILL: No, I think that’s a completely wrong way to characterise what’s happened

here today. I mean, what we’ve seen is the avoidance of what was going to be a gap in the

project. We’re seeing a ramping up of employment here at Techport. And instead of that

falling off before we got to the Future Submarines project we now see a steady flow of work.

So this is a good thing. And I think it needs to be understood in the context of our ambitions

for the economy more broadly. We always said that the economy had many points of

strength. It wasn’t just mining, it wasn’t just our agricultural sector, it wasn’t just our

manufacturing sector. It’s the combination of all of those things.

And what we’re seeing here though is the next step in manufacturing for our state. It’s taking

old manufacturing and transforming it into advanced manufacturing. The skills and

capabilities that we’re seeing here, we’re seeing them flow out into other sectors. The

contractors that are being attracted in to this sector, the Defence contractors, themselves

come here not just because of the work that’s available through the Defence industry,

because of the opportunities that exist in the mining industry. And so this transformation in

the way in which businesses operate, focusing on innovation, on high technology, on business

capabilities which are at the high end, is really at the heart of the future prosperity of the

South Australian economy. So this is really core business for us in terms of transforming our

state’s economy.

JOURNALIST: But it is a Budget related delay, and coming on the back of Olympic Dam, is a

sort of symbol. It’s probably not a great look or great fun.

JAY WEATHERILL: Well, I don’t accept your characterisation. I mean, this has benefits for

South Australia. It may have some benefits for the Commonwealth’s Budget but that’s of

peripheral interest to me. What I’m interested in is the direct employment effects here in

South Australia. And the direct employment effects in South Australia is the avoidance of a

drop in work between the end of the Air Warfare Destroyer contract and the beginning of the

Future Submarines contract. So we now have a seamless pipeline of work which is a great

thing for South Australia. And I think the other piece of news which is great news for South

Australia is the creation of a new systems centre. The Future Submarines systems centre will

now be based in South Australia, creating hundreds of jobs. That is a new discrete

commitment of additional employment to South Australia.

JOURNALIST: Have these South Australians been given these jobs though? I mean, have we

the skill set inSouth Australiato fill these positions?

JAY WEATHERILL: Well, they’ll be either South Australians or people who will become South

Australians. They’ll be creating long-term jobs here during the lifetime of the design phase for

the systems that go into the Future Submarines project. Remember that we’re talking about

12 submarines which have an extraordinarily long lifetime, so this becomes really more in the

nature of an industry than a project. So this is about long-term secure jobs for either South

Australians or people who will become South Australians.

JOURNALIST: [Indistinct]

PENNY WONG: No, I haven’t. But, I mean, Frontier Economics is well known as opposing the

Government’s model of its scheme and proposing a different model. The Government has

gone down a different path in terms of the contract for closure issue. Minister Ferguson has

made the very important point that we are very focused on value for money in that

negotiation, as in all negotiations, and he’s made a decision based on that principle.

All right? Thank you.

STEPHEN SMITH: Right, thanks everyone. Thank you. Cheers. Thank you.