Australia awards $35 billion warship deal to Britain's BAE

Australia has awarded British defence giant BAE Systems a US$26 billion contract to build a new generation of frigates replacing the Anzac Class frigates on June 29, 2018.
Australia has awarded British defence giant BAE Systems a US$26 billion contract to build a new generation of frigates replacing the Anzac Class frigates on June 29, 2018.PHOTO: AFP

SYDNEY (AFP) - Australia awarded a A$35 billion (S$35.22 billion) contract to build a new generation of warships to British defence giant BAE Systems on Friday (June 29), as the Pacific nation undertakes an ambitious naval programme in part to counter China.

The lucrative deal - worth- is a major boon for London-listed BAE, which has struggled in recent years with shrinking government defence budgets and slowing demand for the Eurofighter Typhoon jet.

BAE's Global Combat Ship, to be officially known as the Hunter class, beat off competition from Italian company Fincantieri and Spain's Navantia SA and will be supplied to the Royal Australian Navy under the terms of a 30-year contract.

The nine new frigates will be "the most advanced anti-submarine warships in the world" and underpin the country's security for decades to come, said Australian Prime Minister Malcolm Turnbull.

Lethality and deterrence

"The Hunter class will provide the Australian Defence Force with the highest levels of lethality and deterrence our major surface combatants need in periods of global uncertainty," he said.

"They will have the capability to conduct a variety of missions independently, or as part of a task group, with sufficient range and endurance to operate effectively throughout the region."

A key element of the contract was that a high level of construction must take place in Australia, in a bid by Canberra to boost domestic job numbers in the shipbuilding industry.

The nine Type 26 submarine Hunter ships will be designed by BAE and built using Australian steel by the government-owned ASC Shipbuilding in Adelaide, with 4,000 jobs created.

The company will become "a subsidiary of BAE Systems" during the build to "ensure BAE Systems is fully responsible and accountable for the delivery of the frigates", before reverting ownership.

Britain said the deal was "a result of four years of intensive government engagement", and hailed it as a boost for its post-Brexit prospects.

"The sheer scale and nature of this contract puts the UK at the very forefront of maritime design and engineering and demonstrates what can be achieved by UK industry and government working hand-in-hand," said British Prime Minister Theresa May.

"We have always been clear that as we leave the EU we have an opportunity to build on our close relationships with allies like Australia. This deal is a perfect illustration that the government is doing exactly that."

Heightened risks

The vessels will replace Australia's current nine ANZAC class frigates, with the new ships equipped with a long-range cutting-edge missile defence system to counter threats from rogue states like North Korea.

They are due to enter service in the late 2020s as the backbone of the Australian Navy's fleet, part of the nation's largest peacetime naval investment that also includes 12 new submarines and 12 offshore patrol vessels.

The big increase in spending comes as Beijing flexes its own muscles in the region through a military build-up in the contested South China Sea, and as countries keep a wary eye on nuclear-armed Pyongyang.

"We are in a world with heightened risks," said Turnbull. "We need to have the capabilities to defend Australia, regardless of what may come."

BAE Systems chief executive Charles Woodburn said the frigate deal "reinforces our position as a leading designer and builder of complex maritime platforms".

The deal follows Canberra this week announcing a US$5.2 billion investment to develop and buy high-tech US drones for joint military operations and to monitor waters including the South China Sea.

French naval contractor DCNS has been selected to design and build Australia's new submarines at a cost of A$50 billion in Adelaide, beating off competition from Japan and Germany.

In recent years BAE has axed thousands of jobs as it faces weak demand for the Eurofighter Typhoon plane, developed with Italy's Finmeccanica and Airbus in a European consortium.

In late morning deals, BAE's share price bounced up 2.69 per cent to 649 pence, vastly outperforming a modestly rising overall London stock market.