China takes over former Radio Australia short-wave frequencies in the Pacific – report

port olry beach-vanuatuChina has continued its soft-power initiatives in the Pacific region by taking over a number of frequencies formerly reserved for Radio Australia.

A June 21 report in The Australian says after the ABC discontinued its short-wave services in 2017 due to limited audiences and new technologies, the Chinese government has picked up at least 10 of the frequencies to broadcast China Radio International programs.

The United Nations’ International Telecommunication Union (ITU) is responsible for allocating global radio spectrum and satellite orbits, and for developing the associated technical standards.

CommentIt has been reported in recent years that China’s massive investments in the Pacific and in Africa have been leveraged in part for those nations to vote in China’s favour when the ITU sits to allocate radio frequencies. 

While China is by no means alone is using such leverage, its soft-power initiatives in the Indo-Pacific region should be of considerable concern as the strategic geographical and geopolitical buffer Australia has enjoyed to our north shrinks ever closer to our shores.

This is also of concern to many of Australia’s regional allies. The Australian’s report quoted a submission to an Australian parliamentary inquiry by Vanuatu Prime Minister Charlot Salwai Tabimasmas, in which he questioned the withdrawal of Radio Australia’s services.

“Vanuatu values its close association with Australia at so many levels yet this strange decision by the ABC to end short-wave services to our region seems at odds with the recently strongly stated goals of the Australian government,” he wrote.

The electro-magnetic spectrum is becoming increasingly congested and contested by both commercial and military agencies in recent years, and this adds significant complexity to operations in Australia’s broader region.

SEA 5000 decision believed imminent

HMAS Ballarat prepares to launch her MH-60R Seahawk helicopter as ships from Task Group 659.1 (including HMA Ships Canberra, Warramunga and Ballarat and HMNZS Te Kaha) transit to Pearl Harbour, Hawaii to participate in Exercise Rim of the Pacific (RIMPAC) 2016. *** Local Caption *** The Australian Defence Force is deploying three ships, three aircraft and more than 1650 personnel to take part in Exercise Rim of the Pacific (RIMPAC) 2016 off the coast of Hawaii and California. The multinational activity held from 30 June to 4 August 2016 is the world’s largest maritime exercise and includes more than 25, 000 personnel from 26 countries. RIMPAC seeks to enhance interoperability between Pacific Rim armed forces, ostensibly as a means of promoting stability in the region to the benefit of all participating nations. The exercise helps participants foster and sustain the cooperative relationships that are critical to ensuring the safety of sea lanes and security on the world’s oceans.
Anzac class frigate HMAS Ballarat. (Defence)

The Government’s National Security Committee of Cabinet reportedly met on May 22 to consider the way forward for Defence’s $35 billion SEA 5000 Future Frigate project to replace the RAN’s eight Anzac class vessels.

Three designs were shortlisted in April 2016 for the project – BAE Systems’ Type 26 Global Combat Ship, the Fincantieri FREMM, and the Navantia F5000 development of the F100/Hobart class destroyer.

While some commentators have predicted a decision on the winning contender might be announced the week of the NSC meeting, others have predicted that the shortlist may be further reduced to two, and that the remaining two contenders may be asked to go away and come back with a ‘best and final’ price.

Commentators have pointed out that capability should be the prime consideration in making the decision, as long as the winning bid also conforms to project pricing and industrial requirements.

“It’s important that the Navy gets the best capability to deal with the proliferating number of quiet, lethal, modern submarines in our region,” an Australian Strategic Policy Institute (ASPI) The Strategist paper published on May 21 reads.

“But as important in a different way, who wins the project and how they work with Australian firms will define our shipbuilding industry for decades.

“From the information ASPI has about the three ships, all three do what the Navy wants pretty well, so there’s probably no clear winner just on capability.”

The FREMM (below) is the most mature of the three designs, with several vessels of the Italian design in service with the Italian Navy, and several more in service or on order with the navies of France, Egypt and Morocco. It also features two helicopter hangars compared to just a single hangar on the other two designs.

Italian Navy Frigate Carabiniere sails towards the entrance of Sydney Harbour in preparation for docking at Fleet Base East, Sydney, during the ships recent visit to Australia. *** Local Caption *** The Italian Navy FREMM (European Multi-Mission Frigate) Carabiniere will visit Australia from the 25th January until the 24th February 2017 with planned visits to Fremantle, Adelaide, Sydney and Melbourne. ITS Carabiniere’s deployment is aimed to strength the on-going cooperation activities with some transregional allies and develop relations with potential partners. Main themes of the naval campaign is thus maritime safety and surveillance, cooperation strengthening and naval diplomacy.
Fincantieri FREMM. (Defence)

The F5000 (below) will utilise the familiar hull and propulsion systems of the Hobart class, but will incorporate anti-submarine warfare-specific mission equipment and other modifications. Arguments that Navantia already has a workforce in place after recently completing the Hobart class major builds are somewhat misleading, as the workforce is employed by the Osborne Shipyard where the new vessels will also be built.

Full_ship_1 (002)
Navantia F5000. (Navantia)

The Type 26 (below) has been reported as being the most expensive of the three, but it also arguably offers the most capability. The lead ship for the UK’s Royal Navy is currently under construction, and the RAN’s first ship will be the fourth of class.

GCS_A_0487 high res (002)
BAE Type 26 Global Combat Ship. (BAE Systems)

Perhaps most interesting are reports that, during the recent Commonwealth Heads of Government Meeting (CHOGM), BAE’s bid received extensive backing from the British government which is keen to engage in a free trade agreement with Australia in the wake of its exit from Europe. There are also reports that the UK is interested in acquiring military equipment of Australian origin which could also be linked to any Type 26 acquisition.

Happy New Year from ADBR

Happy New year and welcome to what we hope will be an exciting and successful year.

The team at Australian Defence Business Review and our sister publication, Australian Aviation hope you have had a peaceful, safe and restful break over the Christmas / New Year period, and that your return to work isn’t too much of a shock to the system! And for those who are deployed or who worked over this period, many thanks for your ongoing commitment to Australia’s interests and to the wider community.

You’ll see some exciting changes at ADBR in the next few months, both here online and in the magazine. New topics of interest will include force level design and integration, next-generation EW, Navy recapitalisation and sustainment, cyber and information warfare, project and capability sustainment updates in the context of Smart Buyer, human factors and performance, people in Defence, future and disruptive technologies, and advances in academia and STEM research.

We’ll also be looking beyond Australia’s borders at emerging capabilities in our region, and will do a deep dive on the 2018/19 Defence Budget in May, and a comprehensive update of the Defence Integrated Investment Plan.

We welcome any and all constructive feedback, and look forward to bringing you a more comprehensive and innovative coverage of the Australian Defence domain in 2018.

Andrew McLaughlin
MANAGING EDITOR

Putting on a good show requires a great rivalry – how about F-35 versus Growler?

Welcome to the Australian International Airshow and Aerospace & Defence Exposition edition of Australian Defence Business Review.

The scheduled arrival of Australia’s first two F-35A jets at Avalon Airport on Friday March 3 is sure to be the talk of the town.

Confirmation from the Defence Minister of the planned Australian debut of the aircraft was greeted by media reports variously describing the fifth-generation fighter using the familiar prefixes “controversial” and “troubled”.

And it certainly will be interesting to observe to what extent the visiting jets might have an effect on the public relations front.

But, importantly, the appearance of the F-35 at the airshow also foreshadows the ferry to RAAF Base Williamtown of an initial pair of aircraft for permanent basing in December 2018.

That is the target date marked on the calendar for Australian companies to make their debut as an integral part of the multinational Joint Strike Fighter program’s global sustainment system.

When it comes to support for the F-35, there is still much to be done, as Chief of Air Force Air Marshal Leo Davies explained in a recent interview with sister publication Australian Aviation.

“We have got some real work to do on logistics and the sustainment aspect,” CAF said.

“It is not new for F-35. If I look back at every aircraft we have ever acquired, we had a period of not understanding the logistics and engineering sustainment aspects; F-35 will be the same.”

Intriguingly, AIRMSHL Davies said that it is the airborne electronic attack capability embodied in the EA‑18G Growler that will be the biggest game-changer for the ADF, at least in the short term, not the F-35.

“A force-level electronic warfare [capability] we have never had before, and I think we only are now beginning to understand what it might be able to do,” CAF said.

“The arrival of the F-35 is just another fighter, in some respects…the next big effect will be Growler; that will be the one that changes us the most.

“It will take time for us to understand how much F-35 will change our business.”

Lockheed Martin’s F-35 is billed as the star attraction at Avalon, but Australia’s new Growler will also be on show, and it is much more than just another Boeing Super Hornet (of which it is a variant).

In this edition of Australian Defence Business Review, we assess industry’s progress as companies prepare for F-35 sustainment, and learn about opportunities to support the ADF as Australia works out how to go about introducing the Growler capability.

We take a deep dive into the air projects outlined in the Integrated Investment Program, as well as examining the future of Defence science in Australia and analysing New Zealand’s plans for the RNZAF.

While it is hard to resist the temptation to play up the rivalry between Lockheed Martin and Boeing that has been fuelled by President Trump, the intention is of course to see the F-35, Growler and Super Hornet complementing each other.

And if their potential as separate capabilities is not yet understood, the mind boggles at the thought of what they might be able to do operating together.

This editorial was first published in the March-April 2017 issue of Australian Defence Business Review.

Defence, the budget deficit and the age of low economic growth

One of the risks of working up a new plan to drive a whole new generation of new military capability acquisitions distilled from the conclusion of a brand-new Defence White Paper is the burning issue of how the new investment program will be paid for.

This was not a problem for former Prime Minister John Howard, as he spent his way through the mining boom, but really is a problem for Malcolm Turnbull now that the boom is over and the nation is carrying a substantive deficit. Having let Defence free in the new capability lolly shop subsequent to sterner words about a declining regional security environment and new threats to Australia’s long-term strategic interests, the Prime Minister proclaimed last March that $195 billion would be spent over the next decade to give effect to the new Defence Integrated Investment Program (IIP).

A reasonable start was nevertheless made in the 2016/17 federal budget to the task of mapping out a credible trajectory for elevating Defence expenditures to achieve the nominated two per cent of gross domestic product (GDP) by 2020/21. The current financial year effort is shaping up to around 1.88 per cent, depending on whether the economy can deliver on the government’s growth forecasts laid out in last May’s federal budget. If it doesn’t, the percentage figure will rise, but in reality, Defence will not get any extra money.

The May 2016 budget estimated that Defence would spend $7.1 billion over 2016/17 on its Top 30 approved new military capability acquisition projects, albeit with an allowance of $884 million for slippage. Added to this was a further $921 million for projects announced on (or after) budget night, but yet to be allocated to capability managers. This produced a grand total of $7.125 billion in funds available for capital expenditure over 2016/17. Sustainment spending across the 30 largest areas of outlays (along with other approved sustainment product estimates) in turn amounted to $5.24 billion, with an additional $202 million for support to operations.

The ability to meet year-on-year GDP growth forecasts is critical to the question of whether the government has any chance of delivering on the quantum of projects outlined in the IIP over the coming decade. The inability of the Gillard-Rudd governments to do this in similarly challenging economic times remains ingrained in the risk meters of many local defence-industry managers. So there is more than a keen interest in the number for Defence in each subsequent budget.

In framing up the 2016/17 budget, Treasurer Scott Morrison had little choice but to adopt the up-beat set of growth estimates provided by Treasury. To do otherwise would had fed community perceptions that economic forecasts would not be realised, and clearly, there is never any political benefit in following such a course. After all, it is political tradition in Australia that oppositions talk down the economy, not the government.

Budget Strategy and Outlook Paper No.1 argued last May that the Australian economy was entering its 26th year of economic expansion. The real (adjusted for inflation) GDP forecast was set at 2.5 per cent per annum in both 2015/16 and 2016/17, before adopting a more robust three per cent increase in 2017/18 and subsequent financial years.

Were these forecasts reasonable or optimistic? The Mid-Year Economic and Financial Outlook (MYEFO) published in December 2016 came down firmly on the side of the latter. MYEFO’s pessimism was not new, as the year before, flagging a similar scaling down of growth forecasts from the 2.75 per cent optimistically presented by Morrison’s predecessor as treasurer, the now ambassador to the United States.

The continuing reliance by government on Treasury estimates that are habitually unrealistic introduces an unwelcome instability in terms of the government’s financial arrangements, especially when defence-industry is again being asked to tool-up to deliver the new IIP. Scott Morrison adopted in May 2016 a three per cent growth forecast, despite continuing evidence of the slow transition of the Australian economy from the mining investment boom to broader-based growth.

Economists are also debating the proposition that, post the mining boom, Australia’s sustainable long-term growth rate has dropped to a new benchmark of 2.75 per cent. MYEFO has now settled this debate, at least until we see how the economy performs over the balance of 2017 and into the first quarter of calendar 2018.

In short, MYEFO downgraded the financial year GDP forecast for 2016/17 from the 2.5 per cent adopted last May to two per cent; while also reducing the 2017/18 forecast to 2.75 per cent from the three per cent previously adopted. Lest the government be seen to have completely given up on its quest to return to budget surplus in 2020/21, the GDP growth projections for 2018/19 and 2019/20 remain at the more robust three per cent.

Post-MYEFO, the target of returning the budget to surplus in 2020/21 stands – albeit now a few months later than first projected. Yet the roadmap for getting to that point now requires a schedule of much larger interim deficits across the forward estimates. For 2017/18, the deficit estimate is $28.7 billion (MYEFO) compared to $26.1 billion (budget), while the 2018/19 projection is now $19.7 billion (MYEFO), compared to $15.4 billion (budget). The 2019/20 deficit projection has similarly grown to $10.0 billion (MYEFO) compared to $6.0 billion (budget). In all, the net deterioration in the budget deficit over the current financial year and forward estimates totals $10.3 billion.

Political cartoonists have portrayed this as the Treasurer bailing out water ever faster, but with the ship still sinking. For if these amended growth forecasts are not realised, then without major reductions in government expenditures or an equivalent rise in the quantum of taxation paid by Australians, the government’s ability to acquit its 2016 Defence White Paper undertakings will be limited, and perhaps only achieved by resorting to additional borrowing, thus condemning the nation to a virtually unending cycle of deficit financing.

On the taxation/expenditure side, MYEFO says the net impact of decisions taken since the 2016 Pre-Election Financial Outlook (PEFO) is an improvement to the underlying cash balance of $2.5 billion over the forward estimates. The government has also revived an old mechanism to repair the budget through the crafting of omnibus legislation packages which have yielded over $22 billion of savings since the election.

More of the omnibus approach is on the way, given MYEFO’s estimate that the value of the remaining unlegislated repair measures over the forward estimates is another $13.2 billion. Consistent with the government’s fiscal strategy, spending decisions taken since the 2016 PEFO are similarly judged by MYEO as having been more than offset by reductions in spending elsewhere in the budget.

Yet as Treasury officials again sit down to frame up the economic growth forecasts that will underpin the coming 2017/18 federal budget, the real wild card remains the outlook for global growth, which remains uncertain. As a major exporter of commodities, Australia sits at the bottom end of an international feeding chain where the health of the global economy, via demand for especially Chinese-made goods, ends up having a major effect on our own GDP growth forecasts as a sub-set of both the volume we ship, and the price we receive.

It is unfortunately true that since the 2016 PEFO, there have been weaker than expected outcomes in advanced and emerging market economies. MYEFO, in turn, looks to the United States and Australia’s other major trading partners for a lead on growth that is anticipated to end up being stronger than the global economy. Such figures have since been revised downwards through to the end of 2016/17, largely reflecting weaker than expected outcomes in the first half of 2016, including below average growth in the other East Asian economies.

The practical reality is that global economic growth has been below expectations for some time. Low productivity growth and weak trade growth characterise the global economy despite ongoing major infusions of cheap money courtesy of the actions of central banks. While unemployment rates have remained relatively low and inflation has been very subdued, economists increasingly don’t have a feel for where this is going in the medium term, meaning uncertainty remains elevated and business investment remains weak.

And that is before you add into the mix Donald Trump’s ascendancy to the US Presidency, along with growing support for protectionist sentiment on both sides of the Atlantic, that if subsequently translated into anti-free trade measures, would place further pressure on global growth. Hence the difficulty of crafting the growth forecasts underpinning the next Federal budget.

If nominal GDP growth continues to be constrained by weak inflation and wage growth, there will be adverse consequences for government tax receipts. Hence the need for an insurance policy in the form of omnibus legislation that is first headlined by an attractive policy reform – such as that most recently introduced in regard to child care – but at the same time comes with a host of negative welfare payment adjustments (the majority of which have been held up since 2014), to keep the budget surplus target on track should the revenue picture not markedly improve.

To maintain the trajectory towards two per cent of GDP being spent on Defence by 2020/21 and achieve the Defence White Paper’s estimate of $42.4 billion of total Defence funding for that year, the 2017/18 budget needs to contain $11.5 billion to advance the IIP and $8.4 billion to effectively sustain Defence – all within a $35 billion (Serial 4) Defence funding package. In the absence of publication of the Defence Portfolio Additional Estimates papers, there remains roughly two months from commencement of the Avalon International Airshow to Budget night when, hopefully, we will all be better informed.

This editorial was first published in the March-April 2017 issue of Australian Defence Business Review.