To prepare for its next Defence White Paper, Australia is examining an enterprise-level naval shipbuilding plan. To support this effort, RAND researchers explore the feasibility of Australia sustaining a domestic naval shipbuilding industry compared with buying ships from foreign shipbuilders. The authors outline the complex consequences and trade-offs of both options.

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Australia's Naval Shipbuilding Enterprise

Preparing for the 21st Century

by John Birkler, John F. Schank, Mark V. Arena, Edward G. Keating, Joel B. Predd, James Black, Irina Elena Danescu, Dan Jenkins, James G. Kallimani, Gordon T. Lee, et al.

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Research Questions

  1. What are the comparative costs associated with alternative shipbuilding paths?
  2. Is it possible for Australia's naval shipbuilding industrial base to achieve a continuous build strategy, and how would the costs of such a strategy compare with the current and alternative shipbuilding paths?
  3. How do the costs of acquiring vessels domestically compare with the costs of acquiring comparator(s) from shipbuilders overseas?
  4. How much do expenditures connected with warship building, maintenance, and sustainment add to Australia's economy?

In 2015, the Australian government will produce a new Defence White Paper to outline revised and refined defense objectives. As it prepares the new report, a basic question facing the government is whether Australia should buy ships from foreign shipbuilders or support a domestic naval shipbuilding industry. This question is complex, containing many facets and issues that often center on cost trade-offs and economic considerations, but that also touch upon important national and strategic concerns.

At the request of the Australian Department of Defence's 2015 White Paper Enterprise Management team, the RAND Corporation has been analyzing the capability of the shipbuilding and ship repair industrial bases in Australia to meet the demands of current and future naval surface ship programs. The analysis in this report aims to help Australia's defense policymakers in three ways: first, to gain an understanding of the capacity and associated costs of Australia's naval shipbuilding industrial base to successfully implement the country's current acquisition plan; second, to gauge how alternative acquisition requirements, programs, build strategies, quantities, and related costs and schedules might affect the capacity of that industrial base; and third, to measure the economic effects of the industry throughout Australia. RAND researchers provide detailed findings from both public and proprietary data and from surveys of industry representatives, and they offer recommendations to Australian policymakers.

Key Findings

Australian Policymakers Face a Trade-Off Between Paying a Price Premium and Benefiting from Broader Economic Development

  • The Australian government must choose among three options: build the naval surface ships on Australia's acquisition list entirely in-country, build them partially in-country and partially overseas, or have them built at shipyards overseas. Each strategy carries costs and risks.
  • Our examination concludes that domestic production of naval ships in Australia currently carries a price premium — estimated to be between 30 to 40 percent compared with similar ships built abroad.
  • The premium to build in Australia could be lower than the 30 to 40 percent range if Australia adopts a continuous build strategy to avoid rebuilding an industrial and management capability with each new ship program, starts with mature designs at the onset of production, and minimizes changes during production. With such measures (and a cultural shift in industry toward continuous improvement), we can envision this premium being cut in half.
  • Our examination of shipbuilding's economic effects suggests that there may be economic benefits associated with shipbuilding, especially when it occurs in areas that would otherwise have slack in their labor forces. The benefits are unclear and are largely dependent on broader economic conditions in Australia.

Recommendations

  • The Australian government faces a trade-off between paying a price premium for indigenous production and benefiting from some broader economic development from such production. The 30- to 40-percent price premium for building in Australia could drop to approximately half that level over time with a steady production program that leads to a productive workforce.
  • Supporting an Australian shipbuilding industry that is cost-effective will require specific steps, including filling the gap between the end of the air warfare destroyer program and the start of Future Frigate construction and adopting a continuous build strategy that starts a new surface combatant every 18 months to two years. There will be some challenges with replacing the Anzac-class ships in a timely manner, but those challenges can be overcome with careful management of the current and future fleets.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Australia's Naval Shipbuilding and Ship Repair Industrial Bases

  • Chapter Three

    Australian Department of Defence's Planned and Projected Warship Acquisitions

  • Chapter Four

    Using Indigenous Australian Industry to Address the Short-Term and Longer-Term Gaps in Naval Ship Demand

  • Chapter Five

    Benchmarking Australia's Naval Shipbuilding Industry with Comparable Overseas Producers

  • Chapter Six

    Examining Economic Pros and Cons of Australian Government Investments in Various Naval Shipbuilding Enterprise Options

  • Chapter Seven

    Conclusions and Recommendations

  • Appendix A

    Shipbuilding in Australia: A Brief History and Current Shipyard Production Facilities

  • Appendix B

    Shipbuilding Model and Assumptions

  • Appendix C

    Sensitivity Analysis

  • Appendix D

    Exploring the Option of Producing Offshore Patrol Vessels

  • Appendix E

    Survey of Australian Shipbuilders and Ship Repair Industries

Research conducted by

This research was sponsored by the Australian Department of Defence and conducted within the Acquisition and Technology Policy Center of the RAND National Security Research Division (NSRD).

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