Land Forces 2022 – defence industry policy under Pat Conroy, interview

Today we launch our special editorial series Land Forces 2022 with a look at the policies of the new federal government guiding Defence’s relationship with industry. In his first major interview, Pat Conroy, Minister for Defence Industry and Minister for international development & the Pacific, talks with Peter Roberts.

Question: The coalition government from 2016 had a focus on defence industry, and took a more activist approach to defence industry. Could you reflect on the suite of policies you have inherited?

Pat Conroy: There are three observations I would make.

One, on paper the policies were OK. But the implementation didn’t follow what they had committed to. This is a challenge across industry policy for multiple governments, it was not unique to this government. You see very sweet words on paper but following through is a challenge for both ministers and the department.

Two, where they did spend money locally there wasn’t enough strategic consideration, they just seemed to spray money without consideration of what is a sustainable and capable Australian defence industry. A classic example they would count as local spend was French lessons for Naval Group executives stationed in Australia. The approach was publicising how much they spent rather than showing any strategic approach.

Three, it wasn’t joined up enough. We would see projects funded under the Defence Innovation Hub but then they would die a slow death because the capability managers didn’t see a purpose for that particular technology. So there was no funding to sustain that technology once it got through its initial innovation hub funding. That’s just wasting everybody’s time.

Question: So would you give the former government any credit at all?

Pat Conroy: Look there was an increased focus on spend in Australia, I would acknowledge that. That’s a function of some of the projects they funded being more developmental than some of the off the shelf acquisitions that the Howard government and last Labour government pursued. I will also acknowledge that they did try to grapple with the issue of continuous naval shipbuilding. I don’t think they thought through the implications of their approach. But on shipbuilding they tried to take an approach that was more linked to industrial realities than had previously been adopted.

Question: So what is your aim in the defence industry portfolio, what is your overall philosophy?

Pat Conroy: The first point I would make is that I am as much defence materiel minister as I am defence industry minister. People assume your job is to maximise local industry content. And that is important but it is not my highest priority. That is to ensure that the defence materiel that the ADF needs gets to the service on schedule, on budget and with the capabilities it was contracted for. Everything else has to flow from that.

Question: That is something that has eluded every defence minister – it is an extraordinarily hard nut to crack isn’t it?

Pat Conroy: It is and there are challenges. Defence acquisition is the most complex form of procurement in the world. There is no country that does it perfectly. I actually think we do it better than most countries, but we should still strive to improve. We have about 30 major projects that are running cumulatively about 50 years late. And that is not acceptable. That has to be my number one priority.

Then, my second priority. We are expecting to spend about $300 million on acquisition and sustainment over the next decade. How do we generate sustainable Australian industry capabilities? Rather than focusing on Australian industry content, although that is important, it has to be about how at the end of the decade have a bigger and more sustainable Australian defence industry that is exporting, that is providing key sovereign capabilities for Australia.

Question: So how important is Australian owned capability and contractors in achieving that goal?

Pat Conroy: It is important but it is not critical. Obviously ownership matters and if it is not Australian owned it has got to be owned by a country that we are close to. There is going to be a role in the defence sector for (foreign) companies like Thales or Lockheed Martin or Raytheon.

Ownership is important but it shouldn’t be the sole determinant. What I have said to the foreign owned primes is I want them to embrace what are multiple domestic markets. There headquarters might be in country X, but if Australia is a big enough market they should be treating Australia like a home market.

Question: Are you concerned about the vulnerability of Australian owned defence companies to overseas takeover. The dollar is very low and they are undervalued on the stock market. We recently lost one to takeover, Barrett Communications in Perth, but I am also thinking of companies such as Electro Optic Systems.

Pat Conroy: My concern is not so such for the ownership structure but whether the capability resides in Australia. And if the ownership does change, what levers does the Australian government have to make sure those capabilities reside in Australia. That’s obviously easiest when they are owned by Australians but there are other ways around that.

Question: You mentioned two priorities.

Pat Conroy: Yes the second priority was a sustainable and growing defence industry, and linked to that is my vision for growing medium sized defence companies often Australian owned.

There is a thin layer of large defence primes, all foreign owned, then it narrows down line an hour glass of medium sized, predominantly Australian owned companies, and you have got a large number of SMEs that are Australian owned. One of my aims is to help those small companies transform to medium sized companies.

Question: All companies not just in defence are experiencing shortages of staff of skills, is there anything other than the government’s general approach to this issue such as increasing migration and training for defence?

Pat Conroy: One is the opportunity for defence specific training programmes. Working with Greg Combet (former defence minister) I helped design industry specific skilling packages. One was focused on the Hunter region and there were shipbuilding programmes in South Australia and another in Western Australia. These aimed to make working in defence attractive to young students, and growing from these were programmes that reached up into universities and TAFEs. We also need to work more effectively with state governments.

We announced…a joint SA and Commonwealth task force with particular focus on shipbuilding. We are going to have to ramp those sort of things up ultimately we need to find these workers.

In shipbuilding this approach makes sense with the continuous shipbuilding that the previous government established. In 2030 when we are in a steady state, most of them will work in common user facilities. If a company loses a contract to another, the workers effectively just change employers. The challenge with that is how do you get to that steady state.

Question: Could we turn to specific policies, could you tell us your approach to defence innovation.

Pat Conroy: There we have the Australian Strategic Research Agency. This is is really an attempt to bring together the disparate research funding and activity that occurs with the Defence Science and Technology Group and the broader defence department in one coherent organisation. It is modelled somewhat on the US Defense Advanced Research Projects Agency (DARPA) but obviously not at that scale.

We need to look at the Defence Innovation Hub programme. There is a lot of industry dissatisfaction with that programme. So how long it takes to get applications assessed and the fact it is not linked effectively to future capability demands. There is always a case for funding speculative blue sky research, but ultimately unless there is demand for that technology we are just wasting everyone’s time.

To be frank defence and the government have to get better at picking winners. We have to be much more strategic. We can’t just keep spreading our limited resources as thin and broad as we have at the moment, and we have to accept that will involve some risk.

Question: Let’s turn to Ukraine, what has the fighting there told us about the future of the Army?

Pat Conroy: I am not a Land Warfare tactician. The defence strategic review will look at those very issues and that will report early next year. But the conflict in Ukraine has taught us that, one, local supply chains are very fragile. We knew that due to Covid but the Ukrainian conflict has demonstrated that.

Secondly, we can’t rely on what was seen as peacetime levels of stock. If you look at Ukraine and you look at usage, they went through missiles, artillery, ammunition and small arms ammunition (at a rapid rate) and you look at the fact we don’t have a ten year warning time any more.

We can’t just have the bare bones stock. We need to think about how do we generate wartime levels of stock. Some of that may be increasing inventory and some may be about developing sovereign manufacturing capability.

So I am very focused in the guided weapons enterprise which is critical to future ADF capability. We have to be able to have greater stocks and also be able to manufacture critical parts of missiles if not manufacturing entire missiles.

Question: The government has announced a number of industry planning exercises such as the development of a national rail manufacturing plan. Are we going to get a defence manufacturing plan?

Pat Conroy: We said before the election we would be developing a defence industrial development strategy. We are working on that right now and we are hoping to release that sometime next year, ideally in the first half.

One of the things that Covid has demonstrated is that the Australian public were always more progressive in terms of manufacturing sovereignty. And it is now time Canberra politicians moved forward with that.

@AuManufacturing’s special editorial series Land Forces 2022 is brought to you with the support of Thales Australia and BAE Systems Australia.

Picture: Pat Conroy

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