(qlmbusinessnews.com via telegraph.co.uk – – Fri, 29th June 2018) London, Uk – –
AE Systems has won a £20bn contract to build frigates that will form the backbone of the Australian navy, beating off rival proposals from Italian and Spanish groups for the biggest naval defence deal of the past decade.
The contract win will see BAE supply nine vessels based on the Type 26 frigate design currently under construction for the Royal Navy.
Prime Minister Theresa May called the agreement an example of the kind of trade deals the UK can secure – especially with Commonwealth nations – as the country prepares for Brexit.
“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,” she said. “This deal is a perfect illustration that the Government is doing exactly that… and it will also cement our strategic partnership with one of our oldest and closest friends for decades to come.”
Gavin Williamson, UK Defence Secretary, hailed the agreement as the “biggest naval defence deal in a decade” and said it showed “confidence in British design, engineering, innovation, and our world class military”.
The A$35bn (£20bn) agreement is one of two key international contracts up for grabs that BAE management see as must win deals. The other is an even bigger deal to build up to 15 warships for the Canadian military.
Ships for the Australian navy will be built by state-owned ASC Shipbuilding in Osborne, South Australia. ASC will become a subsidiary of BAE during the construction process, although Australia will retain a “golden share” in the business.
The arrangement means BAE is fully accountable for the progress of the construction work. Once the programme is finished Australia will resume complete ownership of ASC.
Work on the new ships – which will be called the Hunter class – will create more than 4,000 jobs in Australia but is unlikely to boost BAE’s employment numbers in the UK.
However, companies in BAE’s supply chain already making components for the British Type 26s could get a boost, as Australia seeks efficiencies for its ships by ordering parts from them.
At a recent investor day, BAE said the Australian contract – known as SEA 5000 – was worth about A$20bn to it over the next 10 to 15 years. However, with support and munitions for the vessels, the total value could be much higher.
Because of the commonality between the UK and Australian vessels, they will be able to work together more easily on multi-national operations.
Defence Minister Guto Bebb added: “Australian forces have stood should-to-shoulder with our military for generations and this deal will build on our strength as allies as our two great navies operate this cutting-edge frigate around the globe.”
The Type 26 is the most advanced ship of its type in the world, specialising in anti-submarine warfare.
As China strengthens as a maritime power in the Pacific, Australia is keen to beef up its capabilities to defeat Beijing’s increasingly sophisticated fleet.
Because of the advanced technology in the Type 26, BAE’s proposal for the SEA 5000 contract was more expensive than rival bids from Italy’s Fincantieri for its FREMM frigates and Spainish ship builder Navantia’s F-5000 offering.
A report by the Australian Strategic Policy Institute into the three different proposals praised the state of the art Type 26, but its newness also counted against it. The first of the class is not due to go into service until the mid 2020s when it joins the Royal Navy’s fleet. The Royal Navy will receive only eight Type 26s, down from an original plan for it to receive 13 of the ships.
The Australian contract win is a coup for BAE, that could boost its chances of winning the forthcoming Canadian navy contract, which could be worth as much as C$55bn (£32bn).
BAE Systems chief executive Charles Woodburn, said his company's win “reinforces our position as a leading designer and builder of complex maritime platforms”.
Independent defence analyst Howard Wheeldon described Australia's decision as a “massive vote of confidence in BAE and the capabilities of the Type 26”.
Jefferies analyst Sandy Morris said: “It takes a lot to move the needle at BAE, but we believe SEA 5000 would do so. It would also bolster sentiment.”
Stephen Phipson, chief executive of manufacturers’ trade body EEF, was previously head of the Defence and Security Organisation in the Department for International Trade, and was heavily involved in intense UK efforts to win the SEA 5000 contract.
He said: “This win for the UK defence industry is the result of years of hard work with Government and industry working in close partnership. The decision by Australia confirms the UK leadership in advanced frigate design and the strengthening of ties at both the industrial and defence level between the UK and Australia.”
The FTSE 100 company’s shares rose 1.3pc on the news.
By Alan Tovey