Feature: Australia's procurement chopping block

The deterioration of Australia's threat environment in recent years has had indelible effects on the country's recent procurement decisions. This is particularly true since 2020 when the Australian Department of Defence (DoD) released its Defence Strategic Update (DSU) and outlined an intention to “shape Australia's strategic environment, deter actions against Australia's interests, and respond with credible military force when required”.

These three initiatives reflect a dramatic shift in Australian military posturing, one that the 2024 National Defence Strategy identified as a ‘strategy of denial' that seeks to stem adversarial incursions into the country's northern approaches.

Unsurprisingly, this shift has caused several long-standing programmes of record to be significantly re-imagined or terminated altogether, no matter the public relations fallout or administration. Australia could surely be said to have cut off all the programmatic dead weight that it possibly can.

Nevertheless, several key acquisitions could still be at risk of rescoping or outright cancellation because they do not align clearly with the strategy of denial, provide a capability already served by a complimentary programme, or are simply too costly or time-intensive. These three rationales have been deployed repeatedly since 2021 to justify significant programme adjustments.

Threat environment

As stated in Australia's Integrated Investment Program (IIP) released in April 2024, the DoD has had to pursue “hard but necessary decisions to cancel, divest, delay, or rescope projects or activities that are not critical to delivering the force our strategic circumstances require”.

This is perhaps the foremost rationale behind major programmatic restructures and has driven some of the DoD's most consequential decisions, such as scrapping French diesel-electric submarines for nuclear submarines, reconfiguring the naval surface fleet, terminating the acquisition of MQ-9B Sky Guardian unmanned aerial vehicles (UAVs), and significantly scaling down the Land 400 Phase 3 Infantry Fighting Vehicle (IFV) acquisition.

The DoD established the Sea 1000 submarine acquisition programme in 2019 with hopes of acquiring 12 new, Australian-built diesel-electric boats from France's Naval Group for AUD50 billion (USD33.2 billion).

Although the government made significant investments into the indigenous industrial base to support the effort, the DoD elected to forgo the diesel-electric submarines in favour of three to five US-built Virginia-class nuclear-powered submarines (SSNs) and eight AUKUS-class SSNs built jointly in the United Kingdom and Australia, as part of the AUKUS partnership founded in September 2021. The move, which former French Foreign Minister Jean-Yves Le Drian described at the time as a “stab in the back”, all but stunned the defence community. The DoD had surely lost faith in Naval Group in the preceding years due to cost overruns and scheduled delays.

However, the switch was motivated more so by geostrategic than financial realities, and demonstrated the lengths to which the Australians would go to achieve their regional ambitions. The United States, Australia, and to a lesser extent the UK had each sought to prioritise the Indo-Pacific region to counterbalance Chinese power. As such, an Australian acquisition of such advanced technology cements an already strong trilateral defence partnership and combines efforts and resources into a perceived common adversary.

At the same time, the Virginia-class and AUKUS-class submarines offer Australia unprecedented strategic advantages. SSNs can remain submerged for far longer and emit lower heat signatures, which enhance the vessel's stealthiness exponentially. Australia will be able to patrol its northern approaches for indefinite periods of time without detection with the strike capabilities to respond to a potential attack, an essential tool in a broader strategy of denial.

The strategy of denial framework also compelled the Royal Australian Navy (RAN) to significantly restructure its future surface fleet. In February 2024 the RAN released its much-anticipated Surface Fleet Review (SFR), which the DoD undertook amid fears that the planned fleet was inadequately prepared for a changing threat landscape.

The SFR determined that the surface fleet was neither large nor lethal enough to deter and respond to strategic challenges. To remedy this, the SFR suggested cutting the Arafura-class offshore patrol vessel (OPV) acquisition from 12 to six and the Hunter-class from nine to six to finance 11 new general-purpose frigates and six optionally crewed large surface vessels. Critics had called out the OPV for lacking a main gun and other major weaponry, so the RAN hopes this reconfiguration will allow for a wider variety of weaponry to be fielded across more expansive maritime domain in a timelier manner.

While the SFR did not explicitly terminate any programmes, two big-ticket naval acquisitions – the Sea 2200 Joint Support Ships programme and the Sea 1905 mine countermeasures vessels (MCMV) programme – were conspicuously absent from the IIP.

Australia's Sea 2200 programme would have acquired two replenishment tanks while Sea 1905 would have procured a new fleet of mine-hunting vessels to replace the RAN's ageing Huon-class fleet for roughly AUD1 billion. Defence Minister Richard Marles confirmed to reporters in April 2024 that Sea 2200 had been cut specifically to fund other naval lethality efforts, namely the 11 new general-purpose frigates. Thus, one can conclude that Sea 1905 has also been cut for the same reason, never mind the fact that foreign firms had already placed bids on both efforts, with some already investing in the local supply chain ahead of an expected contract announcement.

Likewise, the immense rescoping of Land 400 Phase 3 underscores that programmatic changes have not been isolated to the RAN. First announced in November 2015, the programme sought 450 IFVs for AUD18–27 billion to fully replace the Australian Army's ageing fleet of M113 Armoured Personnel Carriers at a time when the army was still heavily involved in counter-terrorism operations and on far more favourable terms with China.

Yet, as Australia became increasingly wary of Chinese power and less involved in counterinsurgency efforts, the programme in its original imagining became increasingly less viable, especially given its massive cost.

Unsurprisingly then, the DoD trimmed its planned acquisition to 300 IFVs in June 2022 and then to 129 in April 2023, where it currently stands. The DoD made this dramatic decision because of Land 400 Phase 3's tangential relevance to the strategy of denial and the assessment that only replacing a fraction of the army's M113 fleet to invest further in naval lethality and long-range strike capabilities was a worthwhile trade-off.

The DoD has even cancelled programmes with ostensible relevance to the strategy of denial to pursue alternative capabilities deemed more vital.

The April 2022 termination of the Air 7003 Phase 1 effort, which would have acquired up to 12 MQ-9B SkyGuardian UAVs for long-range intelligence, surveillance, and reconnaissance (ISR) and strike for USD1.3 billion, is a foremost example.

Although the acquisition would have provided the Royal Australian Air Force (RAAF) with robust capabilities to detect and respond to threats, the DoD reallocated those funds towards a new effort called Project REDSPICE (resilience, effects, defence, space, intelligence, cyber, enablers) that aimed to provide Australia with unprecedented cyber defence, attack, and surveillance capabilities.

The Morrison administration announced the decision after witnessing novel uses of cyber warfare during Russia's invasion of Ukraine and reasoning that such capabilities could be deployed against Australian interests by China in the event of conflict. On the whole, the move showed that DoD reprioritisations could impact any programme, regardless of its benefits, depending on the evolution of Australia's perceived threat environment.

Another procurement that could be shaped by Australia's future threat environment is the potential acquisition of an additional batch of 30 Lockheed Martin F-35 Lightning II fighter aircraft.

Canberra is committed to procuring 72 F-35A aircraft and has been considering the acquisition of a further batch of 30 aircraft to replace the RAAF's Boeing F/A-18F Super Hornets. However, the DoD has indicated that the requirement could be met by continued upgrades to the Super Hornets.

The DoD told Janes in September 2023, “There are a variety of options under consideration for the future air combat fleet. The force mix will be shaped by Australia's DSR [Defence Strategic Review], and all available options suited to Australian needs will be evaluated.”

Overlapping capabilities

The DoD has also sought to increase cost savings by eliminating redundant capabilities that could be fulfilled by alternative acquisitions. This rationalises the determination to forgo 16 light special forces helicopters and potentially several other programmes.

In March 2023 the DoD cancelled Land 2097 Phase 4, which would have acquired 16 light special forces helicopters, despite several contractors responding to requests for proposal.

The DoD cancelled this programme specifically because it would provide the army with overlapping capabilities. The army is fortifying its aviation capabilities with planned acquisitions of 29 Boeing AH-64E Apaches and 40 Lockheed Martin UH-60M Black Hawks by 2029, and a recent acquisition of additional Boeing CH-47F Chinooks. Together, these advanced platforms will provide the army with enhanced airborne mobility and attack capabilities beyond what a light helicopter could ever offer. In addition, once delivered, the UH-60M will be used specifically to provide dedicated support for special forces operations as it currently does for militaries worldwide.

The DoD could also be justifying other programme modifications with the same reasoning, though it might not always be explicitly stated.

The surveillance capabilities afforded by the MQ-9B could reasonably be filled by Northrop Grumman's MQ-4C, which the RAAF began receiving in June 2024, while the strike capabilities could be delivered by the F-35 and F-18 fleets.

Likewise, the mission that would have been delivered by Sea 1905's MCMVs can foreseeably be undertaken by lower cost, attritable unmanned undersea vehicles, which have been a key area of investment for the RAN in recent years. The same could be said of the Sea 2200 programme, whose capabilities would have been nearly identical to the Navantia Supply-class replenishment ships that the RAN received recently in 2021.

Cost overruns

The DoD has also remained cognizant of its role as a steward of public funds and sought to scale down programmes experiencing untenable cost overruns and delays. These issues particularly plagued the Attack-class submarine, Hunter-class frigate, and Arafura-class OPV efforts and offered yet another rationale for their reprogramming.

The Attack-class acquisition experienced headwinds from the onset. Costs ballooned shortly after contract signing in March 2019, with figures skyrocketing from an initial AUD50 billion to AUD90 billion by May 2020, sustainment expenses notwithstanding.

By May 2020 construction on the lead ship HMAS Attack had already been delayed by several years from 2022–23 to 2024. In June 2021 the DoD set a September deadline for Naval Group to offer acceptable cost savings plans or risk losing out on the programme altogether. In September 2021 Australia finally closed the door on Attack-class in joining AUKUS, which the DoD perceived as a risky but worthwhile endeavour given the potential for a much higher return on investment.

The Hunter-class and Arafura-class programmes encountered similar challenges. The SFR determined that the cost of acquiring nine Hunter-class frigates had mushroomed from AUD45 billion in the 2020 Force Structure Plan to AUD65 billion by 2024. Construction of the first ship also saw an 18-month delay due to design issues with the Type 26 reference ship, calling into question BAE Systems' ability to deliver the first ship by 2031 as intended.

Meanwhile, the DoD placed the Arafura-class OPVs on its maligned ‘Projects of Concern' list in 2023 following unspecified cost overruns and delays owing to Covid-19 supply chain shocks, inability to meet civilian safety standards, and workforce shortfalls. In the end, reducing each to six vessels emerged as the best way to remedy these concerns.

Programmes at risk

After modifying most of the DoD's most consequential acquisition plans, it might be hard to contemplate further changes. Nevertheless, the DoD has shown a clear willingness to pursue alternations when deemed necessary, and it would be imprudent to discount the possibility. This is especially true given that several ongoing and future programmes are exhibiting signs of being misaligned to the DoD's mission priorities, duplicative, or exposed to cost overruns and delays.

More so than any other programme, the two-step plan to provide US-made Virginia-class submarines in the 2030s ahead of AUKUS-class submarines in the 2040s risks serious cost overruns and delays. Delivering the Virginia-class should be simpler given its existing production line and proven design.

However, the US Navy (USN) might fail to meet its own submarine demand, as further delays to the Columbia-class ballistic missile submarine programme could compel the USN to operate the Virginia-class beyond their expected transfer date to Australia.

There are also concerns that the operational hit to the USN of transferring so many Virginia-class vessels to Australia could outweigh the benefits, opening the door for US policymakers to scrap current plans in the event of an emergency. These concerns are further compounded by labour shortages that have plagued US shipyards since the outbreak of Covid-19.

On the other hand, the SSN-AUKUS has a different set of risks that could prove even more consequential. Developing novel submarine designs has consistently proven more costly and time intensive than anticipated. The Attack-class submarine, which had been designed as a conventionally-powered variant of the Barracuda-class SSN, is a case in point.

As such, there is every reason to conclude that introducing nuclear technology into the fold will complicate matters further, especially given Australia's unfamiliarity with it.

There are several potential remedies should either submarine programme find itself on the ‘Projects of Concern' list.

To alleviate cost pressures associated with the AUKUS class and to keep the programme at its original planned cost, the total number of hulls might need to be cut, as had been done for the Hunter-class and Arafura-class programmes. The Attack-class submarine had nearly doubled in a matter of two years, so keeping costs consistent for the AUKUS-class might require simply slashing the fleet size.

In the event of major delays to either programme, Australian policymakers have proposed pursing Northrop Grumman's B-21 stealth bomber, which has entered low-rate initial production in the US. The B-21s would afford Australia with much-needed long-range strike capabilities that would be fulfilled by the SSNs and are vital to its strategy of denial.

In addition, not only would the stealth bomber be a cheaper alternative to SSNs, but it could also be delivered in a much-expedited timeframe that would alleviate pressure on the submarine production lines.

While the AUKUS framework could increase the likelihood of a B-21 export, the US has not committed to doing so to protect sixth-generation technologies, a difficult lesson learned following widespread Chinese cyber espionage on the export-oriented F-35 programme.

Should the US decide to design a more export-oriented version of the B-21 lacking some of the aircraft most sensitive technologies, then the very utility of the capability to the RAAF could be reduced to the point of irrelevance. As such, while the DoD could position themselves as a potential B-21 customer to guard against submarine delays, it should be wary of the many obstacles standing in the way.

For its part, the 2024 IIP makes no mention of any sort of future stealth bomber, nor does it anticipate any major delays or cost overruns to either submarine programme.

While potential cuts to the SSN programmes would likely be announced many years from now, Sea 2400 could currently be in legitimate jeopardy for several reasons.

The 2016 IIP anticipated the programme to acquire hydrographic survey vessels for AUD1–2 billion to replace an existing fleet that would reach the end of its life expectancy by the mid-2020s. However, the 2024 IIP makes no specific mention of acquiring any such vessels for the RAN.

Instead, the document claims, “Defence is partnering with the commercial hydrographic industry to undertake maritime surveys of Australia's exclusive economic zone and improve its understanding of our maritime environment” and these funds will “be invested through the HydroScheme Industry Partnership Program to collect, collate, and produce nautical charts and publications within the Australian Charting Area with the Australian Hydrographic Office”. While this vague passage does not ruleout ship acquisition, it suggests the DoD will instead solicit capabilities already present in private industry.

While not confirmed, the restructuring of Sea 2400 could make sense, considering the relative youth of the existing RAN hydrographic survey fleet, the vague connection to the strategy of denial, and a history of cost overruns and delays of recent Australian shipbuilding programmes.

Two recently signed, multibillion dollar aircraft acquisitions could be at risk of near-term fleet cuts depending on the severity of the DoD's funding constraints.

The DoD tapped Boeing to provide the army with 29 AH-64E Apaches in January 2021 and Lockheed Martin to provide 20 C-130Js mobility aircraft to the RAAF in July 2023. Both capabilities are expected to replace Australia's fleet of 22 Tiger Attack Helicopters and 12 older C-130Js respectively, in the late 2020s.

There is no reason to suspect that the DoD would cut either programme significantly, especially given a clear commitment to both in the 2024 IIP. Nevertheless, it is worth considering because both plans would see an augmentation to current capabilities beyond the current inventory.

In addition, while it is essential for Australia to maintain attack helicopter and mobility aircraft capabilities, neither one, especially the former, can be considered a top priority when compared with much costlier and innovative submarine and shipbuilding programmes.

A potential modification might see the DoD cut its AH-64E buy from 29 to closer to 22 and its C-130J buy from 20 to closer to 12, which would sufficiently replace the ageing capability in a way that conserves resources for other priorities.

In the end, only time will tell how Australia chooses to manage its finite resources to deliver unprecedented military capabilities to its warfighters. Recapping how the DoD has made such decisions in the past could certainly provide some insight. However, observers should also brace for the likelihood that the DoD has more surprises in store, and that it will not hesitate to do what it thinks is best for Australia's national defence despite the consequences.