Aukus defence pact’s political pay-off will be a jobs bonanza

The Aukus defence pact draws some of the world’s top defence contractors into a global industrial alliance that will have its home in two far-flung shipyards: Osborne, near Adelaide, and Barrow-in-Furness in north-west England.

While the negotiations centred on how to share some of America’s most guarded military technologies, the political pay-off has come in a deal that will create tens of thousands of jobs over decades of work across the US, UK and Australia.

Canberra has described the deal as the “biggest procurement” in Australia’s history, with estimates suggesting it could cost 0.15 per cent of gross domestic product between now and the mid-2050s. It will see Australia embark on a joint programme to develop a new class of submarine with the UK, while buying existing boats from the US to cover its needs over the next three decades.

Both require a massive investment in submarine bases in the US and UK to overcome production constraints, from space to skilled manpower, that have hobbled the building of submarines in both countries. Australia has not disclosed its planned investment but US officials said the figure would be substantial. “It’s a small proportion [but] it’s a large number,” said one senior US official.

The trade-offs between operational need, industrial capability and tech pragmatism have shaped a programme that has benefits for all three partners, with a ripple of orders for their respective industries.

The Barrow shipyard

Among the biggest potential corporate winners is Britain’s BAE Systems, which owns the yard at Barrow and builds all the submarines for the Royal Navy, including the Astute class of nuclear-powered attack boats.

The Aukus submarines will be based on a British design for the next generation of attack boats. Australia and the UK will both operate the so-called SSN-Aukus. The UK is aiming to deliver its first Aukus submarines in the late 2030s. Australia hopes to deliver the first of its eight boats in the early 2040s. Defence officials said the final number of submarines could yet rise.

For BAE’s Barrow shipyard and its workers, as well as thousands in the wider supply chain, the promise of steady, long-term investment promises a reprieve from the “feast or famine” cycle that has historically dogged submarine manufacturing in the UK, according to people close to the agreement.

Two decades ago both the yard, which started building submarines in the 1880s, and BAE were in crisis when work on the first Astute boat for the Royal Navy ran over budget and over time. The company had not built a submarine for more than 10 years and many skilled workers had either moved to other industries or retired. BAE was eventually forced to take an exceptional charge against the Astute programme in 2003.

Barrow is today building the final two Astute boats and the first three of four new dreadnought class boats, which will carry the UK’s nuclear deterrent. The yard, which employs about 10,000 workers, has been recruiting to deliver on those domestic programmes. UK defence secretary Ben Wallace said in January that he expected the headcount to eventually rise to 17,000. The UK will invest £3bn across its defence nuclear enterprise over the next two years to build capacity and support the delivery of Aukus.

The submarine supply chain

British contractors are expected to build some of the initial components for Australia’s SSN-Aukus boats.

Rolls-Royce, the FTSE 100 engineering group, will build the nuclear power plants for the next generation boats, both for the UK and Australia. The company has processed the fuel and built the reactor vessels for all the Royal Navy submarines at its Raynesway plant in Derbyshire for more than six decades.

The UK’s Sheffield Forgemasters, which was nationalised two years ago, works with Rolls-Royce on the larger components that house the reactors and is one of the smaller suppliers that will benefit from the stream of work.

The nuclear fuel, which will be supplied by the US, will be delivered to Australia in sealed units that will not require refuelling during their lifetime. Australia will manage the long-term waste and spent fuel storage.

Babcock International, Britain’s second-largest defence contractor which maintains and repairs all the UK’s nuclear submarines at the Devonport shipyards, near Plymouth, is also in line to play a significant role. The company already has operations in Australia.

America’s General Dynamics, the lead contractor for all US submarines, including the Virginia-class boats of which up to five will be sold to Australia as an interim measure, is also one of the biggest potential beneficiaries. Huntington Ingalls Industries, which owns Newport News, GD’s partner on submarines, will also benefit.

US national security adviser Jake Sullivan said the Australian investment would also help the US speed up the delivery of its own submarines — a critical factor given how many existing boats are stuck in maintenance.

“The fact that Australia is making a proportional commitment is important,” Sullivan said. “If we’re going to bring them into this, then they’ve got to help both with the uplift of the production capacity for the US submarine industrial base but also with the maintenance capacity as well because we’ve got to get more of the existing boats into the water.”

Sullivan added that the US would be able to accelerate plans to expand its attack submarine fleet because of the investment, suggesting Aukus would also create more jobs at US shipyards.

The senior US official said the SSN-Aukus submarines would include a lot of technology that is deployed on Virginia-class boats. The US is also investing an additional $4.4bn in its own submarine industrial base over the next five years to boost capacity.

Sonars, masts and combat systems

Other corporate winners include Thales, the French group. The company, which supplies the sonar and optronic masts — the “eyes and ears of a submarine” — for the Royal Navy’s submarines from its sites in Templecombe in Somerset and Glasgow in Scotland, is expected to provide the same for the SSN-Aukus boats.

The submarines will use significant US technology in the form of weapons and combat systems which are already deployed on the Virginia class of submarines.

Lockheed Martin, the US defence giant that already provides the combat systems as well as MK 48 torpedoes, will be among those to benefit.

Potential risks

Despite the expected industrial bonanza, the deal is fraught with potential delays and risk.

Naval experts pointed out that both Britain and America’s domestic build programmes have already been hit by cost overruns and there was no guarantee the same would not happen with Aukus.

One of the biggest risks remains the shortage of skills, with some British naval experts also warning of a potential brain drain from the UK and the US to Australia.

All three nations are promising a big jump in employment and insist that the agreement will ensure there will be no poaching of critical workers from existing US and UK programmes. Australia said it would establish additional training, skilling and education programmes to help its local submarine and shipbuilding industry.