By Chris Douglas*
It isn’t clear whether Hanwha Ocean is still interested in buying Australian shipbuilder Austal, but the government should oppose such an acquisition by the South Korean company or any other contender for the general purpose frigate program. (The Australian Strategic Policy Institute. The Interpreter.)
Hanwha Ocean, part of the Hanwha Group conglomerate, is one of five foreign shipbuilders that the government has named as possible suppliers of 11 general purpose frigates. Eight of the frigates would directly replace the eight Anzac class ships of the same category, and three would expand the fleet.
Austal said in April that Hanwha Ocean had bid for it. The company declined to endorse the offer but the Australian government had no objection to it. Although Hanwha Ocean has reportedly lost interest, it has not said so. Even if it has, its move raises the possibility that one of the other foreign builders could try the same tactic.
They are South Korea’s HD Hyundai Heavy Industries Co (HHI), Spain’s Navantia, Japan’s Mitsubishi Heavy Industries (MHI) and Thyssenkrupp Marine Systems from Germany. The government is seeking information on how, where and when the builders could construct the first three frigates. The remaining eight frigates are intended to be built in Henderson, Western Australia.
There are only two shipbuilders in Henderson that could be awarded the contract for local construction: Austal and Forgacs Marine & Defence, a subsidiary of Civmec, a heavy engineering and construction company listed on the Australian and Singaporean stock exchanges. Forgacs is building patrol ships of the Arafura class.
While Austal in partnership with a US company has built frigate-size warships in the US, it has not built a warship of that size or larger in Australia. It has scored a significant advantage over Forgacs, signing a heads of agreement with the government last year to establish a Strategic Shipbuilding Agreement. When that final agreement is signed this year, Austal should become the strategic shipbuilder at Henderson. It has been speculated that Austal would then have a local monopoly over all future naval construction contracts in Western Australia.
No doubt, Hanwha Ocean did its homework and when making its bid was confident that Austal, on the verge of being awarded strategic shipbuilder status, would be building the frigates. The South Korean company would have hoped that by acquiring Austal it would improve the chance of the government choosing the Hanwha Ocean frigate design. So, it would have bought a competitive edge.
If Hanwha Ocean, or any of its competitors, acquired Austal before a frigate design was selected, the government would have two problems. Selecting a design by a new owner of Austal for construction by Austal’s government-endorsed shipyard would lead to complaints of favouritism from the unsuccessful shipbuilders and claims of incompetence from the opposition.
Other problems would arise if the design of a new Austal owner were not chosen. The winner would then be reluctant, at least, to have its design built by Austal. It would hardly want to put its intellectual property and building technology in the hands of a competitor. And even if that obstacle were overcome, the designer and Austal’s new owner might try to pin responsibility on each other for any problems in program execution: the designer might say the construction work was no good, while the new Austal owner might blame the design. Completion of the project could be delayed while the warring parties sorted it out.
Seeing such a risk, the government might prefer to ignore Austal and award Forgacs the frigate contract. The foreign buyer of Austal would then be left with a shipyard that lacked major Australian naval orders.
Neither Hanwha Ocean nor any of the other bidders for the frigate program should be allowed to buy Austal. If one did, the results would be damage to the project before it even started and, probably, creation of project management difficulties later.
