By David Uren*
The Defence budget squeeze has starved the Royal Australian Navy of sustainment funding. We see this in the scandalous state of two of the Royal Australian Navy’s most significant ships, revealed in an Australian National Audit Office (ANAO) report on 27 June. (From The Strategist. The Australian Strategic Policy Institute.)
The two LHD-type amphibious assault ships were troubled from the start. HMAS Canberra was handed by BAE Systems to the navy in 2014 with an astounding 6,640 defects and deficiencies. HMAS Adelaide followed a year later with 2,240 defects.
Issues came to a head in 2022 and 2023, when both ships suffered complete power failures while on humanitarian missions assisting Tonga and Vanuatu. The ANAO reported: “Navy representatives reflected on the adverse attention on the LHDs and noted that such ‘catastrophic failures’ have negative impacts on ‘Navy’s reputation with the community, the government and international partners (US, UK), and … their confidence in the Navy to operate nuclear submarines.”The ANAO report exposes a litany of problems in Defence’s management of the LHDs’ acquisition and subsequent operation. They include issues relating to procurement, sustainment, contract management, technical workforce availability, probity and ministerial accountability.
But a theme running through the report is the pressure of funding. The Navy Sustainment Review Board, chaired by the deputy chief of navy, reported in 2019 that sustainment was underfunded in 2019–20, despite deferral of scheduled docking and an increase in the sustainment budget in the previous year. There were further concerns about sustainment requirements running ahead of budget in 2021.
In September 2022, the Defence Committee, chaired by the secretary of defence, considered a call for an additional $400 million to be provided for managing the Defence estate and information and communications technology.
To meet this requirement, the committee decided that Air Force and Navy would contribute $140 million each and Army $120 million, funded from sustainment budgets. Meeting minutes stated that: Chief of Defence Intelligence highlighted that the brief did not outline what impact the reduced sustainment funding would have on the three Services as a result of this reallocation.
The committee agreed that the services should advise, through preparedness reporting, what effect these cuts would have. This never occurred, however the deputy chief of navy was advised two months later that the growing maintenance liability for the LHDs was likely to result in urgent defects affecting mission critical systems and that there was ‘between a 97 and 99 percent chance of a system failure’ within the first 90 days of deployment.
It is the kind of raid on defence budgets that has become commonplace. A new priority appears for government or Defence. Rather than delivering fresh funding, a commitment to the new priority is made and Defence is asked to find the money from unspecified sources within its existing budget.
The ANAO report on the LHDs shows how this works in practice. The commanding officers’ weekly capability reports recorded that ‘the ships were not mission capable (for example, due to the cannibalisation of parts to support the sister ship)’.
Budgeted funding of sustainment of the LHDs from 2023–24 to 2026–27 fell short of requirements by $128 million. The Defence Finance and Resourcing Committee was informed that sustainment funding pressures across the navy was increasing the risk to their capability, with planned maintenance and engineering changes being deferred.
The committee noted in December 2023 that sustainment costs had risen at 5.8 percent a year between 2018 and 2022, while funding was indexed at only 2.5 percent. It said an increase in sustainment funding of between $960 million and $1.2 billion was needed to maintain the navy’s current level of activity.
The failure of funding to match indexation has been a problem across Defence, particularly during 2022 to 2024 when inflation rose globally. But sustainment is particularly vulnerable as plant gets older and when scheduled maintenance is repeatedly deferred. The navy’s ageing Collins-class submarines and Anzac-class frigates face fast rising sustainment costs.
A minute from the chief of navy in June 2024 reported that the navy had been identifying funding pressures since 2021 and that spending on sustainment had exceeded the budget for the previous four years. It put the shortfall between 2023–24 and 2027–28 at $2.7 billion. In October 2024, an additional $300 million was provided.
The ANAO’s conclusion was that ‘the LHDs have fallen short of meeting availability targets since 2020–21 and sustainment-related deficiencies and workforce shortfalls have given rise to risks involving critical failures in the vessels, possible damage to navy’s reputation and concerns for the sustainability of the LHDs over the long-term.’
The ANAO exposure of the mismanagement of the two single most expensive defence assets highlights the consequence of treating the defence budget as a hollow log to be tapped at will.
There is no improvement in sight. This year’s Defence portfolio budget statement shows the navy’s sustainment funding remains absolutely flat, out to 2028–29.
