Understanding the cost of Australia’s naval defence

Program 2.5: Navy Capabilities in the portfolio budget statements (PBS) notes that the objective is to “provide maritime capabilities that contribute to the Australian Defence Force’s capacity to defend Australia, contribute to regional security, support Australia’s global interests, shape the strategic environment and protect national interests.”

That will include conducting operations and deployments to defend Australia’s territory and national interests and delivering future capabilities. But, as with other sections of the PBS related to the specific domains, there’s a use of repetitive “rubber‑stamped” phrases, both in relation to achievements related to current operations and to future capability acquisition.

Those bland phrases—for example, on planned performance results for the 2025–26 budget year, merely repeat the same words (“80 per cent or more of approved integrated investment program projects across all domains are on track to deliver the scope approved by government within government approved cost and schedule”) provide no clear evidence that this statement is in fact correct or consistent with the facts.

That makes it difficult to gain any useful information on whether the navy is achieving current goals in sustainment and operations, or in relation to future acquisitions of new capabilities.

AUKUS submarine procurement

However, the navy is benefiting from significant rises in investment. The PBS shows a sharp projected rise in total capital expenditure for nuclear‑powered submarines, from AU$2.45 billion (US$1.57 billion) in 2024–25 to AU$6.27 billion (US$4.02 billion) in 2028–29.

Spending on AUKUS pillar one commitments accounts for a very substantial proportion of the government’s additional commitments to defence spending. The opportunity costs of that investment, in terms of unrealised capability objectives in the defence strategic review (DSR) and NDS, have become increasingly apparent.

The PBS claims that the Australian Submarine Agency, “is making significant progress in delivering against the plan for Australia’s acquisition of conventionally‑armed, nuclear‑powered submarines,” citing among its achievements the entry into force of the AUKUS Agreement for Cooperation Related to Naval Nuclear Propulsion and various industry and workforce development initiatives that have placed Royal Australian Navy and industry personnel in the UK and US.

The Deputy Prime Minister asked former Department of Defence Secretary, Mr Dennis Richardson, in late 2024 to look at the Australian Submarine Agency to ensure it has the right settings in place to deliver this nation‑building program.

The agency has been affected by several high‑profile staff departures, including its former deputy director. Some of the original AUKUS commitments–notably the selection of an east coast submarine base—have virtually disappeared from the government’s narrative.

The most immediate risk weighing on the delivery of nuclear‑powered submarines into Australian service, under pillar one, is uncertainty surrounding the US commitment to sell three Virginia‑class boats, with the option of two more if needed, starting from the early 2030s.

Senior Trump administration officials have endorsed AUKUS and acknowledged Australia’s initial AU$798 million (US$512 million) contribution to the US submarine construction., although doubts continue to surface in Congress and elsewhere within the US about the wisdom of transferring Virginia‑class submarines out of the US Navy’s order of battle at a point when the US’s nuclear-powered submarine fleet will be at a historical low.

For the transfer to ultimately go ahead in early 2030s, the US President must give their advance authorisation within 270 days of the sale, under the National Defense Authorisation Act.

Sustainment of the Collins-class submarines

In addition to the challenging issue of acquiring the conventionally armed but nuclear‑powered submarines under the AUKUS “optimal pathway,” there are several key projects underway within the navy’s fleet.

First, sustaining the Navy’s ageing Collins‑class diesel-electric submarines (SSKs) is now facing severe risk and was again designated a “project of concern” in December 2024. The Collins‑class sustainment effort was an ongoing project of concern over successive governments from November 2008 to October 2017.

In the 2025–26 budget year, a total of AU$1 billion (US$640 million) will be spent on activities designed to extend the already stretched operational life of type. That sustainment effort is in addition to the Collins life‑of‑type extension (LOTE) project.

The LOTE is now being scaled back over concerns that the LOTE effort for the first submarine, HMAS Farncomb, which is due to occur in 2026, won’t be completed in time. A two‑year period is allocated for each LOTE, to be conducted by ASC.

In Senate estimates in February 2025, it emerged that three of the navy’s six Collins‑class submarines are in deep or intermediate maintenance, after reports emerged late in 2024 that only one of the six was available.

There’s a risk that, if the LOTE fails to be carried out effectively, within the narrow two‑year time limit for each boat, or if it’s “downscoped” to meet tight time constraints such that the capability enhancements originally envisaged under the LOTE aren’t achieved, then the Collins‑class SSKs may become less and less effective in coming years.

Given that the navy will get the first of three Virginia-class SSNs in the early 2030s, with subsequent boats acquired every two years (assuming no delays in acquisition due to shortfalls in US production or delays in establishing skills and infrastructure to sustain RAN SSNs here in Australia), the prospect of a submarine capability gap could open up in the latter half of this decade, or early in the next.

That’s a risk that can’t be ignored.

Major surface combatants

Fleet expansion is the other major focus on spending for navy in the PBS. The navy’s fleet of surface warfare combatants, comprising three Hobart‑class air warfare destroyers (AWDs) and seven remaining Anzac‑class frigates, are all undergoing sustainment and maintenance activities.

In 2025–26, AU$284 million (US$182 million) will be spent to ensure that the three AWD availability and seaworthiness requirements are met. Importantly, preparations will begin to bring the first AWD into the SEA 4000 phase six destroyer capability enhancement program, which will upgrade the AWD Aegis combat system to baseline nine.

A total of AU$796 million (US$511 million) will be spent to begin SEA 4000 phase six in 2025–26.

The seven remaining Anzac‑class frigates are all approaching their end of life. As part of the 2024 naval fleet review, along with the six Hunter‑class future frigates under SEA 5000, the Anzac‑class frigates will be replaced by eleven “tier two” general purpose frigates under SEA 3000.

This will mark a significant expansion of naval surface combatant capability, as advocated under the 2024 naval fleet review, from the three Hobart‑class AWDs and seven remaining Anzac‑class frigates to nine “tier one” vessels: the AWDs and six Hunter‑class frigates, plus 11 “tier two” general-purpose frigates for a fleet of 20 naval surface combatants.

Under SEA 5000, six advanced Hunter‑class frigates optimised for antisubmarine warfare are to be acquired, along with their associated support capabilities, and form the second element of navy’s tier one naval surface combatant fleet. Entry into service for the first of the Hunter‑class is likely around 2032.

The construction of the first ship began on June 21, 2024, and the second is due to commence construction in 2026. Current navy plans extend out to the delivery of the third vessel in 2036. So far, as noted in the PBS, a total of around AU$5 billion (US$3 billion) out of an approved project expenditure of AU$26 billion (US$17 billion) has been invested, with the 2025–26 budget year seeing a further AU$1.9 billion (US$1.2 billion) in the design and production phase that will continue through to 2027–28.

The Anzac‑class frigates are being sustained at a cost of AU$339 million (US$218 million). Activities in 2025–26 are focused on ensuring their availability and seaworthiness.

In February’s Senate estimates, the Chief of Navy indicated that Defence may consider decommissioning a second Anzac‑class frigate in 2026. However, a project to extend the life of the Anzac‑class frigate, known as the transition capability assurance program (TRANSCAP), has been cancelled as of February 2024. So, the capability sustainment product CN65 will see AU$154 million (US$98.8 million) spent in 2025–26 to end (TRANSCAP activities already underway.

The increasing age of the Anzac‑class frigates, their lack of firepower in terms of adequate numbers of vertical launch system cells because of a design philosophy of “being fitted for but not with,” and the increasing cost of sustaining the vessels makes it increasingly urgent for Defence to make a decision on the acquisition of the new general purpose frigates under SEA 3000.

That acquisition, which formed a major part of the 2024 naval fleet review, isn’t considered in the PBS, pending a government decision this year on which of the competing bids will win: Germany’s TKMS with its proposed Meko A‑200 design, or Japan’s proposed Advanced Mogami.

Given the urgency to address growing navy readiness issues, and the need to expand naval capability in general, it would be wise to bring forward any decision on SEA 3000 sooner, rather than delay it until either late in 2025 or early in 2026.

Amphibious and mine countermeasure capabilities

The PBS makes no changes to the navy’s amphibious and afloat support capabilities, which consist of two Supply‑class auxiliary oiler replenishment ships, two Canberra‑class landing helicopter docks (LHDs) and one Bay‑class landing ship. Those capabilities underachieved the budgeted 1,125 unit availability days (UADs) by 37 per cent this financial year.

During 2025–26, the Canberra‑class LHDs will undergo scheduled and corrective maintenance activities at a cost of AU$188 million (US$121 million) to ensure that navy availability and seaworthiness requirements and a steady state for in‑service support arrangements are met.

The inverse is true for the hydrographic force, comprising one Leeuwin‑class hydrographic ship and the Naval Air Station Weather and Oceanographic Centre, which exceeded UAD expectations by 12 per cent and demonstrated heightened readiness to safely perform tasks in its normal operating environment.

The PBS suggests that the navy will begin to reverse the long‑term trend of declining UADs for its amphibious and afloat support capabilities over the forward estimates. But the picture is dire for the hydrographic force, which is left with just one hydrographic survey ship after the navy decommissioned HMAS Melville in August 2024.

Those capabilities are important for Defence to understand Australia’s littoral environments, its regional responsibilities for hydrographic services, and the Australian Defence Force’s ability to deny any potential adversary’s attempts to project power against Australia through our northern approaches.

Nearly a decade ago, Defence had plans to replace the hydrographic capability with an efficient combination of military and commercial hydrographic and oceanographic survey capabilities. Those plans appear to have been lost, however, as neither the DSR nor the NDS makes any mention of the need for those capabilities.

The capacity of the navy to conduct this work has degraded to the point where Defence must rely on value‑for‑money partnerships with private industry for the collection of hydrographic survey, oceanographic and marine geophysical data.

The HydroScheme Industry Partnership Program, which is sustained out to 2034, fills a wide but shallow gap in Australia’s national charting priorities. That’s because its remit is broad, offering, “improved nautical charts for safety of navigation, increased value in the ‘blue economy,’ better marine park management and ocean sustainability research.”

This disconnect is likely to be compounded in coming years, at a time when Defence and the ADF can least afford it.

Last year, the ASPI Defence budget brief 2024–25 argued that the window was closing for the navy, “to prepare and develop an effective, reliable and agile [minehunter coastal] fleet.”

As yet, there’s still no dedicated vessel that the navy can use to supplement its small fleet of minehunters, which is down to just two Huon‑class coastal minehunter ships. According to the independent analysis of navy’s surface combatant fleet, the Arafura‑class offshore patrol vessel (offshore patrol vessel), “cannot conduct [mine countermeasure or military survey] roles in its as‑designed‑and‑delivered state,” and, “further investigation should be undertaken to determine how the OPVs could contribute to other mission sets.”

It isn’t known whether that investigation is taking place.

There also appears to be no appetite for Defence to acquire a new fleet of minehunter ships that would be capable of undertaking minehunting and minesweeping missions at safe distances using uncrewed autonomous systems.