state of defence in south australia

Published November 2010

South Australia has long recognised the contribution of Defence and related industry to the State’s economy. Over the last 18 months, the State’s defence contractors have continued to grow as healthy high tech and financially viable businesses. The industry is on track to win even further work due to its demonstrated capabilities and skills, particularly in the key areas of naval shipbuilding and electronics.

In line with Defence’s drive for greater efficiencies, the State Government has invested in infrastructure to grow the sector in a cost effective and competitive manner. This includes the development of Techport Australia, the nation’s premier shipbuilding precinct, and a new Secure Electronic Common User Facility at Technology Park Adelaide. In partnership with others, the State Government is also developing skills and workforce development programs to ensure the industry has the capability to deliver on programs already won and to attract further major projects.

South Australia’s Defence presence also makes a stable and long-term contribution to the State’s economy with thousands of secure jobs and significant local demand for goods and services. Recently, Defence has also served to stimulate the economy through major construction works occurring or planned at Edinburgh and in regional South Australia.

This report presents a snapshot of the contribution from Defence and related industry to South Australia’s economy in 2007–08. Data for this report was compiled directly from Defence sources and through an industry survey. The findings demonstrate the important role that the Australian Government plays in influencing the State’s targeted outcomes and the sophisticated nature of the activity undertaken by the local defence industry.

Over the medium term, prospects for the State’s defence industry are very positive, with growth driven by the Air Warfare Destroyer project and the establishment of the 7RAR Battle Group at Edinburgh. Sustainment contracts, such as those for the AP-3C aircraft and Collins class submarines are also offering stable long-term workforce and economic benefits. However, due to the cyclical nature of defence materiel acquisition spending, the challenge for South Australia will be to maintain effective use of capability and capacity during acquisition cycles.

My thanks to the Department of Defence – Defence Materiel Organisation, Defence Support Group and Defence Science and Technology Organisation, in particular – and to industry for providing data to assist this project.

message from the chair

the state government has invested in infrastructure to grow the sector in a cost effective and competitive manner

General Peter CosGrove aC MC ChairMan, DefenCe sa aDvisory BoarD

the state’s reinvigorated approach to defence comes at a time when the nation is at the front end of a defence boom, with significant opportunity for south australia’s defence industry

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

South Australia’s Defence Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

South Australia’s Defence Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Major Defence and Security Projects in South Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

contents

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at 30 June 2008

22,765 people were employed in south australia’s defence sector

1

South Australia has placed deliberate and focused effort on defence industry development since the 2003 creation of a dedicated government unit (former Defence Unit) and a high level advisory board (former Defence Industry Advisory Board). In 2007, two defence-related targets were adopted in South Australia’s Strategic Plan:

•increasedefenceindustryemploymentfrom 16,000 to 28,000 by 2013 (T1.13)

•doublethedefenceindustrycontributionto our economy from $1 billion to $2 billion by 2013 (T1.20).

In September 2007, the State Government amalgamated the former Defence Unit and Port Adelaide Maritime Corporation to create Defence SA to provide a “one stop shop” for defence-related matters. At the same time, the Defence SA Advisory Board was established to advise the State Government on related strategy and policy issues. Defence SA’s mission is to facilitate the growth of Defence and sustainable defence industries in South Australia in accordance with South Australia’s Strategic Plan.

The State’s reinvigorated approach to defence comes at a time when the nation is at the front end of another defence boom, with significant opportunity for South Australia’s defence industry.

The Department of Defence (Defence) spent around $26 billion in 2008-09, and under a new long-term funding model, the budget will increase by three percent per annum in real terms to 2017–18, with a further commitment to growth of 2.2 percent per annum to 2029–30. For South Australia, this spend is translating into significant new facilities within the Edinburgh Defence Precinct and upgrades to regional test and training areas. In addition, South Australian firms are also heavily involved in major acquisition and sustainment projects, directly contracting to the Defence Materiel Organisation (DMO).

Progress on the two headline defence targets is positive. The State is on track to exceed its defence employment target. At 30 June 2008, some 22,765 people were employed by the defence sector in South Australia and direct employment is projected to increase by around 4.8 percent per year1.

overview

FTEs

30,00027,00024,00021,00018,00015,00012,000

900060003000

0

2005

2004

2003

Base

line

2006

2012

-13^

2011

-12^

2010

-11^

2009

-10^

2008

-09^

2007

2007

-08

2013

-14^

Direct Indirect projectedForecast Target

Figure 1: Defence Employment

1 An update to the State’s input output tables has resulted in a one-off downward result for indirect employment for 2007–08. Future growth is projected at around 4.6 percent per year thereafter.

2

In addition to Defence itself, the largest employers are in the following industries: equipment manufacturing, shipbuilding and engineering design – underscoring the State’s high tech defence manufacturing image.

Table 1: Top 5 Employers by Industry (2007–08)

Direct Employment by ANZSIC Industry

No. of Jobs

Public Administration and Defence 6447

Other Professional and Scientific Equipment Manufacturing

1191

Shipbuilding and Repair Services 1053

Architectural, Engineering and Technical Services

512

Motor Vehicle Manufacturing (armoured vehicles, parts and repairs)

391

There is no standard measure to review progress against the defence economic contribution target. In 2009, Defence SA commissioned a number of studies to measure the economic impact of key defence-related activities in South Australia. Figure 2 represents the amalgamated findings of those reports, which suggest that major defence-related activities contributed around $1.21 billion to the State’s economy in 2007–08 and is expected to rise to approximately $1.94 billion by 2013–14.

A number of significant projects were also just commencing at the time of writing for which comprehensive data was not available – these include the Future Submarine project, and major upgrades to the Woomera Prohibited Area and RAAF Base Edinburgh. The realisation of these projects will bring the State closer to achieving its GSP target.

The projected growth to 2013–14 highlighted by these main economic indicators is predominantly associated with the relocation of the 7RAR Battle Group to the Edinburgh Defence Precinct and the ramp up of the Air Warfare Destroyer (AWD) project at Techport Australia – both projects are serving as major new catalysts for defence industry expansion in South Australia over the medium term.

2005

2003

Base

line

Industry Facilities projected

2006

2012

–13^

2011

–12^

2010

–11^

2009

–10^

2008

–09^

2007

2007

-08

2013

–14^

Forecast Target

$m

20001800

14001600

12001000

800600400200

0

maJor defence-related activities contributed around $1.21 billion to the state’s economy in 2007–08

Figure 2: Defence Contribution to Gross State Product

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Defence’s presence in various regions of the State generates significant and stable economic activity for local areas. In addition to the thousands of Australian Defence Force and civilian personnel serving at the various sites, South Australia’s Defence establishments create substantial demand for local goods and services. In recent times, the State’s construction industry has benefited strongly from the level of capital works being undertaken across Defence’s property portfolio in South Australia.

Defence owns and operates a wide range of facilities in South Australia – with test and training areas concentrated in the State’s northwest and military bases/barracks and major research facilities concentrated in metropolitan Adelaide. Economic analysis of South Australia’s four major Defence facilities was undertaken: RAAF Base Edinburgh, Defence Science and Technology Organisation (DSTO) Edinburgh, Woomera Test Range and the Cultana Training Area. These four facilities are estimated to have contributed a combined 6148 jobs and $432.4 million to the State’s economy in 2007–08. A number of other minor barracks and ranges also support Defence activity in the State.

RAAF Base Edinburgh

RAAF Base Edinburgh is located in Adelaide’s north and along with DSTO Edinburgh, was originally established to support weapons testing activity at Woomera. Today, the base is home to the nation’s military maritime surveillance capabilities – namely No. 92 Wing which operates the AP-3C Orion long range maritime aircraft, as well as most of the Aerospace Operational Support Group, and the Radar Surveillance Unit which serves as the control centre for the Jindalee Over the Horizon Radar Network.

RAAF Base Edinburgh is estimated to have directly and indirectly supported 4357 jobs in South Australia in 2007–08. The base is also estimated to contribute $308.8 million to the State’s economy per year.

Significant changes are occurring at RAAF Base Edinburgh, including the most extensive reconstruction of any Defence facility in Australia with around $750 million being spent to upgrade or build new facilities on the base. The majority of works are in support of the relocation of the 1100 person 7RAR Battle Group, which once fully established, is expected to contribute an additional $107 million to the State’s economy per year.

DSTO Edinburgh

DSTO is situated adjacent to the RAAF base in the Edinburgh Defence Precinct. This location is one of two major sites for the organisation which serves to deliver technology based advice and solutions to the Australian Defence Force. In 2007–08, some 1221 scientists, engineers and other specialists undertook research from DSTO Edinburgh in areas such as radar, information technology, sonar, guided weapons, communications, optoelectronics, electronic warfare, command and control, human factors and operations analysis. As a consequence of DSTO residing in South Australia, the State possesses a significant range of industry and academic capabilities to support or collaborate on defence research activities.

DSTO Edinburgh is estimated to have directly and indirectly supported 1558 jobs in South Australia in 2007–08. In addition, the organisation is estimated to contribute $106.5 million to the State’s economy per year.

The Defence White Paper 2009 confirmed Australia’s commitment to deep defence science and technology expertise and a continued focus on the exploitation and application of new and advanced technologies to ensure the ADF has access to highly advanced and networked capabilities. A new funded program of technology upgrades to DSTO’s laboratories and technical facilities is planned.

south australia’s defence estate

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Cultana Training Area

The Cultana Training Area is located between Port Augusta and Whyalla on the northwest coast of South Australia. It is a major training facility used year round by Army for manoeuvre and weapons training. The range encompasses some 484 square kilometres with the range camp, El Alamein, situated some 12 kilometres south west of Port Augusta.

The Cultana Training Area is estimated to have directly and indirectly supported some 13 jobs in 2007–08. The area alone is also estimated to contribute close to $1 million per year to the local economy. These figures are highly conservative estimates of the economic activity associated with the Cultana Training Area as they do not include expenditure associated with Army’s training exercises, which varies greatly from year to year.

Planning is underway to significantly expand the training area to accommodate combined arms training for large mechanised formations, joint live firing exercises, and to manoeuvre the Abrams tanks as well as other recently acquired Army assets.

The expansion will also take advantage of the Adelaide to Darwin railway, enabling the transfer of Army vehicles and equipment by rail from bases in Edinburgh as well as Darwin to the range. An increased Army presence in the region is expected to have significant economic benefits for Port Augusta and Whyalla.

Woomera Prohibited Area

The Woomera Prohibited Area is located about 500 kilometres northwest of Adelaide. It is the largest land-based test range in the world, covering some 127,000 square kilometres. The range is serviced by an adjoining purpose built town (Woomera Village). The site has been used as an international testing area for missiles and space related activities since the end of World War II.

The Woomera Prohibited Area is a vital strategic asset for Australia and continues to provide Defence and allied countries with an essential test, evaluation and training environment. Its particular characteristics of remoteness, climate, terrain, airspace, electronic quietness and low population density make it ideally suitable for the testing of war materiels. The range is active for the majority of the year and is in heavy demand. Commercial entities are able to access the range for testing or minerals exploration, when capacity allows.

The range is estimated to have directly and indirectly supported some 242 jobs in 2007–08. The area is also estimated to contribute close to $17.8 million per year to the local economy.

The Defence White Paper 2009 announced plans to modernise the range and remedy instrumentation deficiencies. An allocation of between $100 and $500 million was specified in the Defence Capability Plan 2009.

defence owns and operates a wide range of facilities in south australia

MAJOR DEFENCE FACILITIESMINOR DEFENCE FACILITIES

HAMPSTEAD

ELIZABETH NORTH

KESWICK

WARRADALE

NOARLUNGA

ST. KILDA

CBD

EDINBURGH

WOOMERA

CULTANA

PORT PIRIE

CEDUNA

PORT AUGUSTA

PORT LINCOLN

COOMUNGA

THISTLE ISLAND

KADINACLARE

PORT WAKEFIELD

GAWLER

WOODSIDE

MURRAY BRIDGE

BERRI

ADELAIDE

MOUNT GAMBIER

KINGSTON

defence facilities across south australia

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the maritime and electronics sectors account for about

60%of dmo’s total in-country spend

7

The defence industry spans numerous conventional industry categories, making it difficult to source comprehensive data. For the purpose of this report, the defence industry has been classified as all suppliers of specialist defence equipment and services. It includes contractors working directly for Defence or their immediate subcontractors, as well as public policy and research organisations that contribute to materiel outcomes. The findings included in this report do not include activities related to general base support nor to other non-specialist goods/services.

Defence Materiel Spending

Based on defence materiel spending projections, the local defence industry is experiencing a boom time. DMO’s budget is projected to peak at some $12 billion this year, and then start to decline as major construction works across a number of major Defence acquisition projects (including the AWDs) are completed. However, over the medium to long-term, a significant upturn in defence materiel spending is expected, driven by major aircraft procurement (including the Joint Strike Fighters and P-8A maritime surveillance aircrafts) and the Future Submarine project.

Almost all of the volatility in defence materiel expenditure is due to acquisition activities which tend to be extremely variable and dominated by a small number of large projects across different sectors with differing workforce requirements. Sustainment expenditure is estimated to grow at a relatively constant rate of three percent per annum with stable workforce requirements. DMO’s budget is split almost evenly between new purchases and sustainment activities.

The maritime and electronics sectors (South Australia’s core strengths) account for about 60 percent of DMO’s total in-country spend. Both of these sectors have a healthy and stable base of sustainment activities and will experience a rapid uptake of acquisition activities over the next few years due to the AWD build.

south australia’s defence industry

$m

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10,000

8000

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2000

0

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–07

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–12*

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–10^

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–09

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–14*

2012

–13*

Actual projected actual budget estimate*

Figure 3: Defence Materiel Spend

based on defence materiel spending proJections, the local defence industry is experiencing a boom time

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Industry Structure

The majority of defence industry activity is concentrated in northern and western Adelaide in four suburbs (Mawson Lakes, Osborne, Edinburgh and Gillman). These enclose or surround the three main defence precincts – Edinburgh Defence Precinct, Technology Park Adelaide and Techport Australia. The State Government has also recently invested in new defence industry infrastructure at these locations, in particular the common user shipbuilding facility, Maritime Skills Centre and Commercial and Supplier precincts at Techport Australia, and a Secure Electronic Common User Facility at Technology Park Adelaide.

The defence industry reported a total turnover of $1.24 billion in 2007–08, with approximately 57 percent of revenue related to activities directly undertaken in South Australia, 41 percent relating to interstate activities and two percent to overseas markets. Reported export earnings totalled $23 million in the same year.

The industry is comprised of a relatively stable core of 38 large prime contractors and small to medium sized enterprises which maintain dedicated staff and resources to supply and sustain defence materiel.

Table 2: SA Defence Company Characteristics

Employees No. of Firms

Average Revenue

($m)

Average FTE

<50 28 $3.1m 14.1

50 – 200 5 $28.6m 77.2

>200 5 $206.6m 751.4

An additional 15 specialist firms have also been identified which do not currently maintain FTE staff on defence activities in South Australia, but have demonstrated capability to tender and obtain work on specialist defence projects.

A small number of specialist industry and public sector agencies are also dedicated (in part or whole) to supporting the defence industry in South Australia – these include the Defence Teaming Centre, Defence SA and higher learning organisations.

There are also many non-specialist firms providing all manner of products and services to support defence (for example, structural steel, fasteners, cable, wheel rims) and services (management advice, catering, legal services). These firms number in the hundreds in South Australia.

south australia’s defence industry reported a total turnover of

$1.24 billionin 2007–08

CBDMile End

Glenelg

Henley Beach

Gillman

Magill

Blair Athol

Osborne

Elizabeth

Tea Tree Gully

Port Adelaide

Mawson Lakes

EDINBURGH DEFENCE PRECINCT

TECHPORTAUSTRALIA

TECHNOLOGYPARK ADELAIDE

ManufacturingElectronicsProfessional Services

< 50 Employees50 – 200 Employees>200 Employees

<$1m Revenue$1m – $100m Revenue>$100m Revenue

defence industry activity in south australia

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Defence Industry Employment

South Australia’s defence industry is estimated to have directly employed some 4438 FTE employees in 2007–08. Direct defence industry employment is expected to rise by 4.8 percent per year, while indirect employment is expected to rise by 4.6 percent per year. These projections take into account DMO expenditure patterns as well as industry expectations.

Employment in the higher skilled categories of Managers, Professional and Other Professionals accounted for 67 percent of total specialist employment in the defence industry in South Australia in 2007–08. This supports the white collar, high skilled image of the defence worker in South Australia and compares to around 40 percent for the South Australian labour force in total.

The State Government continues to invest heavily in skills and workforce development initiatives and programs to support the sustainable growth of the defence industry in South Australia, particularly in the key areas of naval shipbuilding and electronics. This includes increased investment in maths and science in schools, defence-related scholarships and additional training places and some $20 million in skills initiatives in direct support of the AWD program.

The local industry is also working in partnership with the State and Australian Governments and the training and education sector to ensure industry’s current and future workforce needs are met. Recent initiatives include a collaborative five-year Defence Industry Workforce Action Plan, the Advanced Technology Industry Schools Pathway Program and new postgraduate programs in systems engineering.

Table 3: Top 5 Occupations (2007–08) (excluding Department of Defence)

Defence Industry Employment by Occupation

No. of Jobs

ICT Professionals (Systems and Software Designers; Systems, Applications and Analyst Programmers; Systems Managers; Other)

788

Other Professionals (Accountants; Marketing and Advertising, Air Transport, Sea Transport, Other)

660

Managers and Administrators (Engineering; Supply and Distribution; Finance; HR; IT; Building and Construction; Other)

670

Engineers (Mechanical, Production and Plant; Electrical and Electronic; Aeronautical; Technologists; Industrial; Naval Architect)

496

Associate Professionals (Electrical Engineering; Mechanical Engineering; Computing Support; Other)

379

FTEs

16,000

14,000

12,000

10,000

8000

6000

4000

2000

0

2005

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2012

-13^

2011

-12^

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-11^

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-10^

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-09^

2007

2007

-08

2013

-14^

Direct Indirect projected

Figure 4: Defence Industry Employment

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the state government continues to invest heavily in skills and workforce development initiatives and programs

12

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South Australia’s top four major defence and security projects – AWD build program, Collins class submarine through life support, AP-3C aircraft maintenance and upgrades, and Project Sentinel civil maritime surveillance program – accounted for about 40 percent of the total Defence and industry contribution to the State’s economy, and about 33 percent of total defence industry employment in 2007–08. With the exception of the AWD contract (yet to peak), these major projects will continue to have relatively stable and long-term spending profiles over their terms due to the nature of

their activity. In total, the four projects contributed some $511 million and 4080 jobs to the State’s economy in 2007–08.

Over the life of each major contract, the submarine contract has the highest South Australian content (around 80 percent of total contract value spent locally) reflecting its Australian unique design and high labour content. This is followed by the AP-3C sustainment (50 percent), Project Sentinel (36 percent) and the AWD project (28 percent).

maJor defence and security proJects in south australia

Figure 5: Total Economic Contribution – Major Defence and Security Projects

Figure 6: Total Employment Contribution – Major Defence and Security Projects

$m

450

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50

0

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–09^

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–09^

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–10^

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–11^

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–12^

2012

–13^

AWD Collins ClassAP-3C Project Sentinel

FTEs

200018001600140012001000

800600400200

0

AWD Collins ClassAP-3C Project Sentinel

projected

projected

$m

450

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50

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–08

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–09^

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–10^

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–11^

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–13^

AWD Collins ClassAP-3C Project Sentinel

FTEs

200018001600140012001000

800600400200

0

AWD Collins ClassAP-3C Project Sentinel

projected

projected

14

the awd proJect will make an average annual contribution of some

$292 millionto the state’s economy

15

AWD Build

The $8 billion AWD project is the largest defence contract in Australia. The AWD Alliance (ASC, Raytheon Australia and the Australian Government) is responsible for delivering three Air Warfare Destroyers to the Royal Australian Navy.

The Alliance is working with Navantia as the chosen Platform System Designer. The Alliance is also working alongside the United States Navy and Lockheed Martin Corporation to deliver the Aegis Combat System.

The AWD project has an Australian industry involvement target of 50 percent with initial indicators suggesting the project is on track to achieve this target.

The AWD project has successfully completed the detailed design phase and full block production is underway with peak years running from 2009–10 to 2012–13. Over these years, the AWD project will make an average annual contribution of some $292 million and 1783 jobs to the State’s economy. The three Hobart class AWDs, HMAS Hobart, HMAS Brisbane and HMAS Sydney will be delivered between 2014 and 2017. The Australian Government has retained the option to purchase a fourth AWD, with a decision expected in the next few years.

Collins Class Submarine Through Life Support

In 2003, prime contractor ASC signed a 15 year contract with DMO to provide ongoing design, enhancements, maintenance and through life support for the fleet of six Collins Class submarines. This multibillion dollar contract also has a 10-year contract extension option. The spending profile for this program is more stable than that of the AWD program given the platform is already in service and is governed by a long-term, in-service support contract. This project contributes an average $149.7 million and 1407 jobs to the State’s economy per year. The bulk of work is being undertaken at ASC’s facility at Techport Australia, where the fleet was originally constructed between 1990 and 2003.

16

the ap-3c contract makes an average annual contribution of some

$78.5 millionto the state’s economy

17

AP-3C Aircraft Maintenance and Upgrade

The $1 billion AP-3C maintenance and upgrade contract is run by the AP-3C Accord (Australian Aerospace, BAE Systems Australia and the Australian Government) and is expected to continue until the aircraft’s planned withdrawal from service in 2019. This project makes an average annual contribution of some $79 million and 1023 jobs to the State’s economy.

Given its planned withdrawal from service, the primary focus of the project is now on capability assurance and obsolescence management activities. The AP-3Cs are expected to be replaced by the US Navy’s P-8As, to be acquired under Air 7000 Phase 2. The new aircraft will also be based at RAAF Base Edinburgh resulting in subsequent South Australian based sustainment activity.

Project Sentinel

In 2006, Cobham was awarded the fixed wing civil maritime surveillance contract with Customs Border Protection Command, continuing a service that has been performed by Cobham since 1995. The $1 billion Project Sentinel contract will run for 12 years from 2008 to 2020. Under the contract, Cobham has supplied and now operates and maintains a fleet of 10 highly modified, fully electronic Dash 8 surveillance aircraft. The program is the world’s largest aerial civil maritime surveillance operation and involves more than 240 personnel and 10 aircraft flying 15,000 hours per year.

The aircraft operate from three primary bases (Broome, Darwin and Cairns). Activity in South Australia is now concentrated on aircraft modification and heavy maintenance and integration activity. This project makes an average annual contribution of some $20.4 million and 126 jobs to the State’s economy.

Disclaimer: No warranty, express or implied is made regarding the accuracy, adequacy, completeness, reliability or usefulness of any of the information contained in this report. You should make your own enquiries and not use or otherwise rely upon any of the information contained in this report. The Government of South Australia disclaims all liability and responsibility for any direct or indirect loss or damage which may be suffered by any person through using or relying on any of the information contained in this report.

Level 4, 151 Pirie St Adelaide SA 5000 www.defencesa.com

Telephone: +61 8 8463 7140 Facsimile: +61 8 8453 7150 Email: enquiries@defencesa.com

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