Australia Selects BAE’s Type 26: Implications for Canada

3 July 2018.  On 29 June 2018 the Australian government announced [https://www.minister.defence.gov.au/minister/christopher-pyne/media-releases/joint-media-release-prime-minister-minister-defence-2] that it had selected a variant of BAE’s Type 26 frigate for the Royal Australian Navy. The 9-ship deal, when finalized, will cost approximately $35 billion ($ Australian) and could generate some 4,000 jobs for the country. Because BAE has entered a similar ship as a contender for the Canadian Surface Combatant (CSC) program, it is worth speculating on the possible ramifications for Canada should Ottawa decide to purchase the Type 26 for the Royal Canadian Navy (RCN).

One positive for the Type 26 is that it could be as capable as its advocates suggest. Outside of Canada's frigate selection process, another group of discerning eyes has independently judged the Type 26 to be the best antisubmarine warfare ship of a group of three contenders, including a bid from Navantia which had previous ties to Australia shipbuilding.

But, as more than one analyst has pointed out, the Type 26 is still an unproven design and that brings added risk to the construction program. Further to this, the Australian design is a variant of the initial British design. Some suggest this production overlap may provide time to debug the British lead ship. However, British officials have clearly stated that their prototype will not be in the water and ready for testing and further development until some time in 2025. They are then allowing at least 18 months for trials testing, training etc. So we will not know how the basic design holds up under operational testing until the lead British ship nears its planned in-service date of 2027.

The Australians hope to begin prototype construction on their Type 26 variant in 2022, thereby giving them little time to rework their design if things go awry. And things usually do on the lead ship, even if only small changes are made to the original design.

If Canada also selects the Type 26, with suitable ‘Canadianization’ to satisfy the RCN's requirements and, of course, to generate work for Canadian subcontractors, there will then be a three-way, simultaneous overlap in construction schedules on three slightly different versions of the Type 26. Does anyone seriously think this will not introduce more than a little risk into the construction equation? And more risk usually means more delays and extra costs.

Canada, too, will want construction to begin soon after 2022 because that is when Irving will be completing the final ship in the Arctic and Offshore Patrol Ship (AOPS) program. Irving desperately needs work to begin on the CSC in order to retain its skilled workforce. Canada’s Parliamentary Budget Officer (PBO) last year estimated that even if the CSC construction overlaps the completion of the AOPS program by one year – a highly optimistic projection – Irving would still lose at least 95% of its current workforce and this would saddle the company with 5.5 million man-hours in recruitment and re-training labour costs. This in turn would delay construction of first the CSC by three years at a whopping estimated additional cost of about $3.58 billion a year (that is roughly $9.8 million per day). Note that Irving Shipbuilding President, Kevin McCoy, in late 2016, testified before a parliamentary committee that an 18-month production gap had already developed between the AOPS and CSC programs. Imagine the additional complications that might attend the attempt to synchronize a three-way production schedule with BAE on the Type 26.

And to return the issue of workers, how many jobs and how much technology transfer will be left for Canada as the Johnny-come-lately to BAE's Type 26 job creation party? We do not yet know much about the deal the Australians will negotiate with BAE, but the history of defence procurement has shown that the first foreign customer usually gets the lion's share of any long-term industrial and technology benefits. So thanks to Ottawa's notoriously slow procurement process, there may be only a few, face-saving scraps of quality technology transfer available to Canada if it chooses the Type 26.

And just to interject another political consideration, given Ottawa’s feisty mood to retaliate in kind to the Trump administration's tariffs, how many key combat and other major sub-systems of the Type 26 are made in the United States? Will Ottawa be scrutinizing the three contenders’ CSC bids with this consideration in mind? Not fair you say? Well, Ottawa has already changed the CSC competition rules to allow the BAE entry, so who is to say it will not do the same again?

None of the foregoing is intended to suggest that a Type 26 purchase by Canada will not result in a fine, capable warship. However, there will certainly be extra risks involved. True, some risks will apply whatever ship Canada selects. But we should recall that one of the goals of the original CSC procurement strategy was to reduce such risks as much as possible by buying a proven design. Ottawa may come to rue its decision to deviate from this cautious approach.

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