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28 Apr 20. South Korea cuts 2020 defence budget to address Covid-19. The South Korean government has announced a reduction of its 2020 defence budget in response to the Covid-19 coronavirus. The Ministry of Economy and Finance (MOEF) in Seoul said in a 16 April statement that the annual defence budget will be cut by $733m (904.7bn won). The funds will be reallocated to the national ‘emergency disaster assistance plan’ that aims to reduce the economic impact of the pandemic. Budgetary cuts have also been made to other ministries including agriculture, education, environment, and industry, although the reduction in the defence budget is the greatest.
The MOEF added that the defence budget reduction removes $156m (192.7bn won) from the armed forces’ operating expenses, with the remaining $577m (712bn won) sourced from military modernisation. The latter includes activities such as acquisition as well as research and development (R&D).
Kim Il-dong, director general of the Ministry of National Defense’s (MND’s) Military Force Policy Bureau, told local media that the impact to ongoing procurement has been minimised as contract schedules – for both domestically produced and imported equipment – have already been postponed due to the pandemic.
Kim noted that the MND will also look to postpone payment for planned acquisitions such as the Lockheed Martin F-35 Lightning II fighter aircraft and the Aegis Combat System by a year.
Original budget 2020
In December 2019, the MND announced a $40.5bn (50.15trn won) budget for 2020, a 7.4 percent increase over the previous year.
The budget originally earmarked $27.2bn (33.6trn won) for military operations and related expenses, with the remaining $13.3bn (16.7trn won) allocated to force modernisation, which would go to acquisitions such as new missiles, ships, early warning radar systems, and high-altitude unmanned aerial vehicles (UAVs).
Elsewhere in the Asia Pacific region, India and Thailand are also placing caps on military expenditure and reviewing requirements, while Japan and Malaysia have indicated that near-term spending could be impacted. (Source: AMR)
29 Apr 20. Russia Threatens Massive Response if US Deploys Low-Yield Nukes on Subs. Russia is warning that any U.S. attempt to use a low-yield nuclear weapon against a Russian target would set off a massive nuclear response. The Russian foreign ministry was reacting to a State Department paper released last week that says placing low-yield nuclear weapons on ballistic missiles launched from submarines would counter what it sees as possible new threats from both Russia and China. Experts describe a low-yield weapon as the kind the United States dropped on Hiroshima and Nagasaki at the end of World War II.
The State Department asserts that the low-yield weapons “reduce the risk of nuclear war by reinforcing extended deterrence and assurance.”
It alleges Russia is considering using such nonstrategic nuclear arms in a limited war.
Russia denies it is a threat to the U.S. and accuses Washington of “lowering the nuclear threshold.”
“Any attack involving a U.S. submarine-launched ballistic missile (SLBM), regardless of its weapon specifications, would be perceived as a nuclear aggression,” Russian foreign ministry spokeswoman Maria Zakharova said Wednesday. “Those who like to theorize about the flexibility of American nuclear potential must understand that in line with the Russian military doctrine such actions are seen as warranting retaliatory use of nuclear weapons by Russia.”
Russia says it wants to extend the 2010 New START treaty limiting the number of deployed nuclear missiles, warheads, and bombers along with strict inspection regimes. The pact is set to expire next year.
The Trump administration says it wants a new arms control agreement that also includes China — which Russia calls impractical. (Source: defense-aerospace.com/ Voice of America News)
30 Apr 20. Defence Industry Minister releases CDIC review paper. Defence Industry Minister Melissa Price, in collaboration with the co-chairs of the CDIC advisory board, has formally released a discussion paper that will form the basis of the review of the CDIC commissioned by the government. The discussion paper provides a guide for a broad range of stakeholders to reflect on their experiences with the CDIC and provide suggestions for improving the centre’s activities into the future.
Defence Industry Minister Melissa Price said the review would incorporate feedback from small businesses in both regional and metro areas, industry associations, state and territory governments, and individuals with an interest in the CDIC.
“The review is an opportunity to look for new ways to deliver a stronger CDIC that will be able to effectively meet the needs of small and regional businesses,” Minister Price explained.
The CDIC supports Australian businesses entering or working in the defence industry. The CDIC:
- helps businesses navigate the defence market;
- provides specialist advice on improving competitiveness and accessing global markets;
- facilitates connections between businesses and Defence;
- links Australian innovators and researchers to the Defence Innovation Hub and the Next Generation Technologies Fund; and
- undertakes sector-wide projects to support industry development.
The CDIC is headquartered in Adelaide, with advisers and facilitators across all the states and territories to form a national advisory network. They are supported by AusIndustry’s outreach network, which extends the CDIC’s reach to regional areas.
Minister Price added, “The CDIC should function as a vital conduit between Defence and industry, and I’m hoping the feedback and ideas we gather from the review will ensure we’re giving businesses the best possible advice and support.”
The CDIC service is delivered by the Department of Industry, Science, Energy and Resources on behalf of Defence and it will be consulted as part of the review. The review and its recommendations will be delivered to the minister mid-year.
The CDIC’s mission is to work with industry and Defence to build a world-class, globally competitive and sustainable Australian industry as a fundamental input to capability. It partners with industry, Defence, and state and territory governments to combine knowledge and networks towards this goal.
The formal consultation period will end on Sunday, 24 May 2020, with the review and its findings delivered to government by mid-2020. (Source: Defence Connect)
30 Apr 20. Op-Ed: Supporting defence capability through Australian SMEs. Australian small businesses are critical to our defence capability and we need to keep them strong on the road to the post COVID-19 environment, explains Defence Industry Minister Melissa Price. To help keep the wheels of defence industry turning, we promised to fast-track invoice payments to Department of Defence suppliers. We’re delivering on that.
Since 23 March, the Australian government has paid 78,000 invoices to a value of $4.8bn. Of this, $3.3bn has been paid early – and we know these early payments are flowing to Australian small businesses.
We have made great progress to limit the effects of COVID-19 on small business in our defence industry. But we need to continue our support in backing small business so that they can continue to supply essential capability for our Defence Force.
The Morrison government’s investment of over $200bn in our defence capabilities is creating and supporting thousands of local Aussie jobs and has opened new and exciting opportunities for small business.
Helping small businesses through this period and beyond is my top priority. That is why our government is continuing to inject much-needed cash in local Aussie businesses in our defence industry.
We need small businesses to succeed in Australia so that they can continue to deliver the capability our men and women in uniform rely on each and every day.
Businesses like Brisbane-based EPE. Earlier this month, I had the pleasure of announcing that EPE had secured a $10 m contract with Leidos. They’re a small business that specialises in technologies to protect our soldiers from emerging threats, such as the risk of chemical and biological attacks. EPE will help Leidos deliver critical Defence capabilities in the area of chemical, biological, radiological and nuclear defence.
In July last year, I visited EPE with my colleague, the federal member for Brisbane, Trevor Evans, to announce their $300,000 Defence Innovation Hub contract. To see their continued success since, including their partnership with Leidos, speaks to the quality of small Australian businesses that are contributing to essential Defence capability to keep Australians safe.
Maximising opportunities for small businesses to compete as part of the Australian Industry Capability (AIC) Program will mean more Australian businesses, like EPE, can contribute to the delivery of defence capability and drive economic growth.
The AIC Program requires tenderers to demonstrate that they have considered Australian industry as part of their tender response.
Last year, the Morrison government released the Defence Policy for Industry Participation. This policy extended the AIC Program to all Defence materiel and non-materiel procurements above $4m, as well as construction projects above $7.5m. Previously, AIC requirements only applied to material procurements valued above $20m.
This significant change is an example of how the government is backing Australian industry, especially small businesses.
In times like these, we can be tempted to focus solely on business continuity, rather than pursuing innovation. But now more than ever, I want to commend innovative small businesses that are delivering and supporting enhanced ADF capability.
For example, Darwin-based SPEE3D are piloting cutting-edge 3D printing technology in the Northern Territory. This local business is working with the Australian Army and the Royal Australian Navy to allow high-quality metal parts to be printed on demand in the field or at sea. This will significantly increase the ADF’s ability to access what it needs and when it needs it.
Many Australian small businesses have smart solutions and innovative ideas that could contribute to our Defence capabilities. Opportunities exist for a broad range of small businesses – not just those who have traditionally thought of themselves as a defence industry business.
Sea-to-Summit is a local WA business with one of the largest diversified suppliers of technical field equipment in the world. They have signed a standing offer deed to provide $30 m worth of field equipment to the Australian Army. This will include shelters, sleeping bags, hand tools, and personal protective equipment to support ADF personnel both in Australia and overseas.
Under this deed, Sea-to-Summit is ensuring the ADF maintains a leading-edge in field equipment, making our personnel safer and more effective.
This is another example of how a small business, which would have typically sat outside the definition of ‘defence industry’, can and is having a marked impact on Defence capability.
I also recently announced 11 Australian businesses had received a total of nearly $5 m as part of our Sovereign Industrial Capability Priorities grants program to help them grow our nation’s defence capability.
Some of these included Queensland-based Frontline Manufacturing, which received $710,000 to continue its work on armoured fighting vehicles.
Victoria-based Infinite Engineering received $1m to increase the scale of manufacturing capacity and capability.
And South Australia-based Simbiant received $278,475 to design and commission a software defined radar advanced signal processing facility.
Our government has pressed ahead with this much-needed injection of funds in small business because we recognise their fundamental importance to developing essential capability for the ADF.
Our record $200bn spend in Defence Force capability is not just buying us widgets, vehicles, ships and planes, it’s building up a sovereign capability in our small business community.
Agility and capacity for innovation – hallmark qualities of Australian small businesses – are the attributes empowering business to successfully withstand the unprecedented impacts of COVID-19.
I know, through my regular engagement with industry, that the vast majority of defence industry businesses are feeling supported by our government at this time.
This was reflected in the recent Defence Connect COVID-19 Business Survey, which reported 79 per cent of business owners and 83 per cent of employees in the defence supply chain were satisfied with the government’s response to the crisis.
We’re working harder than ever to ensure businesses have what they need to succeed. But I can have confidence in our defence industry because I’ve seen what they can do.
Small businesses always have – and always will – play a vital role in building defence capability here in Australia. There are great opportunities on the road ahead. And I’m looking forward to helping them to get there. (Source: Defence Connect)
28 Apr 20. Global Defense Spending Decline Expected As Nations Deal with Coronavirus. Experts see domestic projects taking priority over national security in the coming years. After five straight years of growth, global defense spending is expected to decline in the coming years as nations deal with the economic fallout of the coronavirus pandemic, analysts say.
In 2019, global defense spending topped $1.9trn, according to the Stockholm International Peace Research Institute’s latest tally. The U.S. represents 38 percent of the world’s defense expenditures and with China, the two superpowers account for 52 percent of the world’s defense spending. But because of COVID-19, experts anticipate a shift government spending worldwide toward domestic projects and away from weapons and the military.
“What we can expect is that spending [is] really going to decrease,” Nan Tian, a defense spending expert with the institute, said Tuesday during a Stimson Center webcast. “We’ve seen this historically following the [2008 and 2009 financial] crisis where many countries in Europe really started to cut back on military spending.”
Even before the coronavirus sent the global economy into a tailspin, U.S. defense spending had been predicted to flatten in the coming years. Now with trillions of dollars being spent on massive coronavirus stimulus packages, flat defense spending levels could wind up being a best-case scenario.
“In today’s world with [coronavirus], flat defense budget, I think, is what everybody is hoping for because it could go the other direction; it could go negative,” Hawk Carlisle, president and CEO of the National Defense Industrial Association and a retired four-star commander of Air Combat Command and Pacific Air Forces, said in an interview Tuesday. “This is going to be years to climb out of.”
One reason for the expected spending dip: the deficit. Regardless of the results of the November presidential and congressional elections, deficit reduction is likely to become a priority. A recent estimate pegs the 2020 deficit at $3.8trn. But it is expected that a Trump re-election would keep Republicans in more of a spending mood.
“If the presidency goes to a Democrat, then Republicans are going to get more about being fiscal conservatives again sooner,” Todd Harrison, a defense budget expert with the Center for Strategic and International Studies, or CSIS, said during a Monday webcast. “If Trump wins a second term, we probably have another year or two reprieve from that.”
Mackenzie Eaglen of the American Enterprise Institute is wary that lawmakers eager to reduce federal spending in the wake of coronavirus bailouts could enact a deficit-cutting measure akin to the Budget Control Act of 2011, which capped defense spending annually between 2013 and 2021.
“The Budget Control Act by another name … could come as fast as next [fiscal] year,” she said on the same webcast.
While defense and security spending is typically a top priority of Republicans and defense-minded Democrats, stabilizing the U.S. economy and healthcare could become a higher priority regardless of who wins the election and control in Congress. Among voters in both parties, there is wide public support for reducing expensive overseas military interventions.
“[I]solationism may exert a countervailing force, as there is demand to steer resources away from defense and towards domestic needs (healthcare, education, jobs),” Byron Callan, an analyst with Capital Alpha Partners, wrote in an April 23 note to investors.
“[W]e are seeing that awarding disproportionate resources to military spending may be weakening the resilience of other sectors in our economy,” Mandy Smithberger — director of the Straus Military Reform Project at the Center for Defense Information, part of the Project on Government Oversight — said on the Stimson Center webcast.
“I think we are going to be seeing real political debate about how much money should go to military spending, how much we should be prioritizing arms sales and interests of the defense industry,” she said.
Unlike the past decade when foreign arms sales, to some extent, were a backstop to weapon makers amid U.S. defense spending declines, this time around will likely be different since the world economy is dealing with coronavirus. Smithberger said low oil prices could weaken the buying power in the region that spends heavily on U.S. weapons.
While the U.S. and China remain the top two defense spenders, last year India and Russia jumped ahead of Saudi Arabia, which fell to fifth on the list. Germany climbed from ninth to seventh — jumping ahead of the U.K. and Japan. NATO allies collectively spent just over $1trn. All of that spending is likely to drop. (Source: Defense One)
29 Apr 20. ‘Prepare for the worst’, Australia’s political and military leaders warned. With each passing day, the national security challenges to Australia’s sovereignty continue to evolve. Now it has been revealed that the Department of Defence war-gamed a myriad of contingencies ranging from great power conflict to global pandemic, with a startling warning: “prepare for the worst”.
As the Australian public settles into the “new normal”, many Australian public policy thinkers and journalists have picked up on the growing groundswell of support within the community to chart a path towards establishing and maintaining true economic and strategic sovereignty in the era of disruption.
With each passing day, the impact of the coronavirus upon global supply chains is becoming painfully apparent, with Australia’s economy teetering on the edge of disaster.
However, viewing the impact of the pandemic in isolation to Australia’s broader national security and national resilience further exposes the nation at a point in time when such distinctions are increasingly blurred.
Unlike many of its contemporary and comparable international neighbours, Australia has enjoyed a record near three decades of economic prosperity and stability, buoyed by the immense mineral and resource wealth of the landmass and the benevolence of the post-Second World War political, economic and strategic order.
As a result, both the public and government are relatively unaccustomed to the economic, political and strategic realities of mass social isolation, a comparatively mild form of rationing and what seems to be a relatively low, albeit tragic body count. However, it isn’t all doom and gloom as the COVID-19 predicament seems to have shaken the Australian public’s confidence in the public policy status quo.
Far from the “end of history” we were promised at the end of the Cold War by the likes of Francis Fukuyama and Samuel Huntington, COVID-19 for many was not what they anticipated causing a major reshuffle in the global power dynamics, at least not in the 21st century.
This is particularly the case following the near two decades of US-led Western attention on countering violent extremism in the Middle East, which has paved the way for the likes of Russia and China to quietly position themselves as credible rivals to the liberal-democratic, capitalist world order.
Now it has been revealed that the Department of Defence had been preparing for a range of disruptions, as the Australian public begin to place increasing pressure on the nation’s political and strategic leaders to learn from the past and prepare the nation for an increasingly disrupted future.
Speaking to ABC 7:30, former director of the Department of Defence’s preparedness division, Cheryl Durrant, has echoed the sentiments of regular Defence Connect commentators – senator for NSW and Major General (Ret’d) Jim Molan AO, DSC, Air Vice-Marshal (Ret’d) John Blackburn AO, Major General (Ret’d) Gus McLachlan AO and Dr Peter Layton – in calling for greater long-term planning for the nation’s future.
Durrant told ABC, “We predicted the unpredictable. We knew the problems. We knew this might be coming. We knew that various things needed to be done.”
“We saw three main possibilities of that happening: the increasing and escalating effects of climate change and natural disasters; a global power conflict, probably between America and China, and finally a pandemic – one with a much greater death rate than what we’re seeing with the COVID crisis,” Durrant added.
Expanding on these points, Durrant added additional questions, asking, “The review looked at the big issues, like if we had to go to war, do we have enough fuel? Do we have enough energy? Can the national supply chains and our national infrastructure support Defence in a war or other crisis?
“We asked, if we had basically a halt on global supply – a couple of steps more demanding than we‘re seeing in the current crisis – what would run out in one week, two weeks, one month or three months?”
Perhaps, more importantly, Durrant issued an important challenge for Australia’s public policy and strategic leaders, stating, “Australia is at an interesting fork in the road where it goes on from here. If we take the attitude, ‘She’ll be right, go back to business as usual, bounce back,’ I think we’re going to find ourselves not as well prepared for what happens next.”
Accepting the overlapping challenges
Australia’s geographic position and the continent itself present Australian policymakers with a unique and complex series of challenges – ranging from cyclical droughts, monsoonal rains and ravaging bushfires, the geographic isolation “tyranny of distance” being replaced with a “predicament of proximity”.
Equally important factors that traditionally fall under the national security category but would be equally at home in the resilience category are factors like energy, water and resource security, infrastructure and industry development, diversity and economic competitiveness and traditional hard power concepts like defence and intelligence all serve as essential components for a nation’s resilience.
While public conversation about the overlapping national security versus national resilience challenges has started to gain greater traction, with the Prime Minister raising the topic in the public discourse during media interviews.
Indeed, Prime Minister Scott Morrison articulated the increasingly convoluted nature of national security and national resilience in an interview with Peta Credlin for Sky News, stating:
“When it comes to keeping people safe, it’s also about our resilience, our resilience to the environment, the climate we’re going to live in in the next 10 years. And I’m sure we’ll have a bit of a chat about that tonight. But that resilience, too, whether it’s ensuring that our roads are built the right way so they don’t get shut down when there are bushfires or ensuring we’re addressing hazard reduction as much as we’re addressing emissions reduction.
“Because whether it’s the resilience of building a road and having clearing around it, which means it’s less likely to be cut off in a bushfire, or the way you build a bridge in a particular area so it could not be compromised because of natural disasters, what the building standards and codes are… You know, in response to disasters, it’s not about replacement. It’s about building back better with better resilience for the future.”
This is a major breakthrough in the public discourse about the nation’s resilience and ensuring national security, something Blackburn believes needs to continue, telling Defence Connect, “We need to have a serious conversation with the Australian public about the challenges we face as a nation – that includes climate change, it includes the fact that 90 per cent of our energy supplies are imported from overseas and our industry base is declining.
“This should be a key focus point for the government, but when you look at the government’s own national security site, it is focused on counterterrorism, countering violent extremism and de-radicalisation and the vulnerability of transport infrastructure to such actors. This is far too narrow a focus for a nation like Australia,” Blackburn explained to Defence Connect.
An integrated response and the end result is ‘national security’
Australia has recently undergone a period of modernisation and expansion within its national security apparatus, from new white papers in Defence and Foreign Affairs through to well-articulated and resourced defence industrial capability plans, export strategies and the like in an attempt to position Australia well within the rapidly evolving geostrategic and political order of the Indo-Pacific.
Each of the strategies in and of themselves serve critical and essential roles within the broader national security and national resilience debate.
Additionally, the formation of organisations like the National Resilience Taskforce, state-based Energy Security Taskforces, and supporting organisations like Infrastructure Australia and broader government departments all serve to provide an intricate yet competing tapestry muddying the water and decision-making process for political and strategic leaders.
Each of these organs and constituencies in the form of state and territory governments have their own individual agendas and lobby accordingly for Commonwealth support and assistance, further complicating a national response, hindering both national security and national resilience in an age of traditional and asymmetric disruption.
Blackburn explained the importance of a cohesive, integrated response to national resilience and by extension, national security, “We have our departments doing great work in their respective fields. We have organisations like the CSIRO doing great work in terms of the hydrogen economy, energy security and the like, but the problem is each of these organs is siloed.
“One would expect that there would be a coordinating authority within the organs of government, which can support the development and implementation of a national resilience policy framework. Unfortunately, that isn’t the case, and we are seeing the affects of that today, so the only way to address this is with a coordinated, integrated response,” Blackburn explained to Defence Connect.
The individual nature of the aforementioned respective strategies, combined with the competing interests of the respective portfolios and departments are further exacerbated by a lack of cohesive, co-ordinating authority managing the direction of the broader national interest and implementation of a resulting strategy.
It is important to recognise that this realisation does diminish the good work done by the respective ministers, assistant ministers and opposition representatives.
But recognising the limitations of siloed approaches to the increasingly holistic nature of national security in the 21st century requires a co-ordinated, cohesive effort to combine all facets of contemporary national security and national resilience policies respectively – into a single, cohesive strategy.
In order to maximise the nation’s position, prosperity and security, is it time to introduce a role of a Minister for National Security or special envoy role to support the Prime Minister and respective ministers, both within the traditional confines of national security or national resilience like Defence and Foreign Affairs, to include infrastructure, energy, industry, health, agriculture and the like? (Source: Defence Connect)
28 Apr 20. Collapse of Boeing-Embraer deal could have major impact on C-390 Millennium’s future. Boeing’s termination of a $4.2bn deal for a majority stake in Embraer’s commercial aviation business could have widespread implications on the Brazilian firm’s flagship military aircraft.
Boeing on Saturday announced that it would walk away from a joint venture that would give it an 80 percent stake in Embraer’s commercial business, as well as a 49 percent stake in the company’s C-390 Millennium cargo plane.
Although Boeing said that the company would maintain previous teaming agreements to support Embraer with marketing the C-390 internationally, analysts told Defense News that the vitriol between the two companies could portend a wider collapse of their collaboration in the military sphere.
“The future of the KC-390 without Boeing — or without a U.S. defense prime helping — isn’t all that great,” said Richard Aboulafia, an aerospace analyst with the Teal Group. “It just seems like cooler heads should probably prevail.”
At Dubai Air Show last November, the companies announced the formation of a new entity known as Boeing-Embraer Defense set up specifically to proactively market the C-390 around the world — a step up from previous agreements that had Boeing in more of a hands-off role. The agreement gave Boeing a new plane that could compete head-to-head against Lockheed Martin’s C-130, and gave Embraer the resources to match.
The big question now is whether Embraer seeks out partnerships elsewhere for either the KC-390 or its commercial business, said Byron Callan, an analyst with Capital Alpha Partners.
“I just wonder, is there something else or someone else that emerges in 2021 or 2022 that ties up with Embraer. Could that be Chinese? Indian? Another country, company or entity outside of the United States?” he said. “That would be a more interesting broader change for aerospace, that has military implications as well, too.”
It’s even possible that Airbus could try to usurp Boeing’s role as Embraer’s partner on the C-390, said Callan, who noted that Airbus — like Boeing — does not offer a medium cargo transport aircraft that directly competes against the C-130.
A good relationship gone bad
On Monday morning, Embraer announced that it had filed arbitration proceedings against Boeing, capping off an angry back-and-forth between both companies that spanned the weekend.
When Boeing announced it was walking away from the deal on Saturday, the company claimed it had “worked diligently over more than two years” to finalize the transaction, but that Embraer left some conditions of the master transaction agreement, or MTA, unresolved.
“It is deeply disappointing,” said Marc Allen, Boeing’s president of Embraer Partnership & Group Operations. “But we have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues.”
Embraer, however, issued a scathing statement of its own, asserting that it had fulfilled all contractual obligations and blaming the failure of the deal on Boeing’s continued financial problems and the fallout from two fatal 737 MAX crashes.
“Embraer believes strongly that Boeing has wrongfully terminated the MTA, that it has manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the US$4.2bn purchase price,” the company said.
“We believe Boeing has engaged in a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its own financial condition and 737 MAX and other business and reputational problems.”
Boeing’s decision to break its agreement with Embraer makes sense from a financial standpoint, Cai Von Rumohr, a defense analyst with Cowen, wrote in an email to investors. Because of COVID-19’s impact on the aerospace industry, $4.2bn seems an inflated price for Boeing to pay to acquire a controlling stake in Embraer’s commercial business, and terminating the deal may help to free up cash that Boeing needs in the near-term.
But while Von Rumohr said he believes Boeing and Embraer will continue to collaborate on the C-390, it will depend on whether the relationship can be salvaged.
“This issue is, how pissed off is Embraer now, and is this something they’re likely to get over to continue with what was a teaming agreement that made a whole lot of sense for both parties?” Von Rumohr told Defense News.
Another major question is how the COVID-19 crisis effects worldwide defense spending, with implications for nations’ domestic industries as well the international defense industrial base.
Callan noted that some countries who have ordered the aircraft such as Brazil or Portugal “are probably looking at different defense budget projections.
Aboulafia added that the dissolution of the partnership increases the likelihood that Embraer will need stimulus funds from the government of the Brazil to help fortify its commercial sector during the COVID-19 pandemic.
“That money could easily come out of defense spending, which would impact Embraer defense programs, particularly Gripen or C-390,” he said. (Source: Defense News)
27 Apr 20. Global defense spending sees biggest spike in a decade. Global defense spending hit $1.917trn in 2019, a 3.6 percent increase over previous year figures and the largest increase in one year since 2010, according to the annual report by the Stockholm International Peace Research Institute.
The United States remains the world’s largest defense spender in 2019, with its $732bn representing 38 percent of global military spending, SIPRI has reported. That was followed by China ($261bn, at 14 percent of global total), India ($71.1bn, at 3.7 percent), Russia ($65.1bn, at 3.4 percent) and Saudi Arabia ($61.9bn, at 3.2 percent).
All told, the top five nations accounted for 62 percent of overall military spending.
“Global military expenditure was 7.2 percent higher in 2019 than it was in 2010, showing a trend that military spending growth has accelerated in recent years,” SIPRI’s Nan Tian said in a statement. “This is the highest level of spending since the 2008 global financial crisis and probably represents a peak in expenditure.”
Large year-over-year increases were seen in China (5.1 percent), India (6.8 percent), Russia (4.5 percent), Germany (10 percent) and South Korea (7.5 percent).
Regionally, military spending increased in Europe by 5 percent, Asia and Oceania by 4.8 percent, the Americas by 4.7 percent, and Africa by 1.5 percent. Combined military spending by the 29 NATO member states was $1.035trn in 2019.
SIPRI is widely considered to be the authority on military expenditures and exports, having gathered such data for decades. Other key developments, as noted by the researchers:
- Together, the top 15 countries spent $1.553trn, 81 percent of global military spending. All but three countries in the top 15 had higher military expenditures in 2019 than in 2010, the exceptions being the U.S. (15 percent drop), the U.K. (15 percent drop) and Italy (11 percent drop.)
- Total military expenditures of the 11 countries in the Middle East for which data is available decreased by 7.5 percent to $147bn, driven in part by an estimated 16 percent drop from Saudi Arabia. That overall percentage also decreased in 2018. SIPRI was unable to calculate totals from Qatar, Syria, the United Arab Emirates and Yemen.
- Military spending in South America was relatively unchanged from the previous year, coming in at $52.8bn. Fifty-one percent of that spending, $26.9bn, came from Brazil.
- Combined military expenditures from Africa grew by 1.5 percent to an estimated $41.2bn in 2019, the first time that region saw a spending increase in five years. That includes plus-ups in Burkina Faso (22 percent), Cameroon (1.4 percent), Mali (3.6 percent), the Central African Republic (8.7 percent), the Democratic Republic of the Congo (16 percent) and Uganda (52 percent).
- Of the 149 countries SIPRI studied, 10 allocated 4 percent or more of their gross domestic product to the military, which the group defines as the “military burden.” Thirteen countries had a military burden of 3 to 3.9 percent of GDP; 24 had a military burden of 2 to 2.9 percent; 65 had a military burden of 1 to 1.9 percent; and 34 allocated less than 1 percent of their GDP to the military.
- Three countries had no military expenditures in 2019: Costa Rica, Iceland and Panama. (Source: Defense News)
28 Apr 20. ASPI raises mounting concerns about SEA 1000 future submarine costs. ASPI analyst Marcus Hellyer has raised renewed concerns about the costs associated with the long-term development and ‘future-proofing’ of the Royal Australian Navy’s future-Attack Class submarines at a time when both regional competitors are accelerating their modernisation plans and local budgets are going to be continually strained.
It is shaping up to be one hell of a labour and birthing process for Australia’s multibillion-dollar SEA 1000 Attack Class submarine program as government, Defence and Naval Group move to allay the fears of Australia’s strategic policy community and the public.
Despite repeated rebuffs by senior Defence uniformed personnel, bureaucrats and successive ministers of defence and defence industry, concerns released recently by the Australian National Audit Office (ANAO) in the report titled Future Submarine – Transition to design, combined with political concerns, all serve as powerful fuel to question the program.
When first announced, the Attack Class was promised to deliver a quantum leap in the capability delivered to the Royal Australian Navy and its submarine service by leveraging technology and capabilities developed for nuclear submarines, implemented on a conventional submarine.
Further complicating matters is the constantly fluctuating price associated with the program, with figures ranging from the original $80 bn as stated by former defence industry and defence minister Christopher Pyne, to a now estimated $145bn as revealed by Future Submarine Program manager Rear Admiral Greg Sammut during Senate estimates.
This cost explosion is further exacerbated by an apparent ‘slip’ in the planned commencement date for construction of the lead boat, HMAS Attack, which was widely publicised as 2022-23 and has now subsequently been pushed back to the 2024 time frame – further exposing Australia’s ageing Collins Class vessels to potential adversary over match.
RADM Sammut was quick to explain this away, like a skilled operator, informing Senate estimates that the slated time frame was referencing the standing up of construction personnel, tools, infrastructure, processes and equipment to commence the construction of HMAS Attack’s pressure hull in 2024.
Finally, with the first vessel expected to enter the water in the mid-to-late 2030s, concerns regarding the cost, delivery and capability of the vessels is serving to raise questions about the value proposition for a conventional submarine at a time of increasing technological advancement in comparable vessels operated by peer and near-peer competitors in the Indo-Pacific.
While each of these individual challenges will impact the recapitalisation of the Royal Australian Navy’s submarine fleet, the growing program delays and estimated cost overruns will have dramatic impacts on the long-term modernisation and recapitalisation of the Royal Australian Navy in the middle of the 21st century.
In response to these mounting concerns, Marcus Hellyer, defence economist and analyst with ASPI has raised new alarms surrounding the costs associated with planned “batch building” and costs associated with the technology insertions required to maintain “regional superiority” over the life of the Attack Class, begging the question, how much are these things going to cost?
Hellyer highlights concerns raised by former submariner and independent senator Rex Patrick regarding the wildly fluctuating costs associated with ‘out turning’ the future submarine fleet and the ramifications it will have on the capability delivered to the Royal Australian Navy.
Senator Patrick: It has been two years since DCNS, now Naval Group, were announced the winners. You’ve done a bit of work. Are there any updated costs on the acquisition for the submarine?
RADM Sammut: It’s still in the order of $50 bn based on the work that we’ve done to date on early design activities.
Senator Patrick: Do you have any idea of, say, the design cost or the build costs?
RADM Sammut: Those costs are being determined in greater detail as we complete preparations to enter the full contract for design and build of the submarine. At this stage, as I said, total acquisition for the 12 submarines is remaining at $50bn.
“If the $50bn constant/$80 bn outturned estimate hadn’t changed since Naval Group was selected, then the window in which the estimate increased must have been between the receipt of bids from the participants in the competitive evaluation process at the end of November 2015 and the announcement in April 2016,” Hellyer posits.
Building on this, Hellyer states, “What caused the change? Recently there’s been discussion — for example, at Senate estimates — about whether the Commonwealth has been commercially ‘captured’ by Naval Group because it chose a single provider too early, exposing itself to cost increases. While that’s an ongoing risk to guard against, it doesn’t explain cost increases during the competitive evaluation process when there was still competitive tension.
“There are likely two reasons for the growth of the estimate during the competitive evaluation process. The first is that Defence’s $50 bn outturned figure was already too low. ASPI’s 2009 estimate of $36.5 bn constant becomes around $42 bn constant when rebaselined to 2015. Outturned, that becomes $67 bn.
“The second reason for the increase is the more demanding performance requirements. The 2016 white paper moderated the requirements for the future submarine by dropping its strategic strike role, which should also have reduced the cost. But the white paper also introduced the undefined term ‘regionally superior’. If anything was going to lead to an open-ended expansion of requirements, that would be it.”
The alternate options? Leveraging hunter-killer, cruise missile subs and unmanned systems
Drawing on advances in unmanned underwater systems like the Boeing Orca system, combined with a fleet of complementary, highly capable hunter-killer and cruise missile submarines designed to modified off-the-shelf solutions, further serves as a capability aggregator for the RAN.
The increasing proliferation of conventionally powered submarines incorporating vertical launch modules for accommodating advanced cruise missile systems, provides an important capability for Australian consideration, particularly when paired with unmanned underwater and aerial systems providing ISR capabilities enhancing the nation’s deterrence capabilities.
Developing mutually complementary submarine fleets of approximately nine dedicated hunter-killer submarines for critical maritime interdiction, task force escort and anti-submarine operations, combined with a fleet of approximately nine dedicated cruise missile submarines, enables the development of a complementary and highly capable submarine fleet.
When using the costs for the sixth Soryu Class submarine of approximately US$540m ($803.5m), a fleet of 18 such submarines could cost Australia approximately between US$10 bn ($14.8bn) and US$15bn ($22.3bn), while delivering the pound-for-pound most lethal conventional submarine force in the world.
By contrast, the Saab/Kockums A-26 Oceanic ER is estimated to have a unit price worth approximately US$945m ($1.46bn) compared to the multibillion unit costs associated with the Attack Class submarines depending on the figures chosen, be it the $50bn, the $80bn or larger figures associated with turned out costs.
Finally, establishing and maintaining a dedicated fleet of hunter-killer submarines designed to a common standard as the fleet of cruise missile submarines serves to lower costs, crewing requirements and long-term sustainment and operational costs despite acquiring a larger fleet of submarines than outlined in the 2016 Defence White Paper. (Source: Defence Connect)
28 Apr 20. Chinese ambassador redoubles threats, as nation juggles ‘new normal.’ Beijing’s ambassador to Australia, Cheng Jingye, has joined a growing chorus from Beijing placing increased pressure on the Australian government to abandon its push for an independent, international review into the cause of COVID-19 and the response of the World Health Organisation, with Australia’s economic dependence on China firmly in the crosshairs.
Australia has enjoyed a record setting three decades of uninterrupted economic growth buoyed by the voracious appetite of a growing China. However all good things come to end as the political, economic and strategic competition between the US and China enters a new phase placing both the global and Australian economies in a precarious position.
Additionally, the global and regional fall out of the COVID-19 pandemic, combined with Beijing’s recalcitrance when it comes to accepting responsibility for the impact of the wet markets seemingly responsible for the global outbreak have served as a major flashpoint between the rising superpower and Australia.
Further compounding these emerging challenges is the growing period of economic and strategic competition between Japan and South Korea, equally important US and Australian allies, which have long-standing, robust links to Australia’s economic security.
As this vortex of competition continues to devolve into a game of economic brinkmanship, resulting in trade tariffs and hindered supply chain access, many within Australia’s political, economic and strategic policy communities have sought to redouble the nation’s exposure to volatile and slowing economies.
Australia’s earliest economic and strategic relationship with the British Empire established a foundation of dependence that would characterise all of the nation’s future economic, defence and national security relationships both in the Indo-Pacific and the wider world.
As British power slowly declined following the First World War and the US emerged as the pre-eminent economic, political and strategic power during the Second World War – Australia became dependent on ‘Pax Americana’ or the American Peace.
The end of the Second World War and the creation of the post-war economic and strategic order, including the establishment of the Bretton Woods Conference, the International Monetary Fund and the United Nations, paved the way towards economic liberalisation and laid the foundation for the late-20th and early-21st century phenomenon of globalisation.
While the collapse of the Soviet Union and the end of the Cold War cemented America’s position as the pre-eminent world power, the COVID-19 pandemic has shed light on the shortfalls of globalisation and increasingly precarious global supply chains, largely dominated by Beijing, which has stepped up its predatory economic, political and strategic grey-zone warfare against both Australia and regional partners.
The changing economic order
The post-Cold War period was relatively short-lived as costly engagements in Afghanistan and Iraq, peace-keeping interventions in southern Europe and enduring global security responsibilities have drained American ‘blood’ and ‘treasure’ – eroding the domestic political, economic and strategic resolve and capacity of the US to unilaterally counter the rise of totalitarian regimes and peer competitors in both China and Russia.
For example, since the white paper was released, China’s share of global GDP has risen from 15 per cent to 20 per cent, based on purchasing power parity. India, the region’s other emerging economic and industrial powerhouse, has seen its share of the global economy double from around 4 per cent to 8 per cent since the beginning of the 21st century, however the economic rise has given way to growing geo-strategic designs and competition throughout the region and is serving to unpick the fabric of the post-Second World War order.
From the South China Sea (SCS) to the increasing hostilities between India, Pakistan and China in the Kashmir region of the Himalayas, the Indo-Pacific’s changing paradigm, and growing economic, political and strategic competition between the US and China.
Continued sabre rattling and challenges to regional and global energy supplies travelling via the Persian Gulf, and an increasingly resurgent Russia all serve to challenge the global and regional order, this is particularly the case as recent confrontations in both the Middle East and Southeast Asia serve to exemplify.
In response to these factors, combined with the increased rhetoric out of Beijing, many within the Australian public, media and political spheres have expressed concerns about Australia’s economic dependence on China and the growing influence Beijing asserts domestically, at a time when their blatant disregard for global safety and economic stability seems to have flown out the window.
Enter, Beijing’s ambassador to Australia, Cheng Jingye who has redoubled the rhetoric of Beijing to place increasing pressure on Australia to “fall into line” and stop questioning Beijing’s narrative for fear of catastrophic economic repercussions across sectors heavily dependent upon China’s voracious appetite.
These threats are particularly targeted at Australia’s raw materials, resources, energy and agricultural products and the services orientated aspects of the national economy, namely tertiary education and real estate.
Cheng echoed sentiments out of Beijing regarding Australia’s response to COVID-19, telling The Australian Financial Review: “It’s a kind of pandering to the assertions that are made by some forces in Washington. Over a certain period of time, some guys are attempting to blame China for their problems and deflect the attention.
“So what is being done by the Australia side? The proposition is a kind of teaming up with those forces in Washington and to launch a kind of political campaign against China. The Chinese public is frustrated, dismayed and disappointed with what Australia is doing now.
“I think in the long term … if the mood is going from bad to worse, people would think ‘Why should we go to such a country that is not so friendly to China? The tourists may have second thoughts. The parents of the students would also think whether this place which they found is not so friendly, even hostile, whether this is the best place to send their kids here.
“It is up to the people to decide. Maybe the ordinary people will say ‘Why should we drink Australian wine? Eat Australian beef?”
These statements echo similar comments made by Chang from late-2019 where he moved to remind “Australia who pays its bills” in a special interview with The Australian, during which Jingye reaffirmed China’s commitment to “peaceful development” and a peaceful Chinese rise in the Indo-Pacific.
Despite the seeming benevolence of the Beijing’s messaging, Chang was quite pointed in his commentary about Australia and its economic dependence on China, stating:
“You have been talking about your continuous economic growth, for the past 28 years. You have talked a lot about your trade surplus. It seems sometimes, some people forget what are the reasons behind that. China’s growth and the co-operation between China and Australia in trade, economic and other areas, is a major factor in that growth.”
This pointed reminder of who pays who’s bills is poignant for Australia’s public policy makers, particularly regarding the nation’s seeming over exposure to the Chinese economic miracle, placing it at an immense precipice, needing to pick between the US as Australia’s strategic benefactor and China, the nation’s primary economic partner.
What this fails to account for is that China’s own economic growth and prosperity is equally dependent upon Australia’s continuing benevolence in trading matters.
Nevertheless, Australia’s seeming over exposure requires a course correction, but how does the nation achieve this? (Source: Defence Connect)
27 Apr 20. China changes national defence patent fee thresholds. The Chinese Ministry of National Defence (MND), on 26 April, reported that the Equipment Development Department of the Central Military Commission (CMC) will alter the national defence patent fee thresholds.
The aim of move is to ‘reduce the burden of innovation entities and encourage the innovative development in defence technology and equipment construction’, according to an MND statement.
This will result in a shift in the threshold for reduced fees meaning that individuals with a monthly income of $500 instead of $700 will be able to access the lower patent fee.
For businesses, the new threshold for reduced rates will be $140,000 of taxable income in the previous year instead of the previous threshold of $43,000.
Public institutions, social organisations, non-profit scientific research institutions and military units which request fee reductions will also no longer be required to submit certification and other evidence of financial difficulties. (Source: Shephard)
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