The Royal Navy marked a major milestone in the development of its surface fleet in late July with the commencement of manufacture of its Type 26 Global Combat Ship, which will partially replace the Royal Navy’s Type 23 anti-submarine variant frigates as part of a £3.7 billion ($6 billion) contract.
The Type 26 Global Combat Ship is one of three solutions being considered by the Australian government as part of the SEA 5000 Future Frigate Program, which will see the replacement of the eight ageing Anzac Class frigates with nine high-capability warships.
Defence Connect host Phil Tarrant spoke with Nigel Stewart, business development and strategy director Maritime at BAE Systems, on the eve of the 'steel cutting ceremony' held at their company's Govan Shipyard facility in Glasgow, Scotland.
Tune in to get the inside word from Stewart on the development of anti-submarine warfare, how BAE Systems and the Royal Navy have backed the Type 26 to fulfil this ever-increasing role and how these learnings will enhance BAE Systems' pitch.
Enjoy the podcast,
The Defence Connect team.
Listen to previous episodes of the Defence Connect podcast:
Episode 278: PODCAST: A different vision for Australian defence industry, with shadow minister for defence industry Matt Keogh
Episode 277: PODCAST: The future of Australia’s space industry with Adam Gilmour, CEO of Gilmour Space
Episode 276: PODCAST SPECIAL EPISODE: Breaking the stigma surrounding mental health with David Coleman, Assistant Minister for Mental Health and Suicide Prevention
Episode 275: PODCAST: Discussing LAND 125 Phase 4 with Babcock’s Craig Schwartz
Episode 274: PODCAST: Securing Australia’s missile sovereignty with Jim McDowell, Group CEO of Nova Systems, and Dr Ben Greene, Group CEO of EOS
Episode 273: PODCAST: BrothersNBooks, bibliotherapy and the world’s coolest readathon – CAPT Dylan Conway
Episode 272: PODCAST: Building Australia’s future defence force – Brigadier Ian Langford
Episode 271: PODCAST: Preparing for instability in the Indo-Pacific – Senator Jim Molan
Episode 270: PODCAST: News wrap – TS 21 in full swing; SMEs secure new defence contracts
Episode 269: PODCAST: Backing veterans with new tech tools – REDSIX CEO Michael Handley
Phil: G’day everyone, it's Phil Tarrant here. I'm the host of the Defence Connect podcast. Thanks for joining us today. I do apologise to start with if the sound quality is not up to its usual standard. I am recording this from a hotel room in Glasgow in Scotland and I'm joined today by Nigel Stewart who is the business development and strategy director maritime for BAE Systems. Nigel, how are you going?
Nigel: Oh, very good, thanks Phil and welcome to Glasgow.
Phil: Thank you very much. I've enjoyed myself today. I was fortunate to spend some time with you and your team exploring your shipyards here and we had a good look through your offshore patrol vessel, which is the first of a number that you're building for the Royal Navy and I was quite impressed by what I saw.
Nigel: Oh yeah, we've got five of those on contract now and the first one will be delivered in the next few months, so yeah, we're very excited about that.
Phil: That's very good. I stuck my head around where the new build of those are underway and I know that you'll be filling that area up pretty soon with the Type 26, which is tomorrow. It's a bit of a red letter day for you guys, the official cutting of the steel for the first one of those ships. You guys must be pretty excited about it all.
Nigel: Yeah, tomorrow's a huge day for the ship building industry in the UK. Tomorrow marks the start of the Type 26 programme, which will see us really with continuous shipbuilding on the 26 through to 2034 so it's been a long time coming in many ways, but it's a proud moment for all of us. We've got a great design to start on.
Phil: One of the briefings I sat in today with you, you said it was a new era of shipbuilding on the Clyde. It must be a lot of people pretty within BAE right now about longevity of jobs moving forward over the next decade or so.
Nigel: Oh, absolutely. The shipbuilding is a very traditional business in the UK, particularly in Glasgow. In the workforce we've got today there are a number of generations of fathers, sons, grandparents that have worked in the yard. We have a huge program for graduates and apprentices that we take on and clearly with a program like this, it gives people longevity for the next 15 to 20 years so it's really good for the people and it's not just the people in the shipyard. For every job in the shipyard there's another two and a half jobs that are created in the wider economy so it's a really positive impact for the UK from an economical point of view and at the end of it it's a great day for the Royal Navy because it's the start of their next programme.
Phil: So a couple of things I really want to chat to you today, one of them is the rational for the Type 26. I sat in a very good briefing yesterday with Captain Tim Green, who is an AWS expert. He gave some good contextual rationale for the development of the Type 26 and I think there is a relevance there for Australia, but to let our listeners know the purpose of my trip out here is not really just to look at the ceremony of the Type 26 steel cutting, which is going to be a nice way to mark the development of this programme, but it's really to look at the Type 26 and how it might fit within the Australian context. Obviously our listeners are very familiar with the SEA 5000 programme coming up and the very competitive process underway between yourselves and two very fierce competitors, I would say, Fincantieri and Navantia to provide this new solution for the frigates for Australia. You guys are obviously backing the Type 26 and if the Royal Navy has anything to say as well I think they'd be a big advocate for Australia.
Nigel: They'd be very proud to see their ship exported, yes, if we could do that.
Phil: So what's the process from hereon in with the Type 26? Obviously you have a build on the way in the UK, but for SEA 5000 and BAE moving into that space obviously we have the tender process on the way right now and I believe all three participants will be delivering their documentation in August…
Nigel: Yes, in a number of weeks. I won't go into the specifics of the RFT, but we're getting pretty close now to the submissions and then there'll be a period of evaluation and hopefully a contract for, well a contract for one of the three parties next year.
Phil: Your view then, it probably echoes many of the things that the Captain said yesterday about the evolving nature of warfare and the way in which antisubmarine is, in particular in the Asian Pacific moving forward, is going to take much more precedence. What's your view toward that evolving space right now and the Type 26 as a solution for it?
Nigel: As you heard from Captain Tim yesterday I think the submarine threat is a constant threat in the current world and certainly for the UK and for the Royal Navy. I mean our number one strategic line of defence is what we call the CASD, the continuous at sea deterrent with our ballistic submarines. As you perhaps saw we've got the new aircraft carriers coming in to service the first one, will be delivered in a few months’ time so the UK will be operating a very large aircraft carrier task force as well.
Clearly there's a real risk to operating a task force like that from a submarine threat so it's really important, and always has been, for the Royal Navy that we have the best technology in terms of antisubmarine warfare, which, as Captain Tim said to you, in terms of all the way back through evolving when we designed and built the Type 23's which are the current Navy antisubmarine warfare ship through to the Type 26 we have spent a lot of time and a lot of effort with a lot of very talented people to make sure that every, as you saw today, every pipe fitting, every component, we'll make sure that we design and deliver the most acoustically quiet ship possible.
And that's really important for submarine detection, a big element of that is making sure you've got a quiet ship. As you saw from yesterday it's really important for the Navy that not only have we got the best technology to be able to detect, to be able to do that we need to have the quietest ships possible as well. And that's why I've invested so much in the design of the 26 programme over the last four or five years.
Phil: Talking about continuous ship builds, so continuity and maintaining not only a talented and capable workforce here in Glasgow to produce these and they've been working very hard on the offshore patrol vessels. You've now got that continuity into the next decade building the Type 26. Now if we mirror that in Australian context there's a lot of argument around Australian shipbuilding capabilities and there's a lot of fear that there's going to be this, I'm sure you've heard of it, this Valley of Death where anything happens for a little while and then when it kicks starts again we might not have those capabilities. So what's your view towards SEA 5000 and your proposal with the Type 26 to give Australia that capability to build these warships on home soil.
Nigel: I think, and it mirrors a little bit the UK when through a number of years ago whereas a UK we decided that shipbuilding was a sovereign capability and we decided the only way to do that was we needed to make sure we aligned industrial capacity with programmes. I think from the Australian point of view you will go through a dip as you go off ASW and you come into the SEA 5000 programme, whichever competitor wins that, but that's definitely manageable. You've got a really good workforce that currently exists in ASC so I think just looking at how that workforce can move on to the SEA 5000 programme, how it can be retained, how you'll have OPV's going through, we've seen the same valley of deaths in the UK and we've been through them and we've learned from it. So it's definitely a challenge, but it's definitely a challenge that can be overcome.
Phil: Do you think should BAE skewer the SEA 5000 programme that you have the depth of workers there to deliver this build?
Nigel: Yeah, I think across Australia and clearly you've got the submarine programme as well in similar kind of timescales, but you've got a talented shipbuilding workforce that's already in Australia, but again within the UK we've surged massively to build the two new aircraft carriers so we had to put 30-40 per cent increase in our workforce to be able to do that. There's many skills that you can bring in from ... You know, we used oil and gas in the UK, which was a side that has been downsizing over the last five or six years so a lot of the skills for those sectors as well you can bring in for the production. And there are many other sectors as well that can support in the programme management supply chain side. So I think you have to approach the issue with it doesn't have to be necessarily all shipbuilding that exist there today.
The programme is long enough to bring in apprentices, to bring in graduates and actually to reskill people as well. Here in Glasgow, across the maritime side we have something like 1,200 apprentices over the submarine and the shipbuilding programme over a three, four year apprenticeship scheme. You'll have a fantastic programme in Australia where you've got the ability to do a similar thing.
Phil: Just sort of spending time with your team today and across your number of different bases here and also down in Portsmouth. A lot of young guys out there, apprentices and just looking at signs on the wall and stuff you can see it's a resource that you look to capture and keep. And in Australia it's really waning the amount of people choosing apprenticeships as potential work choices. A programme like this, SEA 5000, it should attract a lot more people to that space, do you think?
Nigel: And across BAE in the UK we're finding that we operate one of the best apprenticeship programmes in the UK, whether that's in the land, sea, or air domains. We actually find the trend is changing where probably five or six years ago we had a lot more focus on graduates now we're finding we put just as much, probably more focus, in terms of apprentices. And the reason we find that, we find that we get a huge amount of loyalty from the apprentices because you kind of earn as you learn as we say in the UK. So people that are coming through, they can start an apprenticeship, they can then got to universities and colleges and we can sponsor them through there. And we found the loyalty that we get out of the apprentices it's tremendous. We have over 90 per cent retention rate in our apprentices at the end of the five, six years. So it's a great opportunity and it's great way of kind of sustaining your workforce and creating your workforce for the future.
Phil: So for our listeners that aren't familiar with the Type 26 can you just give us a bit of a background about the genesis of the ship, what it is and where it's going and why it was such a good solution for the Royal Navy?
Nigel: The 26, it was designed ... It's used some of the whole form from the Type 23 so the Type 23 is the current AWS ship in the Navy so that was used as some of the baselines because that is an excellent ship, but then, to be honest, it has been designed using ... we've brought in some new technologies, we've brought in new components so we are making sure the ship will be kind of future proof for the next 30, 35 years so it's based on Type 23, but using some of the more modern technology. What we've also tried to do is de-risk some of that. For example in the UK programme the combat system, the weapon system, the radar system that will go on the new 26's we're already fitting that on as a refit onto some of the Type 23's so we will prove those in service. The day that she's first fitted onto the 26 we know we'll have a proven weapons system.
Phil: And you've got the order, I guess you can call it from the Royal Navy to build the first three?
Nigel: We got the contract for the first three. Yeah, so we signed the contract for the first three about three weeks ago, that along with the cut steel. The contract's great for the financial market, the cut steel is more important for the people.
Phil: What is it that worries you most about your ability to deliver the type 26 for the Royal Navy? Is there anything that keeps you awake at night sort of nagging in the back of your head?
Nigel: They're always complex programmes. It's a complex development programme. I think the thing that gives this more confidence on, or high confidence in this programme is, as we talked you through today, the level of design maturity that we've got on this programme at the point of cut steel is far higher than we've ever had and any previous programme. On many programmes in the shipbuilding it's so easy to cut steel when you're running out of work. We could've cut steel on the 26 programme 18 months ago, but it wouldn't have been the right things to do with the levels of design maturity to make sure that we minimise rework. I think we're highly confident in terms of the design solution, the modern techniques that we've got in modelling will mean we'll pretty much have a high level of confidence in terms for the performance of the ship when she goes into service.
Often on these programmes if you bring new technology, so new propulsion systems or new combat systems, that can be a high-risk area, again, because we'll have de-risked the combat system on the Type 23's we'll have high confidence that that will function, it's just an integration issue on the platform. Again, in terms of the propulsion system it's not revolutionary, it's an evolution from what we've done on previous programmes so they're always complex. It'll be a long development programme, but a lot of the issues that would normally worry us we've got good de-riskers for on Type 26.
Phil: You mentioned that you could've cut steel 12 to 18 months prior to tomorrow and I was fortunate today to sit within your visualisation suite and we had a good look with our 3D glasses on at some of the modelling. That process to have depth to design, or you call it design maturity, how does that translate to cost savings moving forward? I imagine you've made a lot of your mistakes in a computer simulation rather than banging metal.
Nigel: A lot of the costs on a programme, whether it be the 26 programme or shipbuilding programme is schedule drives a huge amount of cost so if you just think of the size of the workforce and the overhead. If your programme slips by a year or 18 months there is a big cost implication. If you cut steel too early your first six months will be fine, you know cutting steel is the easy bit, but then if you're running into problems what you find is the amount of rework will cause schedule delays and because if this was an aircraft or a land programme, we may well build one or two units as prototypes. We prove the prototypes then we go into production. You don't get that luxury in shipbuilding. The prototype is the first of others. We'll cut steel on ship number two within 24 months and then we're on an 18 month drumbeat. So if we start cutting steel and finding issues too early we may have two or three ships in service and that's where programmes slip. And you see it across the world in terms of warship building, which is complex. We took the decision.
We did a lot of work looking at other industries. Sometimes the shipbuilding can be very self-referencing. It's a very traditional industry so we always compare ourselves to how we did on the last programme. Things like the visualisation suite, we took that from the car industry. We looked in terms of the design maturity at the oil and gas side so we work with a number of oil and gas companies who do much more in terms of how they build some of the offshore rigs so their volume is higher than ours, but again, they are building one-offs. We try to look at other parts of industry or other industries to try and take the best of learning and so the design maturity comes from the oil and gas world. We took the decision very early on with the Navy and with the MOD on the 26 programme that we will cut steel when the design is mature, not when we need to cut it because we've got a gap in the workforce. Some of the reasons for the OPV programme was to help sustain what might have been a potential gap, but for all of us we thought that was the right decision to take.
Phil: How did that resonate with the Royal Navy? Was it something that they liked?
Nigel: Yeah, because the Royal Navy want the 26 to be delivered on the date that we promise it, not an aspiration or date that will then slip every six months. A, the Navy you've got a high degree confidence. You've talked to some of the operators that it will delivered, but the other thing they get five fantastic platforms in the OPV's. There is a requirement for the OPV's they're not just a nice to have or a fill-in programme.
And the other thing that the OPV's have done for us is as we came off the aircraft carrier in the programme in the UK we were building huge blocks, construction blocks for the aircraft carrier, but it was all being assembled in another yard. The OPV's allowed us to move back from block building on the aircraft carrier back into full ships in Glasgow and allow us to test a lot of some of the things you've seen today and the design techniques and the new production techniques. It's given us a great way of de-risking the 26 programme by proving a ship that we've already built and sold three of the OPV's to Brazil so it gives us a way of piloting some often new techniques.
Phil: For the Type 26 can you talk me through the way you've structured that contract with the Royal Navy and whether or not you'll approach the SEA 5000 bid in a similar way?
Nigel: For the UK programme up until the contract that we singed recently in a development programme, we tend to work on a cost-reimbursable regime for based costs, but then our profit is incentivized, again, it's hitting schedule, hitting quality milestones, hitting a number of the things that we agree with the Navy and MOD each year. Now were in a manufacturer we're on what we call a target cost, whereby we commit to a programme date, a delivery date for the ship, and we commute to a cost at the target. If we beat the cost, so we come in lower than expected then we can earn more profit. If we go over the cost then we lose an element of our profit. In fact, we can lose all the profit. It's recognising that it is still a development programme and the MOD and the Navy are still partners on the programme so it needs to be a shared level of risk and the target cost environment's a great way to do it. It will be down to the Commonwealth to decide how they contract for SEA 5000, but that's certainly one of the options that we know they're considering.
Phil: Obviously the cost savings for you or where you can amplify your profit most of them come down to time and efficiency versus acquisition and materials. Can you tell me about how you actually acquire the modular components to put into a warship like the Type 26?
Nigel: A number of ways. We can divine cost through schedule, although a little bit like Australia would do there is an element ... We certainly want to hit the schedule. It's great if we beat the schedule, but we are trying to maintain a continuous prosecution drumbeat as well so there is a kind of a level of hitting schedule is really important. It's great if we can beat it slightly, but beating it massively will then change the whole production drumbeat. 60 per cent of a warship will be in material content so finding the right ways to work with the supply base. Again, a lot of it is not the base cost of the ship. A warship insurance a very complex, integrated product so he's making sure that the supply chain, certainly the key ones are working with us as partners so when we integrate their components, either with all the supplies or ion the ship we're all working together so we're minimising that cost.
But again, it results in schedule delays so if we're bringing in a major piece of kit, when we install it in the ship we've got an issue that might put the schedule, that might put the schedule if it's critical back by three, four, five months. And again, you saw in the visualisation suite today, in the design tool we're able take of all of the supplies data and we're able to model all the interfaces, you know, they're actually data. We can look at removal routes, we can look at how we'll fit, we can look at maintenance route. Again, we can de-risk far more than we've been able to do in the past just by the technology that's available today.
Phil: Many of our listeners, Nigel, are SME's and they'll all be anxiously awaiting to see who the successful bidder is for the SEA 5000 programme. Can you tell me about how you've engaged the SME sector here in Britain and also Europe and how you might be looking for a be looking for a similar sort of flavour within the Australian market?
Nigel: On the Type 26 programme we will contract with a number of, what we call, tier one suppliers. We'll probably contract with the top 60 or 70 and then clearly the supply base is layered. For the 26 programme basically we went out for global competition. There are a number of components that are mandated, as UK, but in the main it has been a global competition. Where we do try and work is in some of the SME's in the UK, which tend to be contractors into some of our major tiers of contractors so when we contract we will flow down requirements to them to make sure there is a mandate to use a certain level of kind of SME's in the build.
In Australia we would do a very similar thing. You've heard from some of the Australian team today. We have three and a half thousand people in our Australian business across land, sea, and air and cyber programmes. We understand the supply base very well. We've got well over a thousand suppliers already in Australia across the different sectors. We've got a good relationship with a lot of the SME's. They know who we are, but definitely our commitment for Australia will be ... We aren't trying to build the ship in the UK, we have no capacity to build further ships in the UK until 2034 and I doubt the Commonwealth will want to wait until 2034. Our commitment will be to make sure we the maximum amount of content into Australia. It's the right thing to do. It's what the Commonwealth wants and that will be our commitment.
Phil: You got the contract for the first three ships, that bill is happening now. For the five is batch two, should BEA be successful in a SEA 5000 context, well the option is for Aussie businesses to get into of that supply chain over here in the UK?
Nigel: Absolutely, so batch two will probably contracted around 2020, 2021 in the UK. Clearly it's of interest for both the UK and the Australians we'll be operating, if we were successful we've got, with the eight ships in the UK and with nine in Australia, that's a seventeen ship programme. Okay, even if you say batch one is being contracted, that's a 14 ship programme which has got to be beneficial for both governments to look up where you can get supply savings. We absolutely would look and it's in everybody's interests to do that.
Phil: You've got the year of the Australian Defection Industry sector right now, phi there's anything that you feel is sign to stand up against your competitors in terms of SEA 5000 what would it be?
Nigel: We respect both Navantia and Fincantieri are both very good warship builders, they've both got good products, they're different products. I think we'll all bring a different theme to the competition, but it will be interesting to see and I guess that will come out in the evaluation as the Commonwealth go through it.
Phil: Interesting times ahead.
Nigel: Very interesting times, but it's a great programme. We're proud to have been down selected to three to at least be able to give the Commonwealth a bed.
Phil: Good, Nigel. Appreciate your time and also insights on the Type 26. I'm sure tomorrow with will go off with a hitch and we'll make sure we keep covering it across defenseconncet.com.au. Thanks again and keep connecting. Let us know how you're tracking.
Nigel: Thank you very much and we'll keep in touch.
Phil: That's good. Remember to checkout out defenceconnect.com.au across all the social channels, Facebook, Twitter, LinkedIn. You can follow me if you like @PhillipTarrant. Remember to subscribe to our daily morning newsletters, defenceconnect.com.au/subscribe. We'll be back again next week. Until then, we'll see you. Bye bye.