Defence Connect caught up with Austal’s chief executive David Singleton at the Pacific 2017 International Maritime Exposition to discuss how Austal achieved its phenomenal success overseas, closing the cost gap between south-east Asia and Australia, his views on the success of the 2016 Defence White Paper thus far and the future of Henderson.
Enjoy the podcast,
The Defence Connect team.
Listen to previous episodes of the Defence Connect podcast:
Episode 167: PODCAST: Maintenance and sustainment supporting Navy’s mission - RADM Wendy Malcolm
Episode 166: PODCAST: Defence and industry agility in a period of competition - Greg Moriarty, Secretary of the Department of Defence
Episode 165: PODCAST: Common heritage, shared history and moving forward into a contested environment – VADM Paul Maddison, UNSW
Episode 164: PODCAST: Aussie start-up providing leading edge autonomous maritime capability – Robert Dane, OCIUS, and Daniel Dent, Thales
Episode 163: PODCAST: Supporting Australia’s sovereign shipbuilding capability – Steve Robinson and Lee Kormany, Nova Systems
Episode 162: PODCAST: Tomorrow’s technologies protecting Australia’s shores – J3Seven’s Michael Molnar and Decision Sciences’ Geoff Clelland
Episode 161: PODCAST: Protecting Australia from chemical and biological threats – Felicia Pradera, DMTC
Episode 160: PODCAST: Our role in the evolving region and the challenges for Aussie unis – Fergus ‘Gus’ McLachlan
Episode 159: PODCAST: Regional security and the Pacific Patrol Boat program – Barry Jones, AMC
Episode 158: PODCAST: Exports and the Australian Defence Force – Leon Notelovitz, Santova Logistics
Announcer: Welcome to the Defence Connect podcast with your host Phil Tarrant.
Phil Tarrant: Well g’day everyone, it's Phil Tarrant here, I'm the host of the Defence Connect podcast. Thanks for joining us from Pacific 2017, and obviously Pacific's all about Naval shipbuilding, it's the word on the street. I haven’t not had a conversation around what's going on in shipbuilding, obviously it's a watershed time for defence and defence industry in terms of the capability, expansion and delivering some new submarines and some new frigates to markets. Fortunate to grab David Singleton, who is the CEO of Austal, one of the great Australian ship builders. David how you going?
David Singleton: I'm really well, and enjoying the time here at Pacific 2017.
Phil Tarrant: What's the best thing you've done so far, other than the Defence Connect podcast for Pacific?
David Singleton: I've virtually done nothing but sit in a meeting room going through people after people, after people. So what I love about it is, I can spend three days here and I can talk to people across the planet, that might take me six months of travel to do. So from that point of view it's great, I'll tell you the thing I find most interesting though, is walking around and just looking at some of the really interesting technologies that people are developing. You know using these new capabilities that we see in our everyday life, and then thinking about how we use that in Naval applications.
Phil Tarrant: So who you meeting with at Pacific? Obviously, your colleagues and counterparts in other businesses, and you have a lot of competitors in terms of winning some of this work moving forward. But who else you engaging with here at Pacific?
David Singleton: There's a lot of foreign Naval delegations here, so we saw the Filipino Navy Commander yesterday for instance. We've just had Rear Admiral from the US Navy on the stand, who's very pleased and proud of the Littoral Combat Ships that we produce in the United States, in Alabama. So a lot of the customer community are here, they would send people to a show of this type. A lot of our suppliers are here, and that gives us an opportunity to talk to some of our overseas suppliers that we don't see so often. Then of course there's a lot of collaboration between Naval ship builders around the world, and it's another opportunity for us, at CEO to CEO level to be able to talk about, well what's the next step in our relationship? What are we doing from here?
Phil Tarrant: So a lot of people within the Australian defence market look towards Austal as a business to try to emulate, in terms of your exporting capabilities. You've done a good job, you've got some significant operations outside of Australia, in Alabama in the US for instance. You bring some capabilities to the US Navy there, what makes you ... How have you got it right? How've you got this sort of exporting potential? I know the Ministers in particular, they're first to say, "This is a guiding light for how to do it, how to do it the right way." What makes you guys different?
David Singleton: I think the thing about Austal is that people talk about us being a ship builder, and you imagine what that means, but Austal is a quite different ship builder to just about any other ship builder in the world. We're the world’s largest aluminium ship builder, and we design and build ships that no one in the world, no one else in the world designs and builds. So for instance the Trimaran hulls, are three hull vessel, which we sell to the United States Navy, but we also sell in our commercial business. All aluminium trimaran hull is a hull form that only Austal has designed, and only Austal has deployed both in the commercial market and in the military market, you know it's quite unique.
So what's made Austal what it is, I think it's two things. One is this absolute ruthless focus on producing things and design that other people do not do. We're very clear about what we're good at, and we focus really hard on that. What we do most people in the world don't do. So we're very, very differentiated.
The second thing is that because we come from a country with a small industrial base and a small population, we don't have a big market here, so we would never have survived without exports. What pervades our thinking every moment of every day, is exports. You know we think about it all the time, and if you look at this country we've had 16 different ship yards in this country. There are only three of them operating today, and two of them us, and Incat in Tasmania are export orientated. Without that export focus we would have been part of those other 13 ship yards that have failed. But because we're so export orientated you know we've been very successful. About 80 percent of our business now is exports.
Phil Tarrant: Is it hard to win export work? You know you've nailed it, you're doing well but for a lot of our listeners and outside of our own domestic defence industry are the opportunity for exports considerable? I know the governments trying to push Australian capabilities outside of Australia. How do you get it right?
David Singleton: You know everybody in the world wants a shipbuilding industry in their country, everybody. If you look at the Europeans, whether it's the French or the Germans, or the British, or the Spanish, or the Dutch, they all want a shipbuilding industry. You got into South East Asia they all want a shipbuilding industry, so everybody wants to build ships. Why do they want to do that? 'Cause it's a big employer, big employer, big industrial capacity, lot of feed off industries that come into it. So you know there's a lot of competition out there.
It's wrong for us to think that we can just compete head on with everybody else, so we have to be super-efficient and super capable at what we do, in order to compete with that big industry up there. So, if we're not as efficient as we possibly can be then we'll just fail. We've signed hundreds of millions of dollars’ worth of export contracts in the last 12 months for instance, and we've won those in the white heat of international competition. We as an Australian company building here in Australia have competed with overseas companies and we've won in that competitive environment. Now that says something about the productivity of our work force, the application of our work force, and the sort of efficiency of the way we design and build our ships.
Phil Tarrant: So, from an export perspective do people like choosing Australian businesses as you know what I mean like? It's, are we easy to do business with as a nation?
David Singleton: Yeah, it's an interesting question and I think it's a positive answer to that is one of the things I find in export markets is there's a real tick if you say that you're building ships in Australia. If its naval applications people say, "Well you got a high quality Navy in Australia. Might be a small Navy but it's a super high quality Navy. If it's good enough for the Australian Navy then it's going to be good enough for us." But interestingly although we're not a big industrial nation a lot of countries look to us, say, "Well you know if it's built in Australian that's a mark of ..."; ...
Phil Tarrant: So it's okay to be Aussie made?
David Singleton: Yeah, absolutely.
Phil Tarrant: It's not a bad thing.
David Singleton: It's a bit like a German car, you know no one questions a German cars going to be good, 'cause it's made in Germany. There just something; ...
Phil Tarrant: So they say that about Australian ships then do they?
David Singleton: They say that about Australian ships, they say it because they believe in the design capacity in this country and they believe in the quality in this country, which is interesting because we're not a big industrial nation in terms of manufacturing.
Phil Tarrant: No, but we've got an opportunity I think to expand our reach outside of Australia, you guys are flying the flag, you're doing well. Hopefully other businesses can emulate the success that you've had on export potential. But we're at Pacific, it's Pacific 2017, everyone's talking about building ships right now. Obviously we've got the summary in programme, which is reasonable advance, we know what we're doing in that regards. We've got these frigates coming online, we've got the Offshore Patrol Vessels coming online. For people in the shipbuilding business it's pretty good times ahead.
David Singleton: Yeah, it is a good time in the military sector here in Australia and you know the decisions that are being made now, and will be made over the next 12 months will really define the future of Naval shipbuilding in this country, for the next 30 or 40 years. This is really going to be it, we're reequipping and we have reequipped and we're reequipping the entire Navy with new vessels. So this is really the kind of peak of the decision point about how the Navy and the shipbuilding industry in this markets going to operate for the next at least 30 years if not 50 years or more.
Phil Tarrant: Your read on these programmes coming online? You obviously want to play a part, in terms of delivering some capabilities into the Royal Navy but government policy toward shipbuilding right now, Valley of Death, continuity of shipbuilding programmes. Making sure that we keep our talented people engaged and energised and building ships, so we can continue to deliver this in the future, sort of holistically from a strategic level. What's your read on Australian government policy towards shipbuilding?
David Singleton: I know it's not very fashionable to say positive things about governments these days.
Phil Tarrant: It's okay, you don't want to always beat them up, they do some good work sometimes.
David Singleton: I actually think they're doing a really good job. They about 15 months ago they published the Defence White Paper, which really looked at Defence policy and the Naval requirement for the future, Defence policy. But it also looked holistically at industrial policy at the same time, and it was one of the best bits of defence and industrial policy that I've seen written anywhere around the world. The government thinking about not only do I need to buy first class ships for the Royal Australian Navy, but I also need to think about all of the industrial capability that's going to support and develop that over time.
You don't often see that kind of plan. Then what's happened is, you know remarkably the government has stuck to it's time line, in terms of getting the Pacific Patrol Boat contract out, which you know we won about 18 months ago now. The offshore patrol vessel was always intended to be the, the decision was intended to be about now, and we're expecting that in the next few weeks.
Phil Tarrant: So you got anything for me? It would remiss of me as a journo if you can't give me some; ...
David Singleton: I'd love to tell you what the answer is, and if only I knew.
Phil Tarrant: So nobody knows?
David Singleton: Nobody knows, I mean one of the great things about Defence Department here is, they're really good at keeping a secret. I've worked in a lot of environments where; ...
Phil Tarrant: You just know.
David Singleton: There's stuff going on, and you know, but here if anyone comes to me and says, "I've heard a rumour about something." I say, "Nah, I don't believe it."
Phil Tarrant: So you guys confident? You reckon you're going to get it.
David Singleton: We're confident in ourselves, we know what we're good at, I think we're doing a great job of the Pacific Patrol Boat program at the moment. That's 19, 40 metre craft that we've designed and we've now gone in production. We're bang on schedule with that programme, we're bang on cost. We are a company that makes a boring habit of being on time and on cost with our products, and we're doing that for the Pacific Patrol Boats. So we've got a lot of confidence in ourselves, and if we're lucky enough to be selected I'm sure we'll do a great job of the offshore patrol boat vessels.
I'm also sure that if we get selected we will sell these vessels overseas, we're already marketing the Pacific Patrol Boats in Asia. We said in the last couple of days that our offshore patrol vessel product that we have developed with Fassmer in Germany, whether we win or not, we're marketing that vessel in Malta for their requirements. So they would be ships built here in Australia, going out to Malta, creating even more jobs in the government program.
Phil Tarrant: When you wake up first thing in the morning, is what you think about is like are we going to win this tender? Are we going to win this tender? Are you, obviously you've got a collective drive towards to securing this job, but you've got this export potential as well. The point I want to make is obviously the government is invested in making sure that we can keep people employed in naval shipbuilding in Australia. You know you've got experience, you've got some runs on the board, you've delivered beforehand. It's pretty important that they give this tender, the offshore patrol vessel, to someone who's actually going to make it happen.
David Singleton: Yeah, I mean I think, I mean you're right. Do I think about it a lot? Yes I do think about it a lot, but not about ... Not so much about the contract on its own, but I think about the future of Henderson, and I often say to my management team, when you're thinking about what you do, look out of the window at the 650 to 1000 people employed in our Australian operations and think about those people. Because the reason why we're here is for those people to think that for the next 20 years they can go home and know they can pay the mortgage and put dinner on the table.
That's really important, and the offshore patrol vessel programme will be a key part of Henderson's future. It's not just the project itself, but it's all the things it brings to it, because if we're going to compete out of Henderson in shipbuilding market where everybody's trying to build ships around the world. We've got to be really, really good at it. I don't mean we just build offshore patrol vessels on time, what I mean is we've got to be using the best technologies and the best capabilities from around the world so that we are as efficient as we possibly can be.
One of our super ordinate goals is to close the cost gap between South East Asia and Australia, their wages, our wages here are nine times more than we have to pay when we're in South East Asia. Now if you just accept that then we'll lose our industry. Our industry will go offshore, but if we say, "Well that's just not good enough for us in Australia. We're not going to cut our salaries by 90 percent, that's not going to happen." So we're going to have to create a level of efficiency in our business that allows us to compete.
I'm absolutely determined that we're going to get ourselves more and more to the position where we're ambivalent about whether we build ships in South East Asia or Australia, because the cost is about the same. The OPV is a part of that, because it will create the backbone in our Henderson operations for the next 15 years, around which will continue to use advanced manufacturing techniques more and more. Build more and more towards a fully digitally enabled shipbuilding facilities, that means that we can efficiently build export orders here as well, both in the commercial sector and the naval sector.
Phil Tarrant: So talking about people on your own, as good as the people in your business, and I think particularly in Defence it's a period of rapid expansion and innovation in the Defence industry. But the people in your business being able to shape how they think, what they feel, their level of engagement, their morale, the culture that you try and create. Are the guys and girls who are banging metal or aluminium in your regards, do they get what you're trying to achieve from a policy perspective, a strategic perspective? How do you filter that down to them?
David Singleton: We do an all hands meeting in Henderson twice a year, so after we do our results to the market we use that as a way of talking to everybody. I think it's very easy to tell people the what. This is what we need to do, right? But what's more important is the why, why are we actually trying to do this?
This is what I try to explain, and I stood up at the last one, it was 650 people in one of the sheds in Henderson. I stood up and I talked to them, and I said, "We're on a process now, they're all involved in this process of driving out cost in our business and becoming much more efficiency, that's the what. But the why is that without it we wouldn't have won a commercial ship that we're currently building, without that half of you in this room would not be here today. 300 people would be at home, or looking for a job."
That's not acceptable to me, and it's not acceptable to them, and so we kind of have this focus on, well why are we here? We are here to grow and develop this business so that young people coming into our business today can expect to be able to retire from the business in 30 years time. We don't want to here today, gone tomorrow type of business. So my focus isn't about one programme or another programme, it's about when I leave this business I want to be able to say confidently that in 20 years time, in 30 years time this business is still going to be here. Here in Australia, employing Australians.
Phil Tarrant: That's got to happen.
David Singleton: Absolutely.
Phil Tarrant: That's good, and you know we've spoken about shipbuilding. It's the often not talked about component is sustainment, and sustainment is good business for people in Defence space. So obviously these big marquee programmes, nice to talk about it, huge acquisition but the role of sustainment in Defence, and in what Austal does. So what's your read moving forward for your business? It is good business.
David Singleton: It is good business and you know you have a ship in your yard for maybe two years, but you sustain it for the next 25 years. That creates a lot of activity as well, a lot of jobs and a lot of activity. There were times last year in our ship yard, where half of our ship yard was sustainment activities. But sustainment’s a very sophisticated market, it's not just repairing things, it's much, much more than that. If I could try and simplify it a little bit, high quality sustainment is not about fixing something when it's broken, it's about fixing something just before it is about to break. So that ships are at sea for more than 300 days a year, and are available to the Navy.
So what we think about, and what we've been talking about is kind of a Silicon Valley approach to this, which is asking yourself the difficult questions. Wouldn't it be cool if a ship could do this? Wouldn't it be cool if the ship told us when it was in strife and when it was going to break down? Wouldn't it be cool if the fleet of ships talk amongst themselves and understood that actually there's a risk with this pump under these conditions and it's going to fail.
Now you think about that and you think well that sounds like science stuff, but this isn't, this is the world of artificial intelligence and big data that is now becoming part of our lives. Now if we can bring that kind of thinking into sustainment, then our ships will become much more available for our Navy, which is what we want them to be, but also allow us to be a thought leader in this stuff around the world. Remember we in Austal have a big operation in the United States, all those things that we develop and generate here we can take and sell into the United States as well.
Phil Tarrant: Yeah, it's good, David I've enjoyed the chat, we could chat all day about this I think it's exciting time to be in Defence. Particularly if you're in the business of building ships, there's quite a lot of stuff going on. I just want to finish with this observation, I'd like you to read on it. What are the sailors reckon about this stuff that you guys create, do they like Austal vessels? Are they nice things to sail?
David Singleton: You know we just had a, I think I said it at the beginning, we just had a Rear Admiral from the US Navy on our stand, and he was talking about the Littoral Combat Ship in absolute glowing terms. You know, really, really positive and one of the things about our ship is because it's trimaran it's got a lot of space in it. Space is normally the thing that people are short of. He said, "We're just seeing so much utility for the ship. So many things that we can do, that we've never been able to do before because it's such a capable vessel." When people talk about your ships like that, there's really nothing better.
Phil Tarrant: Well you know great export story we spoken about, David let's get you back onto the podcast at some point in time, obviously there's decisions being made and fingers crossed you put together a good proposition. Juries out, I don't know how it's going to unfold, you don't know what's going on, so but when we know about it you let us know and we'll tell Defence Industry. Appreciate your time, thanks for joining us everyone. Remember to check out defenseconnect.com.au if you're not yet subscribing to our daily news and market intelligence please do. Defenceconnect.com.au/subscribe
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