PODCAST: Technology transfer in naval shipbuilding, Sean Costello, director, Fincantieri Australia

This week on the Defence Connect Podcast, former CEO of Naval Group Australia Sean Costello joins us in his new role as director of Fincantieri Australia, taking us through the Italian company’s bid for the SEA 5000 project.

Costello delves into the Italian shipbuilder’s plans for developing a sovereign Australian naval shipbuilding industry, starting with mobilising a skilled workforce, creating a strong defence export sector and ultimately implementing technology transfer and technology development programs.

The former naval officer leaves no stone unturned, touching on his time in the Australian Navy, his role as chief of staff to various defence ministers, his brief stint at ASC Shipbuilding and arguably his most known role, CEO of Naval Group Australia, and why he left the job a year after helping secure the coveted and highly-contested Future Submarine project.

Enjoy the podcast,

The Defence Connect team.

 

 

 

Listen to previous episodes of the Defence Connect podcast:

Episode 106: PODCAST: The critical role that academia plays in the future of defence, Professor Colin Stirling & Tony Kyriacou, Flinders University
Episode 105: PODCAST: SEA 5000 and SEA 1000 creating multiple opportunities for Australian SMEs, Adam Waldie & David Eyles, Thales
Episode 104: PODCAST: Revolutionising the efficiency and cost effectiveness of naval shipbuilding, Richard Price, Defence SA
Episode 103: PODCAST: Recruiting the Australian defence force of tomorrow, Sue McGready, Department of Defence
Episode 102: PODCAST: Maintaining a strong Australian identity within defence, Vince Di Pietro and Neale Prescott, Lockheed Martin
Episode 101: PODCAST: Australia's history and future within the space sector, Robert Brand, ThunderStruck Aerospace
Episode 100: PODCAST: The freedom that a start-up space agency presents Australia, Dr Jason Held, Saber Astronautics
Episode 99: PODCAST: Defence industry’s communication opportunities in the digital age, Brendan Maxwell, The Decisive Point
Episode 98: PODCAST: How geospatial imagery is aiding US border security, Patrick Stewart, US Border Patrol
Episode 97: Technology is changing the face of border security: US Border Protection Chief

Speaker 1: Welcome to the Defence Connect Podcast with your host, Phil Tarrant.

Phil Tarrant: Hello, everyone. So, Phil Tarrant here. I am the host of the Defence Connect Podcast. Thanks for joining us today. If you've been tuning in recently, you will have seen a bit of a theme. We've had a number of competitors, contenders, for the SEA 5000 program come online, each chatting us through their offering to the Australian Navy and how they see their particular frigate solution as the one that can hopefully win the very competitive tender bid. In the studio today, I have Sean Costello, and Sean is a director and CEO of Finantieri [Australia] Before I'd come online, I had a quick chat with Sean about how I pronounce that name correctly, and he said, do it with passion and vigour of an Italian, and you should say it right, so how'd I get on with that, Sean?

Sean Costello: That's right. Fincantieri.

Phil Tarrant: Fincantieri.

Sean Costello: You'll be close.

Phil Tarrant: We're pretty good. Thanks for coming on. I've been looking forward to getting you in the studio and having a chat with us. Just to my original preamble there, the competition around SEA 5000, it's getting to a head right now. Obviously, a decision is expected April, May of this year, depends. Might go out a little bit further. How you guys feeling at the moment, confident?

Sean Costello: Well, I couldn't characterise it confident or otherwise. I could only say that the team at Fincantieri is doing all the work. We've been operating in Australia for over a year. I joined as a director maybe eight or nine months ago, and I've integrated into the team myself. We feel that we've been able to answer the questions in the tender very thoroughly. We feel that whatever happens next, Australia's going to have a fantastic outcome from this tender. Just being philosophical, of course we cannot observe what the other tenderers are doing. Only the Defence Department is in a position to evaluate. There's no sense in forming an opinion or a confidence or otherwise, we can only do our job and make our contribution to the process.

Phil Tarrant: Imagine for yourself and the business, SEA 5000's a huge focus at the moment. Is your job mainly as a salesman at the moment, what's the key focus of what you're doing, jack of all trades?

Sean Costello: Jack of all trades, master of none.

Phil Tarrant: Yeah?

Sean Costello: No, so Fincantieri has focused on SEA 5000 at the moment within the group. That's only appropriate, being such a strategic program for Australia and being such a large program in terms of its value. From a global point of view, Australia fits onto the map as the development of Fincantieri in this region of the world. Fincantieri is a global shipbuilding company. It has operations on four continents and 20 shipyards around the world. One focus for Fincantieri as a whole business is the Asia Pacific, so Australia is ideal for that, and I can return to that a bit later, and then just specifically for the naval market, we're seeing a trend in naval technology where allied navies are moving to the capability of the Future Frigate. The United States Navy has processes underway, as do other navies, Canada, the United Kingdom, and Australia. They're all moving in a single direction to having a high-end network, centric warfare frigate that can also perform anti-submarine warfare. That's an epoch in naval technology, and I can go into a bit more detail about how that's becoming possible. That's a wrap on the context, I guess, for Fincantieri.

Phil Tarrant: That's good. For this podcast today, a couple things I'd like to achieve. One is to maybe dig deep a little bit into the Fincantieri solution, the FREMM and some of the technical advantages you feel for that particular product for the navy. Beforehand, I was thinking about this the other day, do you feel as though you've got a subtle advantage in terms of your ability to focus on a particular program versus potentially your competitors, BAE and Navantia on this, which have very large programs here in Australia and potentially stretched across a number of different areas. What's your views on that?

Sean Costello: Well, I've never really reflected on that. What I can say that Fincantieri is a large and diversified shipbuilding company that has 97 ships on order around the world. 97, that's not a verbal typo. It's an organisation that just does so much shipbuilding, when it sets sights onto Australia, there's an operating model in the company that knows how to move into the market, how to set up a shipyard, how to get going quickly and efficiently. We have lots of lines of business in the company. It just so happens that the company doesn't have a lot of history as a head contractor in Australia. The brand is new to a lot of people here, although quickly becoming familiar as this goes on.

Phil Tarrant: Your pedigree in the role of CEO of Fincantieri, for our listeners, if you're not familiar with Sean's background, he was in the Navy on subs for quite some time before joining defence industry, ASC, time within the Australian government supporting a number of defence ministers, then CEO of DCNS, and then subsequent to that, Fincantieri. Your most previous role is with DCNS, obviously working on subs, very attractive contract that DCNS won there.

Sean Costello: That's right.

Phil Tarrant: Tell us a little bit about that time there, I imagine there's plenty of stories. Any that you can particularly share with that our listeners would get any ...

Sean Costello: That's a very … open question.

Phil Tarrant: It's a very open question.

Sean Costello: I can say a few things, just with Fincantieri, I should be clear, I'm on the board of the company and I participate from the board in the work. My very good friend Dario Deste is the CEO, and he has the responsibilities of that, just for the record. Back to the time with the French, look, it was a really fantastic experience for me, professionally and personally. Made a lot of good friends, friends for life in France. Very pleased to be able to meet the objective of that job and be selected as the international partner to Australia for the development of the Future Submarines. That project promises a fantastic capability for Australia and again, the technology and the design choices that the French team was able to bring to that project in my opinion will definitely transform into a regionally superior submarine for Australia.  Of course, it's a design and development program, so that job effectively kicks off in France to complete the design of the Future Submarine. From my stance, I guess the only other thing I would say is I think we should also acknowledge a few other people in the company. I notice I get a lot of the personal credit for that success. In truth, that's not actually true. I was a member of a team, and my partner was a guy called Didier Husson, and Didier was the program manager in France. He really was the guy that integrated that program together. I provided certain support to him around the Australian scene, but in my opinion, the reason why France was selected was because I managed to bring forward to Australia its ability to offer technologies and design services as a partner that could really objectively transform into a regionally superior submarine. That comes from France's long history in the development of submarine technology, best represented in its strategic ballistic missile submarines, the SSBN, where France as a sovereign nation has collected all of those abilities to be at the top of the submarine game. I consider France to be without peer, or with only other peers in the field of submarine and underwater technology, and that's why they were selected. Now it's up to the people in that program to execute and deliver.

Phil Tarrant: Can you tell us about the point where you found out when you were successful, how did that happen? A phone call, was it-

Sean Costello: Yes, I have to give you the official version. I received a phone call from the Defence Department, briefing me in the usual structured way, at which point I executed a process and briefed other people and so on and so forth. That period of the course of the 26th of April, 2016 was, whilst we were very pleased to be selected, in truth we were just so busy and have been busy ever since that I don't think we really took a moment to celebrate, oddly enough.

Phil Tarrant: The job's gotta get done now. At the point in time, when it was secured, you mentioned and numbers backed up by Minister Pyne on ABC's Q&A, that Naval Group or DCNS would achieve 90 percent Australian industry involvement figure in the future subs project. It's still achievable, it's going to happen?

Sean Costello: Yeah, I remember well making that statement. It's as true today as when I said it, and to be clear, what I said was that the planning of the future submarine project is that 90 percent of the build activities will be performed in Australia. At that moment when I said it in April, there was still speculation that the submarines would not be built in Australia. The acquisition strategy of that program was to put different choices forward to government, building all overseas, all in Australia, or a hybrid model thereof. To make it very clear, we went forward with a message that the submarines would be built here in Australia. The actual planning is over 90 percent, for the record, of build activities.

Phil Tarrant: That actually went into the bid itself that you outlined to the government?

Sean Costello: Oh, absolutely, down to the percentile. There's a difference between 90 percent of build activities and the total contract value, and there has been confusion since between those two things. I'm not on that program anymore, it's up to others to explain what's the relationship between what's the total contract value and what's the percentage of the build activity. However, if we want to talk about that in the SEA 5000 context, we can. Maybe that would be one way of putting some light on it.

Phil Tarrant: Yeah, and you've gone from working with the French to working with the Italians culturally, different?

Sean Costello: Well, there is a border between the two. What I would say about the Italian process, it's a little different from the French. Grossly generalising, but the French have a very Cartesian model from the Polytechnic school, very close in fact to the Anglo way of business, in fact, that we might normally think. For the Italian side, they bring a slightly different perspective, I've observed. Very strong technical culture, absolutely, but they also bring a Latin relationship approach where they can talk more openly about the issues, and it makes them extremely effective at project delivery. They bring all of the technique and all the process, and then to resolve all the issues, they do get it resolved, because they have the conversations and they have it out and no one ever loses faces, it's just, you have the conversation, and that feature of Fincantieri I think is one of the reasons that explains why they've been so successful as a ship-builder. There's a certain intersection of relationship and technique in ship building that has to take place, and the Italians do bring that together.

Phil Tarrant: In terms of the overall motive, communicative, able to have tough conversations without feeling as though they're losing?

Sean Costello: Yeah, and it actually, it conforms to the stereotype as well, if you like, as what we know about Italians.

Phil Tarrant: I'm not gonna give Italian stereotypes, wouldn’t want to be chased out of town, but the decision to leave DCNS group for Fincantieri, what was the catalyst? Was it a quick decision, short decision? Well considered, I imagine.

Sean Costello: I guess there's no single reason. I just felt that all in, I could make a better contribution in another job. That particular program was moving more towards a project execution model, and just me personally, I like to contribute in environments where there's a bit more development to be done, and there were other challenges. A lot of my friends said to me, hey Sean, you've won the big contract, you can sit in the big chair for as long as you like, and I said well, I don't want to sit in the big chair, I want to make a contribution. I felt that other people could do the job I was in just as well as me, but there were other jobs out there I could do better. I just made the logical step of moving on. A lot of people were surprised, but I guess a lot of people don't think the way I do.

Phil Tarrant: Well, it's good to be unique. Your time as chief of staff of Minister of Defence, the rigour of politics, the skulduggery of politics in Canberra, I imagine you've taken some good skills out of that that now lend to a crew outside now in defence industry, DCNS and now Fincantieri. What do you think you've taken most from Canberra that you're applying in your role now?

Sean Costello: That's a good question. The Canberra environment to begin with is very challenging, and people outside of it really don't have an understanding of how difficult it is to get things done. You're in an environment where it is, by nature, set up to be contestable. To move in a big way, you need to get alignment with all of your players. That's what politics is about, and we're seeing that now, actually. I'm quite excited that at large, more than any one politician, we're seeing a system now where all of our main stakeholders in Australia are agreeing that a naval industry for Australia, we can design and build naval vessels, and the material and equipment within them is the strategic path for Australia. That's what I would observe about Canberra.  Just personally in the chief of staff role, I guess 90 percent of the job is managing bad news, so you're going to be an unpopular character in that role. The good part of that job I guess would be working in and around the National Security Committee (NSC) of cabinet. Chiefs of staff in the government I worked in filled a role where we observed but did not participate in the NSC. The reason we were in there and observing was once the meetings shut down and things had to be put into execution, yours truly and the officials in the Defence Department would have to get onto that job, so that's why we were involved. Of course, managing the work to get into the NSC, all the preparation of the material as well. A real privilege to work in that environment, because it is the terminating meeting of Australia's national security. There's no other room, there's no second door after that room. If you ever needed to understand sovereignty, you only need to staff to that committee just to see in a practical way the real-life issues that Australia faces when it needs to move in its own national interests, and the constraints that we have in the modern world about being able to do that, and the powers and resources that governments need in their control to be able to do that. The more Australia is autonomous and can lead and influence, the more we have sovereignty, and the more Australia has to go out there with a cup in their hand, the less we have sovereignty. When you see that put in the context of some very serious issues, I was working in the government during the downing of the Malaysian aircraft over the Ukraine. Tragic, confronting, very serious, and that's where it all comes together. Getting that context has been really valuable in being able to understand what a contractor should do to be able to help the government in meeting sovereignty.

Phil Tarrant: During the period of time when you were in Canberra, I guess the architecture and development of the 2016 Defence White Paper, working with David Johnston, how was that experience being involved in that, interesting times?

Sean Costello: Interesting time, I mean, a white paper again is an exercise where it's contestable, and it's fundamentally about setting a strategy and the allocation of resources to it. I enjoyed working with Johno, he's still a great friend of mine. Unfortunately, things didn't work out for him politically, and that's the way the cookie crumbles. The good news is the government has been able to provide a lot more talent behind him. Looking at governments as a whole and even countries as a whole, I think there's been a fantastic continuance of good ministers. I can see that in retrospect, David Johnston's contribution fills a very unique niche where there was a change of government and what David contributed behind the scenes was the rebuilding of the relationship between the incoming government and the Defence Department, and getting everything down to business as usual. That doesn't get recognised on the public record, but it's what I observed when I was there, and he's all the better for it, being out of politics as well.

Phil Tarrant: We touched on it really briefly, one of the major announcements for this year, the SEA 5000 bid, three competitors, and we obviously cover quite a lot on defenceconnect.com.au, for a lot of our listeners, you can find days of reading if you want to get into it, but it is a big deal. It's a major acquisition. The Fincantieri bid is a competitive one, no doubt, as is the BAE bid and the Navantia bid. How would you describe the competition between the three? Obviously from an external perspective, it's very mature. I'd be interested to hear what gets said behind closed doors, but what's your feeling towards it all?

Sean Costello: My feeling towards the competition, well, I would characterise this tender as being run in a very cordial and professional manner by all of the players. As I said earlier in my remarks, the nature of the process is that as a tender, you are blind to everything but your own proposal, and that's all I can talk to. I know people are inclined to speculate, and the pundits are out there. All I can say is that time and energy spent predicting the outcome is probably better used on more productive endeavours. There's only one organisation that can give a commentary about the evaluation of the tender, and that's the government, and they will do that just soon enough.

Phil Tarrant: Yeah, when they're ready to do so.

Sean Costello: It's a very professional environment. You will find that the companies that are tendering in other markets cooperate, and there's a bigger picture as well in play. That's how I'd characterise it. For the tender itself, some important messages around the strategic objective of this tender and what's happening behind in the detail. First of all, Australia, like the United States, like the United Kingdom and Canada, have all around about the same time have all come to the same realisation that there's a watershed moment in naval technology on foot where the service combatant is able to make use of new technologies, and designers are able to make certain design choices that get us really a new type of ship, loosely characterised as a frigate that's able to perform network-centered warfare and to participate in the high end of warfare in the same battle space that the Air Force will be fighting with the Joint Strike Fighter and the Future Submarine and all of the high end warfare. That ship is also able to take on the task of anti-submarine warfare in the one platform. That really hasn't been how frigates have been used in the past, or the technologies haven't been available to develop into that mission. Frigates in the past have been more of a support ship, able to take on duties that the major surface combatants didn't want to for one reason or another. In the case of what Fincantieri is offering, the FREMM Frigate with the Aegis Combat Management System and the Australian CEAFAR high power radar, with main elements from what the Royal Australian Navy uses today, with technologies of anti-submarine warfare, particularly in the mechanical and electrical equipments to be able to minimise the signature of the ship in the water, mean that there's really a new ship that navies are using, and this will be the way of the future. Specifically, in the case of the FREMM, technologies where to be able to fight a submarine, you need to be able to employ a ship that has a similar acoustic signature.  The current or the most recent generation of frigates are able to combine a suite of technologies that allow them to prosecute submarines where in the past, that just simply hasn't been possible. Technologies in the acoustic signature of the submarine and the weapons to prosecute the submarines have all developed by a generation, and just to give you some examples of that, the FREMM deploys a variable depth sonar which is able to stream behind the ship and operate below the thermocline of the ocean in the same area where the submarines are. There's a number of other sonar sensors in the sonar suite that all go towards being able to maintain contact with a threat submarine, and also position the ship safely. The Italian Navy has, and this is a matter of public record, has maintained contact in the Mediterranean with uncooperative submarines using these modern technologies. In the past, that would not have been possible. In another area, moving to the acoustic signature of the ship itself, the performances of the sonar are also related to the self-noise of the ship, and the counter-detection of the ship by the submarine. Obviously, being quiet is very important. In this field, we have a new generation of technology for acoustic treatments, magnetically levitated bearings in platform equipments, acoustically enclosed chambers for mechanical equipment. The main reduction gear box of the ship can be decoupled from the gas turbine, and the ship can operate on electric motors. Much of a similar set of technologies that a conventional submarine would operate on. This all goes to a ship that is very, very difficult to detect acoustically in the ocean. We're seeing a closing of the ranges between ships and submarines, which is a curious thing with technology, it's actually bringing the ship and the submarine closer together rather than further apart, if you can imagine, because everything's getting so quiet. Since the sensitivity's improving, there's a continual tussle between who can get the closest to get the advantage. It's certainly not a one-way street anymore. The surface combatants with these technologies in the submarines are coming onto much more of a level playing field. Then finally, the area of the ability to prosecute the submarine. In addition, so this is where you've basically got aviation facilities for the frigate come to the fore. The ability to operate two helicopters or as technology develops, navies might choose to operate a single helicopter with uninhabited aerial vehicles [UAVs], all this is for the purpose of building more of a, more sensors to build your picture, and the ability to deploy weapons a range away from the ship, the so-called stand-off range. These technologies combined mean that the frigate that's normally there performing the high-end, network centric warfare, first day of the war, strike missiles to do the lander technician, air defence capability to protect the fleet, issuing a task group, the mission essential units can go about their business, and then if the submarine threat comes on, the frigate can retire and prosecute the submarines. From a capability point of view, a watershed moment for navies and absolutely critical for Australia's Navy to bring this into the fleet.

Phil Tarrant: You speak with a lot of, I guess, technical capability there, and coming out of subs yourself, just trying to work out how your mind would work, having the experience of actually being in subs, being hunted, an application of a new frigate, it must give you quite a lot of advantages, having been in the seat and knowing how it works and actually trying to translate that now into this particular tender, it's an interesting point.

Sean Costello: Absolutely. The main thing to recognise is that technology is a discriminator in naval warfare. Combined with doctrine tactics and training, you get your force. As a contractor, I'm interested mostly in the area of technology and providing a military system is up to the government that can meet their ends. What I want for Australia's Navy is all of these technologies in ships and submarines.

Phil Tarrant: For Fincantieri, you mentioned beforehand, rather than speculating who might win this bet, it's about doing stuff which is going to be advantageous, even though you might not be successful, there's a lot of work that still needs to be done so you're position ready, geared to go should you get the nod from the government, so that's building relationships with SMEs and related primes. How's it working with SME space? Obviously, some very talented SMEs in Australian marketplace. They've got three contenders, you probably want to get the advantages of working with potentially one or all of them. How do you guys engage that marketplace, that been a big focus?

Sean Costello: Absolutely. One of the things we say in Fincantieri is you can talk about shipbuilding, you can study it in a book, but the only way to really understand it is to do it. When we were preparing the offer, fantastic leadership position was set by the group CEO, Dr. Giuseppe Bono, and he read our plan to start up activities in Adelaide, and he said well, it seems to me you guys could do with some work from the Group coming down to Australia to get you going. We obviously took that up. Before the SEA 5000 program kicks off, we're already at work with SMEs to build up in Australia. We have test orders in place, building some cruise ship blocks in Adelaide, just completing the activities to tender for that, and we'll have the announcements for that in a week or two to select a number of companies to, in the first instance, we'll do some sub-contracting work, they'll build some cruise ship blocks for us that will go up to other shipyards in the group to be integrated into cruise ships. On the mechanical equipment and componentry side, we're working with Hoffman Engineering, who are manufacturing on the licence with our technical data, but with their tools and know-how, and azimuth thruster for a ship that will go into the Middle Eastern market. What we generate with this work is not just the relationships with SMEs, and these are just two examples of a lot more going on across the board. All of the parts of the shipbuilding job, we're doing that with more and more companies, but the return we're getting back from the market testing is very positive, and from an Australian point of view, pleasantly surprising. Where we find the really good SMEs who are typically working in higher end manufacturing or who have developed operational excellence in what they're doing, we are generally finding companies who can compete on the world stage. Moving into exporting into the future, Fincantieri has a plan, and we'll talk a little more about this, to bring Australian industry into the exporting markets, not just for Fincantieri's own group, where we have 20 shipyards and 97 ships on the order book, but for other naval opportunities and for other industries that can re-use the same type of technology and infrastructure that goes into the naval industry, those adjacent markets. What we're finding is that there are absolutely, more than economically viable, there are competitive companies in Australia that simply need better access to markets, and you can only get access to those markets with strong companies like Fincantieri with the global network and the size and strength to market them forward.  I'll tell you now that Hoffman Engineering and at least a couple of the fabricators that we're working with in Adelaide, their quality and their costs is approaching the benchmarks for the Fincantieri Group already, and we've only really just started with them. So, we are, not optimistic, we've got the data. We think it's absolutely the future to be able to access these markets. Moving onto the industry plan for the tender, and this is a bit of a detailed area, but bear with me, there are some important things to try and talk about here. The government's set the strategic objective for this program to be able to design and build naval vessels in Australia, and to be able to manufacture the internal material and equipment within, okay, so an industry. The relationship of that goal to Future Frigate program is that Future Frigate is our best chance in a major area of work where we can move from the current state, where we are today, where we can build naval vessels, to the future state, where we can design and build and integrate, including all of the material and equipment.

To do that, there's work that goes over and above of just building the ship, okay, and that's what we call our industry program. Within the industry program, we've decomposed the government's strategic objective into three sub-programs, a program to build the design capability, a program to institutionalise the shipbuilding workforce skills, and that's in partnership with the Naval Shipbuilding College, where we create an institution that everyone can use to access shipbuilding skills built from Fincantieri's know-how, at least in part. The third string there, our supply chain technology transfer program. If you have design capability, the concept design, the functional design, the detail design, and the ability to integrate, and if you have that in an open and collaborative frame with your skills and with your supply chain, you have an industry, one that can then design and build new vessels, modify vessels, or export whole ships or components thereof, particularly the technical services and components thereof, we see very attractive markets from Australia. That’s a fair bit of technic and I hope your listeners kept up with me.

It's programmed to be the best part of a decade of work, and it's resourced as part of Fincantieri's offer. For me as an Australian, I'm really hopeful that the government will pick that up, and in the event Fincantieri is not selected, I really hope it still survives as a big part of the SEA 5000 program. If another tender is selected because they've done what I've described perhaps even better, then I'm a happy Australian at the end of the day. It might be a good moment just to tie back in total value of contracts by percentages and how this all works out.

Phil Tarrant: Absolutely.

Sean Costello: I know that's a hot topic, people like to talk about it.

Phil Tarrant: Well I'm sure, we're happy to report on it.

Sean Costello: I notice that's been quite absentee a bit in the last little while. Let me put it to you like this. If I were to take a warship and break it up into all of the material and equipment, the steel, the cables, the shipyard consumables, the main items of machinery, shaftlines, propellers, gear boxes, the small items, and lay that all out, just the gear, the material and equipment across a gigantic field, at Fincantieri, you would not be surprised to know, has a very detailed system for categorising all of this material and equipment. In our market testing today, we have found that Australian industry can build less than half of all of that material and equipment. We've got a precise number, but just for this conversation, it's less than half. It does not matter, with what force of nature, I cannot do more than that with today's Australian industry, okay. When I buy from the Australian supply chain as much of that material and equipment as I can, and I bring it into a shipyard and I bring a labour force together with ship building tools and process and a design and all the technical data, and I sequence that together and I ship it up into a ship, I'll have a total contract value of more than half, I'd say a little over half, but not a long way over half, okay. It's a matter of public record that the Air Warfare Destroyer project achieved about 50 percent, and why are you not surprised, because of the cause of what we've discovered as well. From Fincantieri's point of view, there's only one way to go further, not just to maximise Australian industry content in the frigate program, but to have an industry that can, as a sovereign basis, design and build ships and all the components therein, and that's the programs of technology transfer that I was talking about before. They are critical. The technology transfer programs give Australia the ability to autonomously make something itself. Then subsequent to technology transfer, the activities of technology development, different process now, science and research and prototyping and testing trials and iterative steps, you can make things better.

Technology transfer to make one, technology development to make a better one. Then we have autonomy in an industry that can keep going on and can find new ways of serving the market. That's the strategy of the industry plan. That's why the TOT is so critical. That's why there's such an emphasis in our offer around bringing into Australia tools, factories, training programs, to literally build up how much we can build as a supply chain. My message to SMEs in Australia, it's good business today if you can get onto the supply chain of the Australian Future Frigate program or any other program, but it's strategic business for you if you can get into our TOT program, because then you're going to be doing more. I gave reference to Hoffman Engineering before. We see Hoffman Engineering as a perfect partner to come with us on the development of mechanical engineering. Eric Hoffman to his credit has been able to carve out a business that's competitive in industries like mining, Fincantieri, a company that's competitive in industries like naval shipbuilding, we see that sort of SME as a logical partner for us. We start to go for critical infrastructure to do all this, into the Adelaide shipyard, we're proposing a mechanical integration facility. It's modelled on what we have at our Riva Trigosa shipyard in Italy, and it's a large facility. Imagine the size of a shipbuilding integration hall, but instead of ships inside of it, it's full of CAD cam machines, lathes, equipment, information technology, and in there, it's the integration or componentry perhaps of rudder stablization systems, shafts, propellers, azimuth thrusters, all of this really heavy gear that you don't want to be transporting around the country, you bring it into your shipyard from a componentry industry and then into the ship itself. That side of the business, it runs much more like what auto used to run like in Australia, more like an engine plant, and then we shift that gear into the shipyard thereafter. I just wanted to get those messages across about those technology transfer programs and how they are just critical for the industrial development and the realisation of the government's strategy endpoint.

Phil Tarrant: The relationship with SMEs, it's clear for our listeners who are SMEs, that the opportunity within SEA 5000 getting involved, respective of potential tenderers, but you've made notice that you intend to do a stock market listing, should you be successful in this particular program. Acquisitions is part of that, are you guys going to be out there looking to secure up the capabilities and assets within SME land to bring it into the Fincantieri umbrella, or is it going to be separate?

Sean Costello: Well, I've never considered the question, but I can say off the cuff we're not considering acquisitions of SMEs. We are considering the development of SMEs, I would say that a diversified support base is what we're looking for here, not Fincantieri's badge on things.

Phil Tarrant: You [Fincantieri] moved into the US market a couple years ago. You have a large site in Wisconsin, I think you employ 15,000 odd workers there. How confident are you that you'd be able to replicate or emulate that within South Australia?

Sean Costello: Yeah, so the American story is very much for Fincantieri being able to move with size and strength into a new market. Fincantieri has invested over a $100 million into new technology for the shipyards in the Great Lakes area up there. Fincantieri is the shipbuilder of the Freedom Class Littoral Combat Ship [LCS], and Lockheed Martin is the head contractor in that program. I'm sure your listeners will be familiar with the LCS program, and that's Fincantieri's role. The United States is, we all know how the US works. It's pretty much an autonomous environment industrially. One difference between the US and Australia is the TOT for the supply chain. In the US, you already have the likes of General Electric down the road who are supplying the gas turbines, whereas in Australia, our main opportunity for growth is to build up our capabilities in the supply chain. That's probably one difference between what we did in the States very successfully and what we're proposing to do in Australia.

Phil Tarrant: I've got a thousand more questions, but we'll have to take them offline, Sean.

Sean Costello: I'm running you low, I'm sorry.

Phil Tarrant: Get you back in. No, no, it's very good. Just before we close, I'm just interested in your observations on the Italian Government's, Italian navy's willingness and drive to support this particular bid to put the FREMM into Australian waters with the Australian navy. You had a bit of a PR stunt last year when you brought a FREMM into town. I think the Minister for Defence came out, or the head of the Italian navy was there, by memory. The British have been very supportive of the Type 26, potential of that for the Australian navy as well, they've had guys out for the Royal Navy trying to sell it. How important is it for Italy as a whole to get these ships into Australian waters with the Australian navy?

Sean Costello: First of all, the Italian Government has been extremely supportive of Fincantieri all the way through. Really no request goes unanswered, and I can't thank them enough for everything that they have done. The role of government in these large, strategic programs is really to guarantee the instant supply, which the Italian government has done. The delivery agent is of course the company, and in the case of Italy, Fincantieri holds the intellectual property and the ability to do the job. The role of the Italian government is to guarantor all that in a large, strategic frame. The Italian Foreign Minister visited Australia a couple of months ago and put all of that into concrete. The role of government in large international programs is an interesting topic, and program by program, it will be different, and that's just a function of its context and uniqueness. From my point of view, the emphasis is on the companies to deliver with the governments backing up, export control laws, expedition of anything at the bureaucratic level, and those sorts of things, that's dealt with by the governments.

Phil Tarrant: I'm going to close it up there, Sean, I really enjoyed the chat.

Sean Costello: No worries.

Phil Tarrant: A good blend of technical capabilities, but also the vision for Fincantieri in Australia. We'll see how we go, no one's too sure what's going to happen come April, May, but we'll get you back in. The invitation's there to come and have a chat with us, so irrespective of what happens, come and join the conversation, so thanks for coming in.

Sean Costello: Likewise, thanks for hosting me.

Phil Tarrant: Remember to check out defenceconnect.com.au. If you're not subscribing to our daily morning market intelligence, be the first to know what's happening in defence industry, defenceconnect.com.au/subscribe. Any questions for myself or the team, or even for Sean, if there's anything you want to query on or connect in, email This email address is being protected from spambots. You need JavaScript enabled to view it., and we'll pass it on, or happy to answer any questions if you have them as well. If you like social media, search Defence Connect and you'll find us and like us and follow us and you'll get everything that we're doing. We'll see you next time, bye-bye.

 

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