Australia Shortlists Mainly European Companies for A$40 Billion Defense Deals

   By Rob Taylor 
 

CANBERRA, Australia--British defense giant BAE Systems PLC (BA.LN), Italy's Fincantieri SpA (FCT.MI) and Spanish shipbuilder Navantia have been shortlisted by Australia as part of a 40 billion Australian dollar (US$31 billion) naval modernization that will be a centerpiece of Prime Minister Malcolm Turnbull's pitch in looming elections.

All three companies had been asked to refine designs for nine new frigates to be built at a cost of A$35 billion in South Australia state, which will be a key election battleground in a vote expected as soon as July 2, Mr. Turnbull said Monday.

German shipbuilding firms--Fassmer and Lurssen--had been shortlisted along with Dutch shipbuilder Damen to build a A$3 billion fleet of 12 large Offshore Patrol Vessels. Construction of those boats is due to start in the South Australian capital, Adelaide, as soon as 2018.

Also, Mr. Turnbull said Western Australian shipbuilder Austal Ltd. (ASB.AU), which builds Littoral Combat Ships for the U.S. Navy, had won a separate A$900 million contract to build smaller patrol boats for tiny Pacific islands nations.

"These three projects will ensure Australia retains a sovereign capability to build and sustain its naval vessels," Mr. Turnbull said. "Together they represent close to A$40 billion worth of investment in Australia's future naval capabilities and our naval shipbuilding industry."

Shipbuilding and defense will be a central election issue, with Mr. Turnbull's conservative government and its Labor opponents promising jobs in a state hard-hit by manufacturing closures in the car industry, as well as the insolvency of steelmaker Arrium Ltd. (ARI.AU) in the town of Whyalla.

The government is under pressure to use Australian steel as much as possible for construction of the warships, as well as a new A$50 billion fleet of 12 advanced diesel-electric submarines for which a tender decision is also looming. Firms from Japan, Germany and France are competing to build the submarines in one of the world's most lucrative current defense contracts.

Senior security ministers were to meet this week to look at submarine tender recommendations from the military, which has been spared Budget cuts as Canberra looks to hedge against China's increasing military muscle on key trade routes passing through the South China Sea.

BAE Systems has been asked to refine its Type 26 Frigate design being developed for the U.K.'s Royal Navy, Mr. Turnbull said. Italy's Fincantieri--owned by the Italian state through Fintecna--would supply its FREMM Frigate design, versions of which have been chosen for the French and Italian navies.

Spain's state-owned Navantia--already chosen by Australia around a decade ago for construction of three missile destroyers--had been asked to use the same F100 ship as the basis for a modified frigate proposal. Construction would start in 2020, the government said.

"They will directly secure more than 2,500 jobs for decades to come. They will also generate thousands of additional jobs with suppliers," Mr. Turnbull said.

The announcement should provide a boost for the conservatives amid polls showing the main Labor opposition has edged ahead of the government. Parliament began a tumultuous meeting over deadlocked legislation to rein in union power on Monday, which is likely to trigger early elections on July 2.

-Write to Rob Taylor at [e-mail]

(END) Dow Jones Newswires

April 18, 2016 00:36 ET (04:36 GMT)

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