Analysis on Selling Type 26 to Australia & Impact on the UK

It has been confirmed that the Type 26 frigate design will form the basis for the next generation of surface combatant for the Royal Australian Navy (RAN), of which 9 are planned and where it will be known as the ‘Hunter class’.

This announcement represents a genuinely good news story for both Australia and the UK. It is the first order of a new build ship design that will be in service in both the RN and foreign navy since the 1960s (the old Type 12 / Leander class was the last time this occurred with Commonwealth nations, and the Type 42 with Argentina in the late 1970s) and has potential significant consequences for the UK.

In practical terms this is a real boost for BAE Systems, helping them sustain their maritime division and supporting the ship design and building skills for the long term. The proposed deal will see the ships built in Australian yards (not that this hasn’t stopped some truly epic whining from supporters of Scottish shipyards who seem to think they should have been built in the UK instead), and help sustain the Australian shipbuilding industry. Several thousand jobs will be created as a result of this deal.

For the UK this will see a financial benefit, both from the selling of the design itself through to the manufacture and delivery of many of the subsystems and major components that form the heart of the vessel. Many smaller and medium sized UK companies will directly benefit from work on this design, which in turn may help realise efficiencies and cost reduction on components, now that the production run for the Type 26 has doubled from 8 – 17 ships.

In the medium term this announcement helps create an environment where the Type 26 construction and sustainment will hopefully support thousands of highly skilled jobs at British companies as they provide through life support to these vessels. This order could make an enormous difference to many smaller companies providing niche products for the defence marine sector. Given these ships are likely to have a 30-40 year life cycle in British and Australian service, the potential for long term support contracts is enormous.

Some have asked whether this order means costs will drop to the point where the UK could afford to add extra hulls to the Royal Navy’s order. The simple answer is no – while there are likely to be very long-term efficiencies realised through this, it does not automatically follow that the RN will suddenly find it can do a ‘buy 8 get 2 free’ deal.

In reality the cost of a ship is as much about the crew, equipment and long-term support required for it (plus operating costs), all of which adds enormous cost to the budget. Even if the RN were to be offered another two hulls at cut price, it is highly unlikely that the money could be found to crew, operate and support them, at least not without cutting other projects. The financial environment in the MOD simply doesn’t seem to have the flexibility required to find that sort of cash and deal with all the other priorities on the ‘to do’ list.

Others have questioned whether it is ‘embarrassing’ that the RN will only have 8 while Australia has 9 – to which the answer is ‘no, not really’. Every navy has different priorities and plans and the RN is clear that its Type 26 hulls will be used on the complex ASW requirement, while the Type 31e will be ideal for use in the broader ‘show the flag’ / maritime constabulary missions that probably doesn’t need a Type 26 to do, but which until Type 31e was funded, would have seen hugely expensive ASW platforms tied up doing. What is not clear is whether the RAN will see its 9 hulls used in a similar way, or if its ships end up as incredibly expensive hulls doing work that Type 31e could do instead.

Finally it has been asked whether the RN is somehow being seen off by BAE Systems given the costs it is paying, versus the costs the Australians are paying. In reality comparing the UK and Australian versions of the ship, then trying to work out whether the UK is being taken for a ride is akin to looking at two identical terraced houses for sale on an estate agents website and working out why one is £50k more than the other – unless you have the ability to do a detailed ‘fixtures and fittings’ list for both, you’ll never know how the agents arrived at their valuation.

For the UK more widely this sale is a good example of the wider aspiration to return to the Asia Pacific region and play a more active role in the security issues of the day. The move to a truly ‘Global Britain’ based foreign and security policy has seen the announcement that three new diplomatic posts will be opening in the region, and there is an increased level of defence engagement too (such as the current presence of RN warships all year round now). It also demonstrates the value of timely engagement, such as the visit by HMS SUTHERLAND this year to Australia in demonstrating many of the pieces of equipment that will be on Type 26 already in use at sea.

Image by Ministry of Defence; © Crown copyright

 Looking to the future this sale opens up the possibility of enhanced defence and security co-operation, and potentially further sales of UK equipment to New Zealand (who may not require a Type 26, but could be open to the Type 31e) and also to Canada, who is theoretically in the market for 15 hulls, although this is likely to reduce as budgets do not seem to have expanded to meet the enhanced cost of ships in the years of procrastination and failing to take a decision on what ship to order for their future fleet. There is a not inconceivable possibility that within 10-15 years the Type 26 / 31 combination could form the basis for a truly ‘Commonwealth Class’ vessel as it enters service across all of the larger ‘Royal Navies’.

A sale like this will help bolster the export prospects in other campaigns too – one of the advantages of this offer is it is about technology transfer and not simply building overseas and shipping the finished product home. In a world where nations in the market for an advanced ASW frigate will want to see it built at home, the model of buying the design and working with BAE systems to build a vessel whose bugs will have been ironed out elsewhere is going to be increasingly appealing. It will help nations keen to establish a high end naval shipbuilding base get started, without their having to invest in the really expensive part, which is the design capability itself.

The advantage of the Type 26 design is that it is coming to maturity at a point when many navies are looking to enhance and get back into the ASW game in a way not seen for many decades. If it is deemed good enough for the RN and RAN, widely considered to be two of the worlds most capable navies, then this will potentially enhance its potential in other competitions too. For example, as Brazil seeks to grow her navy and expand into an SSN operator, a modified Type 26 design may be the perfect escort for the former HMS OCEAN in her new life.

In the very long term the advantage this order has is that it sees the Type 26 construction winding down as the need to replace both the Type 45 and HOBART class becomes more pressing. While it is astonishingly early days still, in about 20 years time the existence of a BAE supported shipyard in both the UK and Australia that has decades of experience in building and supporting the Type 26 design and its capabilities, could be of critical importance in helping develop the next generation of AAW destroyer for both the RN and RAN. There could be many decades of work ahead for UK companies as a result of this order.

Strategically this sale helps bind the UK further into the security dynamic of the region, and will help reassure Australia of the long term intention by the UK to take on a renewed role in a region it has long neglected. The challenge for the UK though is to work out how to do so in a post Brexit world, where although it will matter to Australia and other players, its influence will be less significant than before as a partner, as it will in future lack access to influence the EU directly. Understanding the role that Australia and other powers want the UK to play in Asia Pacific as it becomes a post Brexit, global but not truly European nation is going to be critical here. 

Of particular interest and importance will be the way that the UK evolves and thickens its relationship with Australia while France is keen to enhance its relationships too(Guardian Article Here). Brexit offers an opportunity for France to exploit as the sole EU member with interests in the Asia Pacific region, and it is already clear that President Macron will want to make France a major player post Brexit. For the UK the challenge is to work with the French while ensuring that London, not Paris, remains the place to call first in Europe in the event of a crisis.

Overall then this is a good news story for the RN, the RAN and the two nations. It will see the UK and Australia increase their defence relationship and deepen the co-operation between the two navies, which is already extremely close. It bodes well for the credibility of the Type 26 design as a whole, raising the prospect of it becoming a truly global frigate for the 21^st Century.