The defence industry in Australia is thriving, with major projects and government initiatives creating opportunities for Australian manufacturers both large and small. By William Poole.

On 10 December, two F-35A Joint Strike Fighters (JSF) landed at RAAF Base Williamtown in New South Wales (NSW), the first deliveries in what will eventually see at least 72 F-35 aircraft based in Australia. Built by Lockheed Martin in the US, with support from subcontractors from all over the world, the JSF is the largest acquisition in the history of the Royal Australian Air Force (RAAF), and the arrival of the first two planes represented a landmark not just for defence and aerospace in this country, but also for Australian manufacturing.

“Australian industry is manufacturing parts that will be fitted to every F-35 in production globally, and more than 50 Australian companies have directly shared in $1.2bn in production contracts to date,” said Steven Ciobo, the Federal Minister for Defence Industry. “Up to 1,500 contractors have worked on the construction of the facilities to accommodate the F-35A at RAAF Base Williamtown, representing approximately $1bn of investment in the Hunter region alone.”

In the same week that the two aircraft touched down, an event was held at Osborne Naval Shipyard in South Australia to mark the beginning of works on the construction yard for Australia’s Future Submarine fleet, accompanied by the announcement that the submarines would be known as the Attack class. A day later, steel was raised at Osborne for the construction of the Royal Australian Navy (RAN)’s new Hunter Class frigates.

These developments rounded out what had been an eventful 2018 for the defence sector in Australia, which got underway on 29 January with the release of the Federal Government’s Defence Export Strategy. This ambitious plan aims to see Australia become one of the top ten global defence exporters within the next decade. With the Government investing $200bn over the next decade to modernise Australia’s defence capability, the Defence Export Strategy includes a raft of measures intended to boost Australian industry, increase investment, and create jobs.

The Strategy was followed by a host of related announcements over the course of 2018. One significant initiative arrived in November, as Ciobo unveiled the Sovereign Industrial Capability Priority Grants program. This will provide grants of up to $17m per year to help eligible small and medium-sized enterprises (SMEs) meet up to 50% percent of eligible project costs, including capital equipment, specialist software and security infrastructure, non-recurring engineering costs, design activities, or training and accreditation.

“The more Australian industry can contribute to meeting the ADF’s capability needs, the greater prosperity and security we will all enjoy,” said Ciobo. “Involving Australia’s SMEs in this major renewal of Australia’s defence capability will grow our industry and economy, helping create new jobs.”

BAE Systems Australia – Business is good

The flood of positive announcements from Canberra have helped to create a buoyant mood among companies involved in the defence industry in Australia, and that upbeat mood was in evidence at ‘Defence Industries: Unlocking global markets’, an event held by the Committee for Economic Development of Australia (CEDA) in Melbourne in October. Gabby Costigan, Chief Executive Officer of BAE Systems Australia, provided the keynote address, and she began by summing up the current state of optimism across the industry.

“This brilliant job that I have is insanely busy, but busy I like to think is good,” said Costigan. “Busy means progress, busy means exports, and busy usually means business is good and profitable. In our case at BAE Systems, busy does mean business is good! But it is not just our business that is in a good place right now, the broader defence sector is as well. The Federal Government has made Australian defence capability a priority in its procurement processes and recognised the importance of removing the boom-and-bust cycles that can result from the beginning and ending of major acquisition programs. Exports play an important role in supporting this.”

One of the world’s largest defence companies, BAE Systems is a major partner in the F-35 program, and its Australian subsidiary is one of several manufacturing companies in this country supplying the JSF. BAE Systems Australia has invested more than $15m in facilities and equipment to establish a titanium machining facility in Edinburgh Parks, SA, to manufacture vertical tail components for the aircraft. Assembly of those parts is subcontracted to Marand Precision Engineering, a family-owned manufacturing business based in Moorrabin, Victoria.

“Our initial investment has led to more supply opportunities on the F-35 program, including titanium components for electronic warfare (EW) systems, navigation and identification modules and also a corrosion prognostic health management system,” said Costigan. “We are just one of the companies in Australia supporting this important global program.”

Another major defence project for BAE Systems Australia is the Hunter Class Frigate Program. On 14 December its subsidiary ASC Shipbuilding was awarded a contract by the Government providing the framework for the design and build of nine of these anti-submarine warfare ships for the RAN. With prototyping projected to commence in 2020 before steel is cut on the first ship in 2022, the Hunter program is expected to create more than 5,000 jobs across the Australian defence supply chain.

“The program has incredible potential to support Australian exports,” said Costigan. “BAE Systems will require hundreds of Australian SMEs to support this exciting 35-plus year endeavour. Five Australian companies are already exporting into the Type 26 frigate program in the UK, from which our Hunter Class frigate has evolved. As the program matures in Australia so will the opportunities for Australian companies.”

While fighter jets and warships hog the headlines, BAE Systems Australia’s most successful defence export – and its largest in revenue terms – is less well known: a missile decoy system known as Nulka. Australian designed and developed, Nulka comprises a rocket packed with highly sophisticated electronics, which can be launched from a naval vessel and then hovers in mid-air to draw incoming missiles away from their targets. Currently deployed aboard more than 150 Australian, US and Canadian warships, Nulka is now Australia’s largest defence export, having generated more than $1bn in revenue.

“Nulka is a unique national defence capability, which was developed by the defence sector right here in Australia, and my employees played a key role along with DST Group,” Costigan explained. “I think it is important everyone understands that it is not just BAE Systems that benefits from the export revenue something like Nulka achieves. Approximately 50% of Australia’s manufacturing workshare on this decoy is distributed to local subcontractors. By exporting Nulka, we have been able to create further opportunities for Australia, invest further in research & development (R&D), create new jobs, and further expand our Australian supply chain. I think that is something we as Australians can certainly be proud of.”

For Costigan, projects such as Nulka, the F-35 and the Hunter-Class frigate highlight the impressive capabilities and technology that Australia’s defence industry has at its disposal. And there is great potential for this industry to grow further.

“If defence was characterised as a standalone industry, it ranks fifth-highest in Australia,” said Costigan. “It is a highly skilled and productive workforce and can support a more balanced and sustainable economy. And with such unique products, we are very well placed to compete in the export market, where innovation and technology deliver an important market edge. With Australia currently achieving in the order of $1.5bn to $2.5bn per year in defence exports, there is clearly an economic opportunity for Australia to grasp.”

Costigan believes the Government’s Defence Exports Strategy is a good step in releasing that potential: “This Strategy has the potential to incentivise investments that support sustainable sovereign industry capabilities and will also help to develop the export potential of Australian developed technologies. The Strategy helps to ensure the sector gets the focus it warrants, not just from government but also the wider business community. Strengthening defence trade to our priority markets makes sense, and my company would welcome any initiatives that further strengthen these existing trade relationships with Australia’s key partners.”

However, Costigan stressed there was another important reason to support defence exports: in order to ensure Australia’s sovereign defence capability.

“It is in our national interest to have a strong defence industry that is able to meet our sovereign capability needs,” she said. “It allows Australia to have greater self-sufficiency and maximise the economic benefits of large capability investment. It ensures we have greater control in meeting our security needs, and it helps us control our destiny and to protect us and our national interests. As a country, we need to continually innovate to ensure that Australia has the best possible equipment and support for our Defence Force. Scale is needed to achieve this, and defence exports certainly help with this objective.”

Above all, Costigan believes the defence industry can be the basis on which to build a stronger, more sustainable and more sophisticated economic outlook for Australia in the future.

“We know the Australian economy is changing,” she concluded. “While in the past we may not have been particularly good at turning R&D into commercial IP, I think defence has demonstrated it can be done and now is the time to seize the opportunities in the defence sector.  Australia’s exports don’t have to be restricted to things dug out of the ground or grown. The opportunities are enormous and the benefits to our community are significant.”

Australian Precision Technologies – Transforming its business

While BAE is a well established, globally recognised name, Australian Precision Technologies (APT) is, in contrast, still building a foothold in the defence industry. However, the company, based in Berwick, Victoria, is making impressive progress in seizing the opportunities described by Costigan.

Founded in 1992 by Richard Weinzierl, who remains at the reins today as Managing Director, APT has adapted and evolved continually over the years. In the late 1990s the company was a preferred supplier to Robert Bosch, which at one point accounted for 86% of its business, and for some time it was – like many Australian manufacturers – heavily exposed to the automotive sector. More recently, APT has diversified into advanced manufacturing, building a strong reputation in this field.

Over the last few years the company has actively targeted the defence sector, and the transformation has been radical, to say the least. As of December, defence accounted for 75% of the company’s business, with Weinzierl predicting that number could reach 95% by March.

“It’s been very quick,” he says. “And we’ve grown from 18 staff two years ago to 30 now.”

Today APT’s list of key customers reads like a roll-call of some of Australia’s most prestigious defence projects. The company is involved in supplying components for the JSF program. It works with ThalesGroup, providing munitions and components for the F90 Steyr rifle and the Bushmaster and Hawkei armoured vehicles. And it produces components and assemblies that go into radar systems, remote weapon stations, and submarine parts. In securing these contracts, APT’s ability to deliver high-quality, complex components in full and on time has given it a distinct edge.

“We just made this submarine part; that is one complex part that not many people can make,” says Weinzierl. “There’s not many people like us that can make those quality parts and on-time.”

APT has in fact been working in the defence sector since its very early days. In 1993, the first component it supplied was a small pin for a a submarine launch flare, and the company has continued to find work in defence and aerospace from then on.

“It just kept growing and growing and it just seems to be where the growth is,” says Weinzierl. “For us, making high-end, quality precision parts is where defence is. We don’t compete with your backyarders, we don’t make bushes and sleeves; we do high-end complex machining.”

The company’s transition into defence gained significant momentum at the 2016 Land Forces exhibition in Adelaide, where Varley Group, one of Australia’s oldest, most advanced manufacturing companies, recommended that APT engage with the Centre for Defence Industry Capability (CDIC). APT joined the CDIC’s Supplier Continuous Improvement Program (SCIP). The company has been on the program for two years now with a further 12 months to go, and Weinzierl is candid in describing the impact this has had in transforming his business.

“The business coaching which the CDIC has funded has turned APT around,” says Weinzierl. “The main thing was they gave us a whole strategic plan to work to. First of all we did an employee survey, and we revisited that survey recently, and the company’s turned around, it’s not the same company. Everyone’s engaged, everyone’s on-board. And it’s getting staff on-board that’s really making a difference. We’ve never seen anything like this. It’s fantastic.”

To facilitate this transition, APT has dedicated significant resources to overhauling its processes and operations. The stringent requirements of defence industry clients have seen the company work towards gaining AS9100 accreditation by June 2019, the defence industry quality specification. It has also had to put a cyber-security plan in place, as well as a plan to ensure compliance with the US’s International Traffic in Arms Regulations (ITAR) regulatory regime.

The company has also paid considerable attention to improving the way it works in order to maximise its efficiency. It recently invested in integrating M1 enterprise resource planning (ERP) software to streamline operations. Data from across the business is studiously recorded, charted and evaluated. The team meets regularly, to review KPIs, or to track DIFOT (delivery in full on time) performance. Again, Weinzierl acknowledges the CDIC’s role in bringing about these changes.

“Their help has been crucial. They’re really interested in improving your business to be better defence suppliers,” he says. “APT’s been able to get better organised, which has then made us more competitive. And we’re monitoring outcomes, we’re implementing Industry 4.0 to collect data, and improve on that through Lean manufacturing. That’s where we’re at.”

These changes have been accompanied by a simultaneous shift in the workplace culture, with a growing focus on staff’s health and well-being. Like many manufacturing SMEs of its size, APT used to depend heavily on its employees taking on overtime when the workload demanded it. That all changed when the CDIC got involved.

“They couldn’t believe how much overtime the guys were doing here,” recalls Weinzierl. “When the CDIC did the operational and business excellence review, they said that’s just not normal, it’s not a healthy company to work at, where you’re expected to do overtime.

“So now, if the guys are studying and they’ve got to do an assignment, I say ‘How about you work from home today?’ You know how happy that makes them? We offer flexibility and I think that’s important. If you’re looking after them, they’ll look after you.”

Given the speed with which it has transitioned into defence, you might be inclined to assume that this has been an easy process for APT. However, defence clients are exceptionally demanding, both in terms of the precision and quality they expect from their suppliers, but also in terms of the timeframe in which they expect to see their orders fullfilled.

“Capacity’s a massive problem,” says Weinzierl. “Anyone can have heaps of machines, but if you don’t have the operational excellence behind that, you’re not going to make quality parts and on-time. That’s the difference. And with AS9100 and our MRP system there’s a process that you have to follow. One of the biggest challenges has been sticking to and adhering to that process. So now we have regular DIFOT meetings which track it. Why are we behind? We analyse why we didn’t hit the targets.”

Having the right machinery and processes in place is one problem. Even harder, according to Weinzierl, has been ensuring that the personnel are also ready and willing to come on that journey of transition.

“Getting all the staff trained and on-board; that’s been the biggest challenge. One thing I’ve learned is that you’ve got to engage your staff, you’ve got to meet with them and find out if they have any issues. It has to start off at the ground floor.”

Despite all these challenges, there’s a palpable sense of excitement building around APT and its future. And word is getting out, with the company lately receiving some illustrious visitors: local MP Jason Woods recently paid a visit, and in November the Federal Treasurer Josh Frydenberg took a tour of the Berwick plant. Meanwhile, APT is continuing to pick up new business, while consolidating its position with existing customers.

“What we’re finding now is a lot of smaller companies are closing and bigger companies like us are absorbing their work,” Weinzierl explains. “Because we can offer delivery and quality, we’ll pick up more and more work. We often go back to companies now after the transition from automotive and say ‘Okay, the pricing we had for the last 10 years is not going to cut it now. But what we can deliver is quality in time and in full.’ Those companies tend to come back and say ‘Okay we’ll pay more.’

“And obviously the Defence Force needs people like us. Because without people like us, they will not be able to buy a component that’s accurate and be delivered on time when they need it.”

In addition, APT is pushing ahead with even more ambitious plans. The company’s manufacturing operations are currently spread over two separate industrial units, directly facing each other across the road. However, over the next couple of years it plans to build a brand new advanced manufacturing facility on the other side of Berwick. Located on on a greenfield site, the new factory will be a state-of-the-art facility with a strong emphasis on its clean, green credentials: solar energy throughout, sustainable water supplies, and recycling of all waste.

“The new site’s going to be huge,” says Weinzierl. “It’s fully automated, it’s going to be unreal. There’s a lot of planning that goes into this. It’s a challenge, but we’re up to it.”

With so many exciting developments going on, it might be easy to forget that APT remains very much a small family business whose founder is still very much at the helm. And Weinzierl is adamant in stressing who has been the real driving force behind the company’s transformation: “It’s all thanks to my wife Nichola; she’s the one who puts all this together.”

Moreover, if Weinzierl gets his wish, the business could soon become even more of a family-operated enterprise: “How lucky am I, that my daughter graduated from university last week and with a high distinction in project management? So I’m trying to get her to come to APT. She says ‘No way in the world can I work with you Dad.’ But she’ll come. It’s only a matter of time before she comes.”

Meanwhile APT is continuing to steadily outperform the targets it has set for itself, and Weinzierl is optimistic about the future.

“Look at our sales budget,” he says. “We’re tracking above budget, and if we keep continuing in defence the way we’re going we could smash the budget. And we’ve only got 30 employees. Who knows what we can achieve next year?”