By Rob Taylor
CANBERRA, Australia--A contest to equip Australia's military
with new armored vehicles is emerging as an economic battleground
for regions hit by mining and manufacturing downturns, with one
bidder pledging to revive a pivotal part of the country's former
auto industry.
British defense giant BAE Systems PLC said this week that it
would build 225 wheeled combat vehicles in a former Melbourne car
factory that until recently was one of Australia's manufacturing
jewels, if it wins the opening part of bidding against Germany's
Rheinmetall AG.
At roughly US$11.2 billion, the armored-vehicle contract is
among the most lucrative deals of its type at the moment. The
country's conservative government will decide the winner early next
year.
Australia was the world's fifth-largest arms importer last year,
according to the Stockholm International Peace Research Institute,
accounting for 3.6% of global weapons imports.
The country has embarked on a US$156 billion plan to reshape its
military into one of the most potent small forces in Asia-Pacific,
a region facing security challenges such as North Korea's nuclear
and ballistic-missile program, China's growing naval strength, and
uncertainty about U.S. defense policy.
Over the next decade, Australia's military will receive new
warships, advanced submarines, stealth warplanes and amphibious
forces, in part to safeguard South China Sea and Indian Ocean sea
routes that carry around one-third of global maritime traffic.
The defense-hardware splurge is being viewed as a bonanza by
Australian state governments anxious to tap new sources of growth
and jobs as the economy struggles to adjust to a slowdown in
resource exports and a global shift toward cheaper manufacturing
centers.
"Victoria is the traditional home of vehicle manufacturing, and
this project would create thousands of jobs at a time when our
automotive sector is in transition," said Daniel Andrews, premier
of the southeastern state, after BAE's announcement Tuesday. He
pledged unspecified backing for the company from his center-left
state Labor government.
BAE sought to bolster its candidacy by offering to build
vehicles at a former car plant operated by Holden, a General Motors
Co. subsidiary.
Holden was once a symbol of Australia's postwar manufacturing
success, while Victoria was the country's answer to Detroit: an
industrial heartland now losing traditional manufacturing jobs.
This year, Holden followed Ford Motor Co. and Toyota Motor Corp. in
ending production in Australia due to competition from lower-cost
imports. GM had said the pullout would result in more than 2,900
job losses.
BAE said it would build a defense center in Holden's former
Fishermans Bend engine plant that would manufacture its AMV35
armored vehicle, offered in partnership with Finland's Patria, if
the company wins the contract. "We can be part of Victoria's
ambition to develop a defense industry that is globally focused,"
said BAE Systems Australia CEO Glynn Phillips.
The armored-vehicle project, known as Land 400, is the largest
undertaken by Australia's army, which has fought alongside U.S.
forces in every major conflict involving Washington since World War
I. The program aims to replace, in stages, a range of wheeled
reconnaissance vehicles and Vietnam War-era troop carriers.
The second, larger phase involves replacing an additional 450
tracked troop carriers with vehicles featuring advanced armor,
lower profiles and remote gun turrets.
The project is expected to create several thousand direct and
indirect jobs, according to state and federal government
projections and the manufacturing sector.
Last month, Rheinmetall chose Queensland state--where 20,000
jobs have been lost since 2015 in a mining downturn, according to
the state's resource industry--as its preferred site to build its
Boxer armored vehicle should it win the contract battle. The
Queensland government, which also offered unspecified backing to
create jobs in defense, said the German company's move was a vote
of confidence in the state's defense-industries sector.
While details of regional incentives aren't usually made public,
state governments offer enticements such as preferential tax
treatment to attract investment. The arms companies have been
courted by various states in return for local manufacturing
involvement, while state and federal lawmakers have lobbied for
contracts in job-starved constituencies.
Rheinmetall, already the largest supplier of military vehicles
to the Australian military, said that if successful, it would
establish a production line in southeast Queensland to design,
build and export military vehicles, turrets and tactical equipment,
creating advanced manufacturing jobs.
Australia's government plans to lift military spending to 2% of
output by 2021 and has pledged to spread construction of naval
frigates, submarines and patrol ships to help struggling regions
protect jobs and prolong a record 25-year growth streak.
BAE is also in that contest, putting forward its Type 26 frigate
against designs from Spanish state-owned shipbuilder Navantia and
Italy's Fincantieri SpA.
The Asia-Pacific is expected to be the main growth area for
armor over the next decade. China, India, Malaysia, Pakistan, the
Philippines, Singapore, South Korea and Thailand all have
armored-vehicle replacements under way. Middle East nations
including Saudi Arabia and the United Arab Emirates are
re-equipping as conflict continues in Syria and Iraq.
Write to Rob Taylor at rob.taylor@wsj.com
(END) Dow Jones Newswires
August 02, 2017 05:18 ET (09:18 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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