This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 7/24/2018

Overview

Every US business active in the defense sector and looking to pursue international business opportunities should include Australia on its shortlist of potential export markets. Australia has a ten-year, USD145 billion acquisition strategy supported by allocated funding; a strong preference for US technology based around an operational focus on interoperability with the US military; and is a close US ally offering the additional diverse benefits of being a strong democracy based on the rule of law; IP protection; familiar business practices; English language; and a well-established American Chamber of Commerce. 

US companies also have the in-country support of US export promotion agencies – specifically the US Commercial Service with an aerospace and defense/marine/safety and security specialist based in the US Embassy in Canberra, along with a uniformed team at the Office of Defense Cooperation, also located in the US Embassy, tasked with facilitating US solutions for a range of Australian defense projects.

Australia claims the largest jurisdiction of any nation – 10 million square miles or 27.2 million square kilometers - split almost evenly between land and ocean, and stretching from the South Pole to just short of the Equator. This places a heavy burden on the nation’s military and its border security services. The Australian Defence Force is widely regarded as the most potent military force in the Southern Hemisphere, comprising some 60,000 full-time personnel and over 20,000 active reserves, operating a technologically-advanced portfolio of weapons platforms. It has for example recently acquired two Landing Helicopter Docks [LHDs] amphibious assault ships, each of 27,000+ tons to strengthen its force projection capabilities, and is a major customer for the F-35 Joint Strike Fighter program. It has also embarked on a large conventional submarine construction program with frigates to follow. By 2020, Australia will also boast the world’s first fifth generation air force, flying almost exclusively US-made product.

Australia has various defense agreements with the United States including a Defence Trade Cooperation Treaty. It prioritizes interoperability with the United States and has been a firm US ally for a century. Indeed,  the two countries are celebrating a ‘century of mateship’ in 2018 dating back to the Battle of Hamel in 1918 when the two armies first went into battle together. Australia’s defense acquisitions are premised on a desire to operate the most advanced conventional defense systems in the world; a commitment to defend its territorial jurisdiction and a readiness to deploy worldwide in support of key policy objectives. Australia fully funds its defense acquisitions and undertakes periodic reviews of its national defense strategy and associated equipment needs.

Australia’s defense equipment investment program includes a heavy focus on various fixed wing, helicopter and UAV aircraft. Australia is a major importer of defense systems – third in 2015, 9th in 2016 – and a leading customer of the United States – third in 2015 and 2016 and 2nd in 2017. In 2016-17 Australia budgeted to spend AUD12.9 billion on defense acquisition (AUD7.2 billion) and sustainment (AUD5.7 billion). NB AUD 1 = 0.75 USD.

Australia released its Naval Shipbuilding Plan in May 2017, outlining the country’s largest ever program of naval shipbuilding and sustainment, including AUD1.3 billion (USD1 billion) investment to develop infrastructure in shipyards.

Australia has committed to investing around AUD90 billion (USD70 billion) in the rolling acquisition of new submarines, and the continuous build of major ships such as future frigates, as well as minor naval vessels. It is useful to peruse this document in combination with Australia’s White Paper on Defence, which profiles Australia’s total defense acquisition program over the coming decade.

US companies looking to showcase their capabilities to Australia and its Asia Pacific neighbors should be actively considering exhibiting in the US Pavilion at the upcoming Australian International Airshow 2019 [‘Avalon 2019’] to be held south of Melbourne in early 2019.

Airshow dates are February 26-March 3, 2019. See its website here https://www.airshow.com.au/airshow2019/index.asp Avalon 2019 will be the defense-focused trade show to attend in the Asia Pacific in 2019.  There will also be a large US Pavilion and total US exhibitors across the airshow are expected to exceed 100 for the first time. Avalon will also feature the first US Investment Pitchfest where US States and regions have the opportunity to present their jurisdictions as the best options for expansion into the US market for those aerospace and defense companies looking to expand into the world’s largest defense market.

Many US defense companies have large presences in Australia, including Boeing, Lockheed Martin, Rockwell Collins, Northrop Grumman, and Raytheon. Three significant US defense export successes in the first half of calendar year 2018 have included the January announcement of Lockheed Martin’s USD566 million (AUD700 million) SEA 1000 Future Submarine Combat Systems Design, Build and Integration project.; the April announcement of US companies KBR and Huntington Ingalls Industries (HII) to jointly deliver a Naval Shipbuilding College in Adelaide to train the skilled workforce necessary to deliver Australia’s ambitious naval capability plan [value unspecified but estimated in tens of millions of dollars, depending on ultimate scale of college activity] ; and the June announcement re acquisition of the first MQ-4C Triton remotely-piloted aircraft from  Northrop Grumman through a cooperative program with the US Navy, valued at AUD1.4 billion (USD1.1 billion) under the AIR 7000. Six and possibly seven MQ-4C RPAS are planned to be acquired under this project, with a total value of approx. AUD7 billion (USD5.5 billion. And while various companies have or will win the prime contractor roles to deliver these large projects, that still leaves extensive specific supply opportunities for US companies within their scope.  For example, whilst UK company BAE Systems will build the AUD35 billion (USD27 billion) SEA 5000 fleet of anti-submarine warfare frigates, the United States will supply its Aegis combat management system as a critical component and Australian industry content is expected to reach 65-70%, further opening up opportunities for US companies and their subsidiaries to work with local companies.

Annual total defense expenditure is of the order of USD25–30 billion and defense acquisition and sustainment is a large part of this figure. Australia’s already substantial defense purchases were further strengthened in March 2016 by the release of the Defence White Paper which detailed an USD145 billion defense acquisition plan for the decade to FY 2025-26.

New investments will include 12 regionally-superior conventional submarines (to be built by French company DCNS in Australia); 9 anti-submarine warfare frigates (to be built by UK company BAE Systems); 12 patrol vessels (Germany); 7 P-8 Poseidon aircraft (US); 72 F-35A Joint Strike Fighters (US); 12 E/A-18G Growler airborne electronic warfare aircraft (US); helicopters of various types (United States has multiple options); missile defense systems (probable US); a long range rocket system (probable US); a new generation of armored vehicles (Germany); and upgrading the main battle tank fleet (US). In addition, there will be a host of investments including upgrades to airports, training areas, army bases, naval facilities, cyber and communications systems. US industry is well-placed to win some of this business as well in collaboration with Australian industry. Note also that there is a strong US industry presence in Australia by way of local subsidiaries and that this is also reflected in a particularly strong American Chamber of Commerce in Australia (AmCham) with offices across the country.

US industry is a likely key beneficiary of decisions concerning weapons systems, although the scale and diversity of the total program of acquisitions means that there will need to be a number of collaborative bids for projects involving third countries and incorporating Australian industrial capabilities.

The key source document for future defense purchases is the Defence White Paper released in March 2016.  It is accessible online and includes the Defence White Paper explaining Australia’s defense strategy, capability and resources within a complex security environment; an Integrated Investment Program detailing acquisitions by project, timing and functionality for the decade FY 2016-17 to FY 2025-26; and the Defence Industry Policy Statement explaining the relationship and need to modernize the capability of the Australian defense industry both in terms of local construction and sustainment as well as global supply chains. US suppliers should peruse all three documents to gain an appreciation of the operating environment and where they may fit.
 
 2015201620172018 (Estimated)
Total Local Production7000767078008000
Total Exports7007207500800
Total Imports2200205021002200
Imports from the US
 		1766154116851750
Total Market Size8500900091509400
Exchange Rates.75.74.77.77
(total market size = (total local production + imports) - exports)
Unit: USD Thousands

Data Sources: Global Trade Atlas; IBISWorld Australia; tariff and trade data from the US Department of Commerce and the US International Trade Administration; White Paper on Defence, Australian Department of Defence; Australian defense sector estimates and analysis. Data retrieved as at 5 July 2018.

Leading Sub-Sectors

The scale of the defense acquisition is so great that US companies would be well advised to review the Defence White Paper in the first instance; identify potential opportunities from the information provided; and subsequently reach out to the US Commercial Service in Canberra and/or the Office of Defense Cooperation, also in Canberra, for more detailed advice.

Opportunities

Strong promotion is essential. Three major defense trade shows held in Australia on a rolling two-year cycle, each featuring a US Pavilion are the Australian International Airshow at Avalon, which alternates with the Singapore Air Show; Pacific International Maritime Exposition; and Land Forces. There is also a civil security including border security and disaster response event called CivSec which is anticipated to include a US Pavilion in 2020 and other smaller, more specialized events – notably MilCIS, which has a particularly strong US industry presence.

The next events in order are the Land Forces in Adelaide (09/2018), MilCIS 2018 in Canberra (11/2018) and the Australian International [‘Avalon’] Airshow outside Melbourne (02/2019). Avalon is easily the largest and most important defense event in Australia in 2019 and arguably in Asia as a whole. Land Forces runs a respectable second.

MilCIS is the annual Military Communication and Information Systems conference held in Canberra in November and features a strong US exhibitor presence. In fact, almost half of the exhibitors at the 2017 event were US-based or Australian subsidiaries of US companies.  CIVSEC 2018, the civil security and civil defense trade show, was held for the first time 31 May – 1 June 2016 in Melbourne. It is aimed at border security, cyber security, search and rescue, ISR, law enforcement, and disaster relief. NB Avalon, Pacific, Land Forces and CivSec are all organized by the one company - AMDSFA - and Kallman Worldwide of NJ promotes and manages US Pavilions at Avalon, Land Forces and Pacific.  It is widely anticipated that a US Pavilion will also feature at CivSec 2020 as the event continues to expand at a rapid rate.

The Australian Government also organizes the annual US Australia Dialogue on Defence Industries to bring together industry representatives and senior government officials to discuss opportunities to optimize defense industry collaboration.  The most recent Dialogue took place in Washington DC 12 April 2018- http://www.gdayusa.org/event/gday-usa-us-australian-dialogue-on-defence-industries-2018. Key speakers included Australia’s Minister for Defence Industry the Hon Christopher Pyne MP and the Chairman, Chief Executive Officer and President of Northrop Grumman Corporation, Wes Bush.  For the past two years it has been scheduled during the same week as the Sea Air Space trade show at National Harbor MD.

Key defense acquisition and sustainment projects are profiled on the Australian Department of Defence website page titled Equipping Defence.  US companies should pay particular attention to the Australian Government’s Industry Capability Plan requirements and objectives.  Australia is determined to reverse a decline in its defense industry capabilities, starting with the rejuvenation of its naval shipbuilding, and has a strategy to turn Australia into a leading defense exporter in the mid-term.  While not mandating specific Australian content requirements or offsets, Australia is determined to see that everything that can be done in Australia should be done in Australia and has been quite clear that those companies that bid on that basis will be looked upon more favourably than those that do not.

Note that this framework still leaves enormous opportunities for US companies to sell directly; in collaboration with an Australian distributor / partner; and / or via an Australian subsidiary or contracted partner delivered some work in-country.  It is about ‘clever supply’ that delivers enhanced capabilities in Australia whilst also achieving export success to US exporters and manufacturers. US industry is a preferred partner; benefits strongly from Australia’s determination to deliver interoperability with the US military; and easily wins the largest share of defense business going to non-Australian suppliers, as well as a large share of Australian industry business via its Australian subsidiaries.

Web Resources

Australian Government Department of Defence
AVALON 2019
CIVSEC 2018
Defence White Paper
Kallman Worldwide
Land Forces 2018
MilCIS 2018- http://www.milcis.com.au/
Pacific 2019- http://www.pacific2019.com.au/
The Advocacy Center
Centre for Defence Industry Capability (CDIC)- https://www.business.gov.au/centre-for-defence-industry-capability

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.