News

Timing of the deal – when business and political timing is spot-on

In business and politics, timing is everything, and the announcement that BAE will deliver Australia’s $35bn (£20bn) contract is a clear demonstration of both. For BAE, this is a game changer. Although the company is already present in Australia – with a workforce of 6,500 people working on projects across air, land and sea – it is a truly transformational opportunity. This is a decades long program that requires the ramping up of thousands of workers in that time. The award of sustainment and maintenance contracts, amounting to billions over the operational life of the program, will also be in play. BAE is well positioned here, being heavily involved in the current fleet of ANZAC sustainment and maintenance works.

The award not only transforms the Australian business, it will change BAE in a global setting. The SEA 5000 contract award is the largest order currently on BAE’s books to deliver. It is also a vote of confidence in the Type 26 design, providing a dream springboard for discussions with other customers, including the United States navy.

To BAE’s credit, they also marvellously got the timing right emphasising Australian Industry Content (AIC). Their AIC plans went above-and-beyond and delved into the supply chain to provide an insight into what can be locally delivered. Contrastingly, in February 2017 the Fincantieri team openly commented during a visit to Australia that their supply chain was already established through their global program and from this they knew who they’d be engaging. This reflected a competitive strength that their vessel was already in use, but also indicated they didn’t quite have their Australian industry engagement lined-up. In early 2017, BAE was already well ahead of the game.

Similarly to the business timing, the political timing of this award is superb. I’ve lost count of the number of public endorsements I’ve heard that links this award with demonstration that the UK can deliver deals in a Brexit world. Perhaps creeping into a straw man argument – BAE was shortlisted before the Brexit vote – it nonetheless provides a strong example that UK companies are well respected and sought-after outside of the EU. This is a globally significant deal, and one that should provide confidence to industry and politicians alike.

The deal will also provide a boost to security and defence links between the UK and Australia. Whilst already very strong, such as respective membership of the Five Eyes intelligence alliance, the relationship will inevitably grow closer with a UK prime defence contractor now delivering such a key component of Australia’s future security platforms.

Finally, one can look to key Government engagements and visits as an indication of how important this announcement is. The list is long and impressive. South Australia’s Premier Steven Marshall visited shortly after the announcement for key talks with BAE and other defence contractors. Significantly, it is only his second visit abroad following his election. In the same week, the Federal Defence Industry Minister was in London for a Defence Industry Dialogue to discuss further collaboration and enhance capability between the UK and Australia.

This week sees Foreign Minister Julie Bishop and Defence Minister Marise Payne in the country for the 10th Australia-United Kingdom Ministerial Consultations (AUKMIN) with their British counterparts. In line with the timing, reference to the BAE award never strays far from public comment or media release. Australia’s Trade Minister Steven Ciobo has also been in London this week and referenced the award in launching a report into the growing strength of Australia-UK ties.

These high profile visits, and the key defence, security and trade engagements for which they’ve come, emphasises the geo-political importance of the award. It should serve as a clear reminder that this is about more than money – it is about Australia’s security, its place in the world, and our increasing closeness with the UK.

For further information please contact our Investment Director, Joe Doleschal-Ridnell.