Defence minister David Johnston told the ABC - Australia's public broadcaster - on Wednesday that no decision had been made to sideline the government-owned shipbuilding firm ASC. Privately, however, it is thought ASC will be 'sacked' from the project and its overall role reduced to maintaining submarines and not building ships.
Johnston said there had been no decision made but the current situation couldn't go on. "What has been happening here is a cover-up. When we came to power I realised very quickly that this project was completely off the rails," he said.
The drastic action is seen as a way to resolve the long delays and cost overruns which have hampered the construction of the AUS$8.5 billion destroyers. In June 2014, the destroyers were added to the government's 'Projects of Concern' list after increasing commercial, schedule and cost risks were identified in an independent review.
ASC has already been subject to a "management shake-up" over the AWD project's poor performance. The government has also commissioned an emergency review by former US secretary of the Navy, Professor Don Winter and Australian expert John White which is thought to contain the recommendations to reduce the role of ASC and re-think Australia's approach to shipbuilding.
The Abbott government has not released the full report as commercial discussions are reportedly still ongoing.
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The Australian newspaper says the report is particularly critical of ASC, formerly known as Australian Submarine Corporation, which has never built a surface vessel. ASC's chief executive Steve Ludlam resigned earlier this month in the wake of the report's findings.
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The reappraisal of ASC's role is a "very significant event", said Dr Mark Thomson, a senior analyst at the Australian Strategic Policy Institute.
"At very least BAE Systems will provide shipbuilding expertise to ASC as suggested by the Winter-White report.
"More likely, BAE Systems will take effective charge of ASC's shipbuilding arm to complete the troubled AWD project. The question of ASC's ownership remains up in the air for the moment. I expect that the submarine maintenance component of ASC will remain in government ownership for the time being, but the shipbuilding component will likely transfer to BAE Systems at some point, perhaps contingent on their performance completing the AWD project."
A larger role for BAE Systems would establish the British multinational - which is already a subcontractor on the AWD project - as the "pre-eminent shipbuilder in Australia", says Australian news website Business Spectator. There were fears that 1,000 jobs would be lost at BAE's Williamstown shipyard in Melbourne unless new work was found, this could save many of them as more AWD work is allocated there.
Some experts, however, are sceptical over the claims that ASC will be relegated to a lesser role in Australia's shipbuilding industry. Dr Simon Reay Atkinson, an associate professor at the University of Sydney said ASC will not be sacked and is an "essential element" of the Liberal Government's strategic defence strategy to maintain a competitive defence base in Australia, particularly in submarine and surface ship building.
To grow the Royal Australian Navy (RAN) will require the supporting technical skills and industrial capacity "for which there is room for both the ASC and BAES to play", said Atkinson, who is part of the University of Sydney's Centre for International Security Studies.
"The challenge is more to shape and rationalise the industrial base so that Australia continues to compete at the highest of levels, militarily, industrially, economically and politically."
Australian shipbuilding faces two challenges, Atkinson explained to Naval Technology, both of which have specific capacity issues. The first will be to build on the "very successful" Collins submarine programme and deliver an enhanced Future Submarine capability, which will be focused on shipbuilding capacities in Adelaide and South Australia. The second will be to maintain and sustain a big ship amphibious programme, centred on the new landing helicopter docks (LHD) recently delivered from Spain.
The challenges of new management and future projects
If BAE Systems is given a bigger role, the disruption of bringing in new management would have to be handled very carefully, warned ASPI's Thomson, who is an expert in defence economics. The challenge will be to ensure continuity of effort as remedial measures are introduced.
"We are potentially looking at a very unsettled period of 12 months or more as BAE Systems moves in and takes change. A lot will depend on the attitudes taken by BAE Systems and ASC staff currently working on the project, not to mention the systems integrators from Raytheon," he said via email.
Three 483ft-long Hobart-class destroyers are planned for the Australian Navy with keels already laid for the lead vessel Hobart and second vessel Brisbane. The destroyers will be fitted with a number of advanced systems including the Australia-developed active phased array radar CEAFAR.
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Hobart was originally expected to be delivered this year while the second and third ships were planned for 2016 and 2017, respectively. Budget cuts and a concern over the availability of skilled workers have meant all three ships will be delayed by at least two years.
At the moment it is unclear if the reorganisation could provide more work for BAE's other business units like BAE Systems Maritime in the UK. The UK recently took delivery of its last Type 45 - the Royal Navy's (RN) dedicated air warfare destroyer - in September 2013 and still retains the skills required to build complex warships. Some of those skills and knowledge could be used to good effect in Australia.
The reorganisation could also have possible implications for the Royal Australian Navy's Anzac-class frigate replacement project, known as SEA 5000. In January 2013, Australia and the UK signed a defence treaty which opened up the possibility of cooperation on the RN's future Type 26 frigate, which is being built by BAE Systems. If BAE took the lead on the Hobart class, it could make an Australian Type 26 seem more likely, but nothing is certain.
"There is a healthy distinction between BAE Systems in Australia and BAE Systems UK that both sides have sought to maintain," said Atkinson. "Equally, there is a division between the RN and the RAN and its officers, doctrines, capabilities and disciplines."
"The Type 26 is but one of many designs being considered by [the Australian] Navy - and the choice will come down to what Navy considers as best fit. An example is the LHDs, built in Spain and fitted out - made into effective warships - by BAE Systems Australia, using and applying Australian designed and approved technologies."