Aussies ‘secretly cancel’ $1.3B AUD drone deal; Nixing French subs may cost $5B

SYDNEY: In what was a pretty uncomfortable and revealing hearing in Australia’s Senate today, the Ministry of Defense disclosed it has canceled a deal to buy MQ-9B drones from General Atomics — a sale seven years in the making.

The cancellation occurred largely as a result of Australia’s decision to commit the considerable sum of $10 billion AUD ($7.4 billion USD) for the next 10 years — not previously funded — on the Australian Signals Directorate. Specifically, defense officials said the decision to cancel was made to fund REDSPICE, as the effort to double the number of personnel at ASD is known.

General Atomics, which has generally kept a pretty low public profile, issued a lengthy statement, the gist of which was they aren’t very happy. Armed drones, of course, have played critical roles in the US-led wars in Iraq and Afghanistan and more recently in the Armenia-Azerbaijan war and in Ukraine. For Australia, a vast country with regional and global operations, Project Art 7003 — as it was formally known — seemed a very good fit, even at a price tag of $1.3 billion AUD ($980 million USD).

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The Aussie version was based on Britain’s SkyGuardian program. There would have been an initial 12 aircraft based at Edinburgh in South Australia.

“Project Air 7003 was expected to provide the Australian Defence Force with a reliable and desperately needed capability: An armed, medium-altitude, long-endurance, remotely piloted aircraft system providing persistent airborne Intelligence, Surveillance, Reconnaissance, Electronic Warfare and precision strike capability for both land and maritime environments,” David Alexander, president of General Atomics Aeronautical Systems, said in a statement.

“The cancellation is disappointing for a number of reasons. Project Air 7003 offered a cost-effective, multi-domain capability that is deeply relevant to Australia’s future strategic environment. Equally disappointing, our many Team SkyGuardian Australia partner companies have invested in the start-up and future support for this capability in Australia and will lose considerable sovereign capability opportunities following this decision.”

That’s a clear dig at the current government, which made the decision to kill the sale, that has made investing in Australian companies and a resilient Aussie supply chain a key policy goal.

In what could serve as a coda to the deal, Alexander added that: “If recent world events have shown us anything, it’s that such capabilities are crucial to the future of global defense and security.” He said the company remains committed to working in the Indo-Pacific region.

Kym Bergman of Asia-Pacific Defence Reporter estimates that GA has spent some $30 million of its own cash to bolster its offering in Australia. Defense Minister Peter Dutton, who rarely misses a chance to grab a headline or two, clearly didn’t think this was a winner as he has said nary a word about the cancellation.

The Labor Party defense shadow minister jumped on the Liberal Party’s action saying in a statement that the “program has been secretly cancelled without reference in the budget.” The news of the cancellation came when Sen. Timothy Ayres pressed a government official.

In the same Senate hearing on the Budget Estimates, a dentist might have appreciated the tenacious efforts of several senators, especially Sen. Penny Wong. She pressed to find out how much Australia may have to pay up for its abrupt cancellation of its $66 billion deal to buy French conventional attack submarines. Wong kept slowly extracting information from ministry officials as they dodged and weaved. That, of course, occurred because Britain and the United States agreed to help Australia build nuclear attack submarines, and work on a range of classified technologies as well as part of AUKUS.

It was difficult to pin down exactly how much the government has actually budgeted to pay the termination costs. Defense officials told the senators that they expected to reach agreement with Lockheed Martin, who was going to build the subs’ combat system, soon. Negotiations with the French did not sound nearly so hopeful.

Eager to score some election points and engaging in traditional parliamentary debate, Wong finally pressed for a clear answer: “Basically we have a five-and-a-half billion dollar budget provision, including about $3 billion spent to date, and potential costs within that envelope. So taxpayers will be up for five-and-a-half billion dollars and submarines that don’t exist?”

The reply from a clearly uncomfortable Tony Dalton, the deputy secretary for national naval shipbuilding: “The final negotiated settlement will be within that price, senator.”

Meanwhile, the government will need to fund REDSPICE, the building of a new $10 billion submarine port on Australia’s east coast, the planned 30 percent expansion of its force structure for $38 billion and other commitments it has made in the last few months. That, of course, presumes the coalition government wins the federal election that must be called by May 21.