Inclusive model brings business on board

AEROSPACE, defence and security multinational Babcock last month secured the remaining 50 per cent share in Australian company Naval Ship Management from UGL for a reported $60 million.

Based on NSM’s 2021 revenue of $254 million and assumed net profit numbers, the price seems about right. 

NSM was established in 2012 to provide maintenance services to the Royal Australia Navy’s Anzac-class frigates.

It was initially a joint venture between British-listed Babcock and UGL, which is part of the ASX-listed Cimic Group.

NSM has grown beyond its initial Anzac-class frigate maintenance contract, and now includes Canberra-class landing helicopter docks and 12 LHD landing craft among its prime contractor responsibilities.

Babcock Australasia CEO David Ruff said Australasia was a focus region for the group.

“[T]his shareholding acquisition aligns with our strategy to be the number one warship sustainment company in the region,” Mr Ruff said in a statement.

An interesting aspect of NSM’s operation is that, while the company employees 300 people, it also partners with industry to deliver the hands-on work required in its sustainment contract. NSM calls this its ‘inclusive prime model’.

Under this model, NSM takes an active role in the development of SME capabilities and creates packages of work under a major program that are genuinely contestable for smaller businesses.

These features are significant benefits for industry and clearly help achieve the industry engagement goals so often referenced in policy documents and political media statements.

NSM says its inclusive prime model recognises that: “There is no need for us to replicate capabilities that exist within Australian industry”.

An additional claim is that the model enables NSM to: “Advance Australia’s sustainment capability through innovation, collaboration, long-term partnerships with local industry and investment in our people.”

This model and these words address the concerns held by smaller players in the industry. Within this model sits the opportunity for those businesses to be directly involved, without having their opportunities absorbed by the direct employment of the major primes.

Other more traditional primes would suggest, however, that their business models also meet these targets of inclusivity and industry engagement, and that the distance between these models is not quite as large as it may first appear.

My years as a volunteer advocate for the defence industry has afforded the opportunity to directly discuss the industry engagement actions of major primes with them. The position of those primes with more traditional business models are very similar to NSM.

Like every player in the defence sector, large or small, they feel an obligation to provide the Australian Defence Force with the capability it requires. All acknowledge that the Commonwealth expects a strong and capable ecosystem working with an integrated prime that incorporates all actors: partners, SMEs, academia and defence.

As well as working with these actors locally, the expectation is that the major primes also help these companies gain access to international opportunities in their global supply chain.

They all engage with industry through forums such as ICN Gateway, conduct industry engagement seminars, employ Australian residents, and invest in youth through apprenticeship programs.

Emerging trends include the mentoring and development of indigenous people and indigenous-owned businesses, as well as an investment in developing Australian businesses and guiding them through the uplifting of their capabilities.

Traditional primes are also keen to defend themselves against the perception that they consume large scopes of work and distribute that through the global empire of the multinational to which they report, avoiding Australian industry engagement in the process.

They point to logistical considerations and international business complexities, regardless of the logo on the shirt, that make Australian industry engagement far more practical, effective and enjoyable.

NSM should be applauded for its inclusive prime model. It engages and develops industry in exactly the way that policy intends.

But this does not mean other business models fail to do so. If executed with genuine intent and with a drive to achieve results for the ADF while developing Australian industry, more traditional business models have also shown themselves to be very effective.

To have differing business models working towards the same results, supported by government policy and contractual conditions, is certainly encouraging for the future of Australian defence industry. 

• Kristian Constantinides is the general manager of Airflite, and chairperson of AIDN-WA; the opinions expressed are purely his own