The Weekly Wire: Week of 5/11/2015

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Australia flag

Australia

Last week, Australia officially invited Japan to join the tender process for a future fleet of long-range submarines. Japan, in turn, agreed to share information about classified technologies on its Soryu-class submarine with Australia – the first time Japan has agreed to share classified information with any country other than the United States.  Even before last week’s announcement, Japan’s Soryu-class submarine was widely considered the front-runner for the project. It is regarded as more technically sophisticated than its competitors—Germany’s Type 214 submarine and France’s Scorpene-class. However, it is also more expensive, coming in at $210M more per unit than the cheapest option.

Japan Soryu-class $540M
France Scorpene-class $450M
Germany Type 214 $330M

*With R&D costs, the actual per unit prices are likely even higher
The cost per submarine may be a significant factor for the Australian Defense Force (ADF) to consider. The proposed program has the potential to be one of the biggest in the history of the ADF and aims to procure 12 submarines for approximately $35B, with production to begin before 2025. High costs have the potential to strain Australia’s defense resources, especially since Australia might still be paying for its first two batches of F-35A fighters at the same time (batch 1 is for 14 aircraft and batch 2 is for 58 aircraft). Furthermore, if Australia agrees to buy a third batch of 14 additional F-35A’s in project AIR 6000 Phase 2C, then the procurement of just two platforms – the F-35A and a new long-range submarine – could consume a whopping 30%-50% of the defense investment topline in the out-years.

Italy flag

Italy

The Italian Navy signed a deal with two domestic defense giants for the production and maintenance of six new ships last week after delays in the final stages. Under a temporary industrial cooperation agreement, Italian shipyard Fincantieri will team with Italian defense group Finmeccanica to build six offshore patrol ships (PPA) and one logistics support ship. Fincantieri will receive €2.3 billion and Finmeccanica will rake in €1.2 billion out of a €3.5 billion deal. Reports surfaced in October of 2014 that the deal was nearly complete, and almost seven months later it was finalized. The ships are set to be delivered on a yearly basis from 2021-2025. In addition to providing an obvious upgrade to the Italian Navy, the finalization of the deal brings closure to the first step within a larger Italian Naval improvement process. The deal kicks off a massive 20-year, €5.8 billion funding package for the Italian Navy, often referred to as the Naval Law. With the first pens to paper, look for the remaining €2.3 to follow suit with more projects in the near future.

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