January 22, 2016

Controversial Reuters Article on "Germans lose ground"

Table comparing the Collins with the 3 CEP Contenders. As it is dated May 2015 there are some errors in "Submerged Displacement",  "Range" knots (surfaced, snorting, fully submerged?) of the 3 contenders. Cruise missiles or not? (Table courtesy NewsCorp via Australian Made Defence
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I’m still writing my article on Russia’s decision to discontinue building Ladas/Amurs. Much to think through.

Meanwhile – this Reuters article Australian submarine tender narrows to Japanese and French bids, Germans lose ground-sources, of January 21, 2015, has many controversial assumptions. Can you pick them? See http://www.reuters.com/article/us-australia-submarines-competition-idUSKCN0UZ316:

"[Tokyo/Sydney] The competition for a A$50 billion ($34.55 billion) contract to build Australia's next submarine fleet is narrowing to a race between Japan and France as a bid from Germany's ThyssenKrupp Marine Systems (TKAG.DE) (TKMS) loses ground over technical concerns, multiple sources said.


Australia is expected to decide the winner of one of the world's most lucrative defense contracts within the next six months, ahead of a national election in which the deal and the jobs it will create is expected to be a key issue for the conservative government…."


Pete

19 comments:

Anonymous said...

Hi Pete

The reliability of the Shortfin Barracuda whose parent model is under constructing is not pointed out as a problem. Only the reliability of TKMS is pointed out, suggesting very low evaluation of the reliability of TKMS. I heard a bad rumor of the reliability, but I thought that rumor was rumor. I still doubt veracity of the Reuters.

Last December, Senator Masahisa Sato, ex-Captain of Japan Ground Self-Defense Force, currently a member of LDP (Liberal Democratic Party) National Defense Division said that the submarine tender would become two-horse race with France and Japan, because German submarine was too small. I did not believe his opinion at all, but now must I believe it?

Possibility of winning of Japan is very high in the race against France.

Regards
S

Anonymous said...

The DCNS Barracuda, aka Suffren, does not have VLS and only sports 4 torpedo tubes. Does it mean the lighter diesel version will have a VLS module plug for the same length? Scalp is launched thru a torpedo tube anyway.

I do not know if Soryu Mk2 is going to have VLS or not but to say it cannot launch SLCM is incorrect since the British launches Tomahawk SLCM thru 533mm torpedo tubes so my guess is Soryu (or any submarine) can do the same.

Why would TKMS not be short listed since all 3 designs are quite close to each other in my view. In competitive biddings, you want to short list as many as possible, and let pricing, industrial offsets do the talking.
KQN

Anonymous said...

Comment from MHalblaub [brought forward]:

The last public [TKMS] quote was $20 billion. The offers are already made.

In my opinion this was a rough estimation made by TKMS representative Atzpodien with a lot of margin for a lower price.

The costs for the Japanese submarines are dubious to me because I am not aware what is not included. Due to the Australian specifications e.g. US systems the price will raise.

If Japan likes to pay the submarines for Australia I would say: "Why not"

My point is still I doubt the 4,000 t requirement. Requirements should be about capabilities and not about mass.

Regards,
MHalblaub

Peter Coates said...

Hi S

Yes both the inside arrangements of 216 AND the Shortfin are basically paper designs. This does not make the 216 automatically inferior or higher risk than the Shortfin.

TKMS created the Dolphin 2 which is substantially larger than the 214 so TKMS has experience enlarging existing designs..

Yeah I don't believe Senator Masahisa Sato's opinion. TKMS has decades of experience building submarines to sizes different customers want. If I had a choice I would say a surfaced weight of 3,300 tons for any of the 3 contenders would be less risky than a 4,000 ton (surfaced) sub.

I'd say France's main strength is its ability to presnt a low (SSK) - high (SSN) mix. That is "low" 6 SSK Shortfin/Barracuda's in 2025-35 then the "high" is 4 to 6 SSN Barracuda's 2030 onwards.

Regards

Pete

Peter Coates said...

Hi KQN

The Barracuda/Suffren would be heavily influenced by the SMX Ocean concept sub. Here's an SMX Youtube https://www.youtube.com/watch?v=18nx44_w0uc which pretty much indicates any feature could be included into such a large 4,500+ ton (surfaced) design. So VLS is possible but DCNS would need help from US companies that are installing the combat system/weapons. VLS installation could actually over-rule what DCNS pictures right now.

So the DCNS sub could end up (influenced by the US and Australia with 6 torpedo tubes and a VLS. It is also likely Australia would want Tomahawk cruise missiles (orginally intended for the Collins) rather than SCALP. But as you say Tomahawk's can be launched through torpedo tubes so many choices or pressures can be imposed by the US and Australia on any of the 3 contenders.

Regards

Pete

Peter Coates said...

Hi MHalblaub

I brought forward your comment from a prior article because you comments fit well here :)

Yes the last public [TKMS] quote by TKMS Chairman Atzodien was $20 billion for 12 subs. He made that promise in April 2014 http://www.aspistrategist.org.au/aspis-submarine-conference-key-messages/ . He repeated that in Sept 2015 http://www.couriermail.com.au/news/breaking-news/aust-sub-build-as-cheap-as-germany-tkms/news-story/f37f09260cc03484566e4ee80a7cd34a . So 10 subs would be cheaper and if there are inclusions (eg. spare parts). With further price dropping the TKMS price may effectively be as low as Japan's.

The Combat System/Weapons price may be substantial (especially if Lockheed Martin is integrating it) likely around US$One+ billion (especially Tomahawks will be espensive as they are new items for Australia).

There is a risk that if KHI and MHI really go into the "red" subsidising a low upfront price, they will seek to recover the loss in subsequent maintenance/spare parts costs.

Yes the "4,000 t requirement" came from the 2009 Defence White Paper debate under the now Opposition Labor Party. Germany has a skill at packing much capability efficiently into smallish submarines. Smaller submarines are cheaper to operate and maintain and stealthier as there is less to detect.

Regards

Pete

Anonymous said...

As free countries, Australia and Japan share same values. Market based relationship between demand and supply is one of these values. When the demand for iron ore increased, Australia increased its price and Japan accepted the price spike. When the submarine tender was critical, Japanese government forced zero profit to KHI and MHI to win the tender, because she thought the supply surpassed the demand.

US does not intend to discount its combat system for Australia, because the demand surpasses the supply. Now, the demand for Japanese submarine surpasses the supply, so Japan should increase the price of submarines to the proper extent from 50 to 100%. As current price is too cheap, MHI and KHI will become red.

Anonymous said...

While everyone is everywhere talking about interoperability of submarines, e.g. US and Australian submarines can work better together with Japanese built subs than with German or French submarines, I very much doubt that view. Interoperability for combined operations has something to do with common combat systems, common C4ISR, common operational concepts and common language, maybe even common weapons. It has nothing to do with the type of submarines. Therefore, the question needs to be asked why it appears that the USA favours Option J for Australia?
Turning the argument around, the reason for the US might actually not be to strengthen the triple alliance, but to weaken China - and that can much easier be done by Australia acquiring the best possible submarine - which is not necessarily the Japanese sub.

Anonymous said...

On the US combat management system, pricing will depend on how the deal is structured. It is possible for Australia to get the same price that the USN is paying. That will be the floor price since the US will not discount beyond that.

Japan is jump starting an export defense business, so I bet it will be aggressive on pricing. It cannot afford to lose its 1st deal which happens to be a mega deal. After all to grow a business, you need to take on some debt. Japan will still benefit since after all, with or without Australia, it is investing into LIB Soryu 2. If it can get Australia to tag on, things will look better on the balance sheet.

Price wise, I would watch out on DCNS if I am Japan. DCNS is a state owned enterprise so you can never be sure what cost of money the French state will use on this business case (besides the EU is flooding financial markets with cheap money). State owned means government employees and that means without this deal, they are still on payrolls. And then the whole economy is bad, with near 11% unemploymemt. If this deal closes at the end of 2016, it gets dicy for the French government. April 2017 is election in France. Mr. Hollande may deems this a must win so he can get re-elected. Still France is a bit stuck on pricing as they cannot afford to fuss up Malaysia with a low pricing here. France needs Malaysia to buy their Rafales, To the extent that this short fin can leverage from the Barracuda investment, France can also leverage this to lower its price just as Japan.

TKMS in my view is the one that gets cornered on pricing. They cannot low ball so much to make the Koreans and Singaporeans mad, just in Asia alone. The German economy is out performing, there is full employment so this deal may not be so critical?

KQN

Peter Coates said...

Hi KQN

Your Jan 24, 2:41AM comment is so interesting (and new) I'll turn it into a new article later today.

Regards

Pete

Anonymous said...

Among performance, pricing and US combat system, performance is most important. We should answer a question “If you are a submariner, which submarine do you select in the battlefield”.

Evolved Soryu with LIBs can quickly reach target area, attack enemy, and then quickly dive deeper than crusher depth of enemy torpedo according to ex-vice admiral of JMSDF and ex-commander of submarine force, Masao Kobayashi. The submariner can rely on the evolved Soryu.

Type 216 is less realistic than the evolved Soryu. The reliability of Type 214 which is a base model of Type 216 seems to be lower than Soryu according to several facts.

A number of modifications of nuke to conventional submarine are needed in the case of DCNS. As the modifications include exchange of nuclear reactor by diesel engine, equipment of heavy batteries and diesel fuel, and change of configuration, their effect on performance and reliability of submarine is very serious. But, there are no actual data of performance and reliability.

If DCNS reduces selling price of Shortfin Barracuda to half price of the evolved Soryu, do submariners select Shortfin Barracuda in this situation? I do not think so.

From anonymous (January 23, 2016 at 9:21 PM)

MHalblaub said...

Dear Pete,

lately I had a quite different idea.

A dive off

The problem of selecting on submarine from on manufacturer allows the winner to raise the prices later on. Even a fixed price contract has a lot of holes any company can exploit.

I would choose the best two offers.

Both companies will get the order to build 3 submarines. The next batch of 6 submarines will got to the better one. So each company will be eager to deliver the submarine on time and on price.

In the end 3 orphan submarines will be cheaper to scrap, sell or whatever than a batch of 12 without ongoing competition.

Regards,
MHalblaub

P.S.:

This from the article itself says it all:
"The rumors could well be right. Who knows," Duncan told Reuters when asked to respond to what the industrial sources said. "My only advice, having spent many years in this environment is: believe nothing that you hear and only half of what you see."

Peter Coates said...

Hi MHalblaub

I too think the CEP should just eliminate one contender. Then there should be a further contest between the final two.

But we may differ on 2 x 3. I don't know if TKMS or DCNS would each build just 3 216s or Shortfins, very uneconomic for builders and the RAN customer. Japan would need less adjustments to build 3 Super Soryus.

If Australia goes by its Oberon and Collins record it may only buy 6 submarines all up - so 3 + 3 might be what its left with.

Very true what Duncan says. Australia may even dither for 5 years and choose 4 x Virginia SSNs in the end.

Regards

Pete

Peter Coates said...

Thanks Anonymouses

Many good points. Too many to respond to.

Regards

Pete

Anonymous said...


Japanese government was heavily criticized for its negative attitude in submarine selling, and Japanese government changed the attitude and offered full access of the submarine technology. Now Japanese government asks MHI and KHI zero profit production (=red). Zero profit means pain of the two companies and their worker, many people will work for long period without overtime money. You may think it is strange, but it is true.

The aim of submarine selling of Japan is not only strategic purpose and future weapon business, but also friendship of Japan which includes improvement of job situation of SA.

I do not know why Japanese workers had to be treated badly in return of sincere friendship. It is ceaseless efforts by workers and engineers that create submarine technology, but not political activities by PM Abe. I haven't heard humble but proud words for years since Rear-Admiral Moffitt’s opinion [1].

[1] http://www.smh.com.au/national/navy-eyeing-off-new-japanese-submarines-20120708-21pgb.html
Near years ago, Rear-Admiral Moffitt said ''However, submarine technology tends to be crown-jewel stuff for nations, it tends to be at the most extreme end of sensitivity that nations have about protecting their intellectual property - especially if they have developed it themselves, as Japan has, as the US has. They've invested a vast amount of money doing that.''

Regards
S

Anonymous said...

Before correction
Near years ago, Rear-Admiral Moffitt said

After correction
Rear-Admiral Moffitt said

Peter Coates said...

Hi S [Jan 25, 11:23PM and 11:28PM]

It is admirable that Japanese workers are receiving no overtime and MHI and KHI operating on no-profit to win the Australian contract. Such measures and strength of feeling may be necessary to beat established submarine sellers TKMS and DCNS.

It is inevitable that such Japanese sacrifice increases the political obligation on Australia to buy the Super Soryus.

I'm hoping that Australia's security measures, particularly over companies that operate in both Australia + China are strong enough to prevent Japanese "crown jewel" secrets being handed to China. Submarine steel and welding methods and LIB technology are particularly sensitive.

Ethnic Chinese Australians might be pressured by the Chinese Government (via pressuring relatives still in China) to hand over Japanese secrets.

Regards

Pete

Anonymous said...

Hi Pete

No one likes unpaid overtime work. It is violation of Labor Standards Act violation in Japan. If workers refuse, the company sometimes retaliates by various manners such as delay of promotion. In the case of middle management who is not belong to labor union, situation is much miserable.

Regards

Peter Coates said...

Hi Anonymous [Jan 26, 9:00PM]

Yes the life of Japanese middle management also known as "salarymen" seems difficult.

https://en.wikipedia.org/wiki/Salaryman :

"refers to a man whose income is salary based, particularly those working for corporations. It has gradually become accepted in Anglophone countries as a noun for a Japanese white-collar worker or businessman. The term salaryman refers exclusively to men; for women the term career woman or, for lower prestige jobs office lady is used.

Japan's society prepares its people to work primarily for the good of the whole society rather than just the individual himself, and the salaryman is a part of that. He is expected to work long hours, additional overtime, to participate in after-work leisure activities such as drinking and visiting hostess bars with his colleagues, and to value work over all else."

Unfortunately or fortunately long term commitment is useful for longterm, complex subjects like submarines.

Australia's work ethic may not be as useful, where corporate and government white collar workers are increasingly highly paid contractors who shift between companies often - or companies dissolve or regroup. Also highly skilled welders may disappear after three years to highly paid jobs overeseas (not in Japan or Australia).

So Japanese and Australian work culture may not be as compatible as it should be.

Regards

Pete