THE COLLINS CLASS SUBMARINE STORY by Peter Yule & Derek Woolner & Peter Yule & Derek Woolner

Author:Peter Yule & Derek Woolner & Peter Yule & Derek Woolner [ and ]
Language: eng
Format: epub
Publisher: Cambridge University Press
Published: 2013-09-27T16:00:00+00:00

In May 1987 ASC had signed a contract setting down the price for delivering six submarines and a schedule for payments. If the Commonwealth had insisted on later or lower payments, ASC would probably have walked away from the negotiations. The consortium partners realised it was a high-risk development project and, given that the Commonwealth insisted on a fixed price contract with only a small contingency, it is hard to see that they would have accepted lower payments for the critical early phase of setting up the project.

Oscar Hughes points out that ASC retained substantial cash reserves in spite of its shareholder dividends. This actually led to one of the first instances of bad publicity for the project, when ASC used some of its cash reserves to buy a Boeing 747 which was leased to Qantas. This was presented in the press as an example of waste and extravagance, although it was a safe, high return investment for reserved capital.7

There were two further aspects ignored by the company’s critics. Firstly, ASC had a lengthy dispute with the Australian Taxation Office, with the tax office insisting that the profits must be distributed or incur heavy tax. Secondly, at all stages the Commonwealth government through AIDC was a major shareholder in ASC and at no stage did it oppose the payment of dividends – on the contrary it appears that AIDC always voted in favour of them.8

Pär Bunke believes ASC’s early profits were due as much to luck as to good management, as the Australian dollar appreciated at a time of high interest rates in the late 1980s and early 1990s. At the start of the project the objective of doing 70 per cent of the work in Australia seemed difficult but the revaluation meant that the 70 per cent of payments made in Australian dollars were worth much more than had been anticipated at the start of the project. This made it much easier for the project to achieve the required Australian content. Conversely, payments in foreign currency were far less than had been anticipated.

The Australian government had agreed that ASC and its sub-contractors could keep the interest on advance payments and the high interest rates of the era made this a useful source of income, particularly as the rise in the dollar meant that there was substantially more spare cash than had been anticipated.

Pär Bunke says that the project was always financially strong and the Commonwealth’s expenditure on the submarines, after allowing for inflation, was well within the original parameters as the launch of the first submarine approached. It is so rare for the projected cost of a defence project to bear any resemblance to the final cost that it seems extraordinary that this was not commented on at the time. The only explanation would appear to be an inability to understand the impact of inflation. Thus, at June 1986 prices the cost of the project was to be $3.892 billion; by December 1993 the estimated cost was $4.989 million – an increase of about 28 per cent, which was less than the rate of inflation over that period.

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