World Economy

France Wins $39b Australia Contract to Build 12 Subs

France Wins $39b Australia Contract to Build 12 SubsFrance Wins $39b Australia Contract to Build 12 Subs

Australia snubbed a bid from Japan to award one of the world’s biggest defense deals to France’s DCNS Group, opting for a contract that will generate jobs in Australia and minimize a backlash from its major trading partner China.

The French offer for the A$50 billion ($39 billion) contract to build 12 submarines trumped those by Japan’s Mitsubishi Heavy Industries Ltd., Kawasaki Heavy Industries Ltd., and Thyssenkrupp AG of Germany. DCNS will build the fleet in Adelaide and the project should create about 2,800 jobs, a point Prime Minister Malcolm Turnbull made in announcing the winner Tuesday ahead of an election expected in July, Bloomberg reported.

The outcome is a double loss for Japan, which saw the contract as a step toward opening up its defense industry two years after the government lifted a decades-old ban on arms exports. Prime Minister Shinzo Abe has also sought to boost ties with Australia, a fellow US ally, as China asserts its military ambitions in the region.

“The geopolitical advantages of strengthening the relationship with Japan were not sufficient to overcome whatever commercial and technical advantages the French bid had,” said Mark Thomson, a defense economics analyst at the Australian Strategic Policy Institute in Canberra. Australia must now “find some way of preserving a constructive, strategic relationship with Japan.”

As a military ally of the US but an economic partner of China, Australia has walked a line between the two countries. Tensions in the western Pacific are increasing as China asserts its claim to more than 80% of the South China Sea, where it has built artificial islands and runways.

“The French offer represented the capabilities best able to meet Australia’s unique needs,” Turnbull told reporters in Adelaide. “The project will see Australian workers building Australian submarines with Australian steel.”

  French Wooing

France pulled out all the stops to win the contract, with Defense Minister Jean-Yves Le Drian spending nearly a week in February touring Australia. Defense is one of France’s biggest industries, providing about 165,000 jobs.

The Shortfin Barracuda submarine designed by state-controlled DCNS will replace Australia’s aging Collins Class vessels and will be diesel-electric powered.

The French bid “included superior sensor performance and stealth characteristics, as well as range and endurance similar to the Collins Class submarine,” Australian Defense Minister Marise Payne said.

The head of Japan’s Acquisition, Technology and Logistics Agency, Hideaki Watanabe, told reporters the outcome was “extremely regrettable.” Mitsubishi Heavy Industries said it was a shame that Japan’s proposal “had not been fully understood.” Shares in the company fell 3.6% in Tokyo.