Securing Australia’s Missile Sovereignty

Defence Connect Podcast: Securing Australia’s Missile Sovereignty with Jim McDowell, Group CEO of Nova Systems and Dr Ben Greene, Group CEO of EOS. With the recent formation of the Sovereign Missile Alliance joint venture, Nova Systems and EOS rise to the challenge of building a sovereign guided munitions capability.

Jim McDowell, Group CEO of Nova Systems and Dr Ben Greene, Group CEO of EOS join host Liam Garman to unveil the new Sovereign Missile Alliance (SMA), a joint venture between Nova Systems and EOS to develop a sovereign guided munitions capability in Australia.

The pair discuss how sovereign capability is in the DNA of the SMA, drawing on an ecosystem of over 600 Australian SMEs to support the full length of the missile supply chain from design to development and delivery.

Transcript

Speaker 1:

Welcome to the Defence Connect Podcast with your host, Phil Tarrant.

Liam Garman:

Well, good day, everyone. It's Liam Garman here, editor for Defence & Security at Momentum Media. Unfortunately, Phil hasn't been able to join us today, but you're in safe hands. We have a really special podcast today. I am joined by Jim McDowell, Nova Group CEO and Ben Greene, Group CEO of EOS. And I know both of these gentlemen have had some bumper years and they've got some amazing things to fill us in on regarding Australia's vibrant and innovative defence industry. Gentlemen, how are you?

Jim McDowell:

Very well, Liam. How are you?

Liam Garman:

Very well, just to give a bit of background to our listeners, would you both be able to introduce yourselves and introduce the companies that you both work for? Because I know you've had a very exciting announcement over the last couple of weeks, which we'll touch on shortly, but if you're both able to introduce Nova and EOS to the listeners.

Jim McDowell:

Okay. I'm Jim McDowell, Group Chief Executive of Nova Systems, which is a group of companies that specialises particularly in engineering services to the defence industry, both above and below the line, above the line to the Commonwealth and below the line to the defence primes and others. We also have a three little solution software companies, working mostly in the geospatial, but also in aircraft modification services in Australia for 90% of our business. But we have about 100 people in Europe, mostly in the United Kingdom and a few in Norway and also an operation in Singapore. So basically, defence engineering professional services, largest Australian privately-owned business in that field in Australia.

Ben Greene:

So I'm Ben Greene, I'm Group Chief Executive Officer of EOS. EOS is Australia's largest listed defence company and our largest defence exporter. The company has three operating entities. We operate in space, communications and defence. In space, we have a significant missile defence and missile programme. But also in defence, we have a programme that manufactures and participates in missile subsystems, technology development and production. So the company was founded in 1985. And for its entire period of existence, it has operated over 90% in export markets, principally in the U.S. and other allies, in Europe and northern Asia. The fundamental element of the company is technology, so we don't participate in any programme typically where we do not produce the technology ourselves in our own labs or in collaboration with a partner in a joint laboratory. And that's been the theme in EOS for about 35 years.

Liam Garman:

The cool thing is you're both Aussie companies, and that leads into kind of our first question today. And the first thing that I want to explore with the both of you is that you are both Aussie homegrown companies from the ground up, which is really exciting. And a lot of our listeners are from defence SMEs or from primes. And I think one of the biggest things that we talk about today in defence industry is that we're always throwing around the term sovereignty and sovereign, and everyone's always bringing it up. Everyone's always mentioning it. And this is right across the spectrum, all the way from the government down through to the primes, through to defence SMEs. But it seems that so many people bring it up without really qualifying it. And it seems that people just use it as like a kind of catch-all term without really any meaningful engagement behind it. How would you both define sovereignty within the context of Australia's defence ecosystem?

Jim McDowell:

So sovereignty is relatively easy to define because you just look it up in a dictionary, and the dictionary makes it very clear that sovereignty equals control. And therefore, if you are in control of your company, if you're in control of the assets, if you're in control of the investment, discretionary expenditure, where you pay your tax, where you repatriate your profits, you're in an entirely sovereign position because you control all of that in Australia. The board of directors are here. The headquarters are here. Nearly all of the staff are here. A lot of the discretionary decisions are taken here. That's what I mean by sovereignty.

Ben Greene:

And I'd add to that. That's a very good definition. What I'd add to that is there's a pub test you can apply on top of that, which is 'winning stress', who would have the first call on the resources of the entity, where would that entity's heart lie if there was a global threat or if everyone who had a legitimate interest in that entity was under threat, where would the first call on resources go? And if that's Australia, then it's an Australian sovereign entity as well.

Liam Garman:

I think that's a very strong point because what we've seen recently is a lot of defence commentators talking about the importance of national resilience as a factor within our defence industry. And to say that in an interconnected and global world, part of that natural resilience, as you said, Dr. Greene, is having defence companies that do prioritise Australia and put Australia first. And that plays into a big factor of why you do need a sovereign defence system. And recently, the government's announced plans to fast-track the creation of a $1 billion sovereign-guided weapons and explosive ordinance programme. And I know both of you have had some very amazing announcements in that.

So a bit of background for those who are unaware. Basically, the government's planning on building an Australian-guided weapons and munitions industry in Australia, which is crucial for building our national resilience and crucial for building Australia's defence industry. Are we ready? Do we have the capability in Australia for this amazing technology and to bring it to Australia and to have a sovereign guided munitions industry here?

Ben Greene:

Absolutely. We've got all the building blocks in this country to step forward into meet that requirement for the government, particularly in this case as the government is articulating a strategic process of 20 years. And it won't take us that long. It won't even take us half that long to have our own missiles. So when you look at what makes up a guided weapon, there's propulsion at the back and the close of ordinance at the front. But everything that's really important technologically is in between. We're talking about the navigation system, the seeker system that finds the target, stabilisation system, the overall weapon system to architecture and how you work with that and the C2, the command and control system, that manages that missile before and during the engagement. And all of those technologies exist to an advanced state in Australia.

Jim McDowell:

Yes. I think just to back on the sovereign issue you're talking about, of course, we will be sovereign, everything that we do in Australia. We've already lost the capability to design and build combat aircraft, design and build submarines. But here's an area where, as Ben said, we actually have all of the capability. We have not got to give that position away. We still have all the building blocks. And as I like to say, in guided weapons, smart bit isn't the weapon, the smart bit is the guided and how you acquire your targets, how you sort them out, how you engage them. Then you get them there by use of a rocket motor, and then how you hit the right target when you want to and how that is all integrated into the Australian battle management system. All of that is present in Australia.

We've been a bit lazy, maybe, as exploiting it. The government have now decided that they're going to make it a priority. And all of the capabilities are not here for it to be systematised, experience into it, to get a sovereign entity that will be able to build an Australian family of missiles inside the time period that the government is asking for.

Liam Garman:

And I know you both have had an amazing announcement over the last few weeks. Would you like to introduce that to us?

Ben Greene:

Well, Nova systems and EOS have formed a joint venture, a 50-50 joint venture, which draws on the resources of both parent companies. And that joint venture is called Sovereign Missile Alliance. It's an incorporated entity. It's a real business. And that enterprise, that company is going to participate in the Commonwealth's competition to select companies to establish the sovereign missile enterprise. And the capitally enterprise is a concept which Commonwealth has launched, which is really about establishing a sovereign missile capability in Australia from the whole spectrum of activities, from optimising the availability of the current inventory of missiles through to producing missiles in Australia that might've been designed and developed overseas and ultimately, to produce in volume missiles of Australian design and development that can be used entirely at the discretion of Australia.

Jim McDowell:

So you've got to have capability, which Ben has described rather well there, particularly with regard to all of the multiple technology elements or EOS plus Nova's experience in qualifying and certifying and integrating project management and training. So across the whole spectrum of this enterprise, we've got the capability. And crucially, we've also got the scale. You've got to have scale, and you've got to have the ability to have relationships with very large overseas entities, which indeed both our companies have done for many years. So we've got all of those things sitting in a joint venture company that's entirely Australian owned and operated.

Liam Garman:

And I know this is likely to spark a little bit of a debate because you do have to draw from technologies from a multitude of areas, but would the IP be Australian owned? Is it kind of being domiciled here in Australia for Australian use? Would the IP remain within yours or perhaps the government's ownership?

Ben Greene:

I should take that. We go back to the definition of sovereign that Jim gave us. If it's controlled here, it's sovereign. We don't care where it came from as long as it's controlled. So if the IP comes from anywhere in the world comes into Australian companies to use, and that IP doesn't have to respond to demands or controls from any other sovereign entity. So the way we would put it is as long as the products that use that IP are distributed, dispersed and deployed entirely at the whim of the Commonwealth of Australia and subject to no other controls, then that's a sovereign piece of IP.

Liam Garman:

I suppose it does make sense because in the end, it would be a supply and demand type issue. And in the end, we are talking about defence industry and weapons here. And in the event of war, you do need an industry here because you can't rely on global supply chains to resupply you in the event of a crisis, which we definitely saw with COVID-19 and the impacts that that has had on global supply chains. And I know that's something that's mimicked throughout a lot of people in the defence industry that they've said, one thing we've learned throughout COVID is that we rely on these global supply chains and that's why you do need to have your sovereign industry domiciled in Australia.

Jim McDowell:

Yeah. I think Ben also makes the point, it's not just certainty of supply, certainty of use. So not only have you got certainty of supply, but you are the only nation that has to call on how and when and where you use your inventory, you use your IP, you use your hardware. It's not, we're going to sell you this but you're not allowed to use it here, you're not allowed to use it this way, which is quite common for imported missile purchases. So you need certainty of supply, and you need certainty of use.

Ben Greene:

Let me go back to the IP issue. Most of the major sources of IP that SMA, Sovereign Missile Alliance, would be using are already significant users of our IP. In other words, we wouldn't be looking to establish IP transfer relationships from the get go and in a unidirectional way. Most of those relationships exist now, and the bulk of the flow of IP is from Australia outwards, from SMA partners outwards to those entities that are actually the major providers of missile technology. And we are, in fact, already contributing to some of that missile technology for their programmes.

So the whole IP situation is much more stable and controllable than most people think. The area where there is potentially an issue is the complexity of the U.S. licencing situation where U.S. manufacturers, with all the will in the world, will still need the permission of Congress to export IP. And Australia is, of course, one of the most favoured nations for transfer of IP. And even so, that process is heavily fraught. EOS has full-time staff in the U.S. and have had for quite a long time managing U.S. export control, documentation processes and compliance, and they are very, very complex issues. And one of the things that SMA brings to this that no other Australian entity can do is that level of experience in dealing with that export licence process for IP out of the U.S.

Liam Garman:

And I know, Jim, you've had a fair bit of experience with dealing with those international governments.

Jim McDowell:

Yes. I mean, I spent most of my working career in the big primes. So I understand, for example, the process you have to go through to get discretionary funding when your headquarters is in London and you're operating in Australia. Well, I also operated in the United States, helping to sell product out of the U.K. and to at that time in the United States. So just personally, I have a long and deep association with the United States defence procurement and defence export agencies, and then how indeed the Congress operates and how funds get authorised and appropriated in the United States. So that's a very important skillset to have.

Liam Garman:

We're going to go to a quick break. But just before we do, for those, you who have bought tickets to our AIC Summit, the new date is now the 22nd of October. Unfortunately, due to the current COVID circumstances, we've had to rearrange that date. If you need to get into contact, please reach out to defenceconnect.com.au and our amazing events team if you need any further information with that.

We'll be back soon.

And we're back. Just before the break, we were talking about Australia's resilience and sovereign defence industry, especially in the face of global supply chain crisis, which we did see with COVID-19. And so many Australian defence SMEs are talking about the impact that COVID-19 and global shipping, global supply chains have had on their business. One other thing that we're dealing with at the moment is the current geopolitical climate in Asia Pacific, gentlemen. How is this going to affect your recent joint venture, the Sovereign Missile Alliance regarding the rate and importance of delivery of the sovereign-guided weapons and explosive ordinance enterprise?

Jim McDowell:

Well, I'm not a politician. There are foreign relations between Australia and its allies, and its near neighbours and other countries in the Indo-Pacific, but it's pretty well recorded that the situation is less stable than it has been probably since the second world war, particularly with the rise of and sophistication of China, particularly, and the going back to what looks like a bipolar superpower position with the United States now being challenged by another superpower. That's all in our region. We only have one treaty, one defence treaty, and that's with the United States. So our position as a key ally for the United States in the Indo-Pacific means that we are very involved in the discussion, and we'll be very involved in the activity that results from whatever defence posture the United States wants to take and whatever defence posture Australia wants to take. This is not going away anytime soon, and we need to get those gaps in our capabilities, bridged and closed as quickly as possible.

Liam Garman:

Dr. Greene, do you have anything you'd like to expand on?

Ben Greene:

Well, I think one of the things that's very germane to the missile enterprise discussion is the fact that any missile capability that Australia would have through a whole suite of missile products is almost entirely defensive. So this is one thing that's a priority for our defence that would not be offensive regionally. For example, we can see in the missile programmes, there'll be a significant ramp up of air defence missiles, for example. They're inherently defensive. Any kind of surface-to-surface missile we would have arranged would be quite visibly and transparently applicable to surface attacks on Australia through the sea lanes. So the defensive nature of the missile programme is something which makes it very acceptable within our neighbourhood. And given, as Jim said, our neighbourhood is becoming a focus of what is a superpower rivalry. I think that having a capability that is acceptable within the neighbourhood is very important.

Liam Garman:

Yeah. And it is becoming the new normal, the fact that the Indo-Pacific is seen as that flash point. All eyes are on the Indo-Pacific. They are on our neighbourhood. And potentially on your point before, Jim, that's just the world that we're living in now. That is the new normal. And for Australia to continue to play a role in this, we do need a sovereign defence industry. And I think a lot of analysts would go as far to say that we have to burden share with the U.S. because this is one of the first times in many decades that the U.S. has been challenged for military supremacy, and it is Australia's role to have a burden sharing relationship with the U.S. And a sovereign-guided munitions capability is absolutely fundamental to that.

Jim McDowell:

Yup. And the Australia has in fairness to the government. The federal government has stepped up pretty well to get its defence spending to a level of around 2% of GDP, which is the level that the United States would expect in most or all of its allies. There are very few countries who have done that. So we've now got the budget and allocations, I think, that we need. And we need to take advantage of those budget allocations, particularly to fill these defensive gaps that we have.

Liam Garman:

And in terms of this global flash point and this all eyes on the Indo-Pacific, on the neighbourhood, increasing Australia's capacity and expertise with guided-weapons and explosive ordinance, one of the most crucial things is, is that we ensure ongoing stock for the Australian defence force, which, I think we all agree with, we need a well funded and well-stocked Australian defence force and provides opportunities to supply key components to our international strategic partners and make sure that we can meet their short force as well. For our listeners, what opportunities will be available to local suppliers to partner with the Sovereign Missile Alliance?

Ben Greene:

The Sovereign Missile Alliance starts from the get go with 600 SMEs in our supply chain. New entrants are welcome to join us at any time. And particularly as this enterprise starts to take shape, new requirements will be there, but I think we have the most qualified aerospace industry supply chain applicable to this type of enterprise already in the 600 companies. In addition to that, there are other enterprises in Australia that are at the larger end of the SME scale, where they actually have significant technologies, not just supplies, but technologies that can be aggregated to form critical subsystems within the missile chain. So we've experimented with this in the past and more recently transitioned to some major programme where we can pull together a collective of 10, 15, 20 SMEs and find a way to pull their technologies together to create a virtual prime out of that SME process. And that's unique. I don't know that that's ever been done anywhere else in the world.

And EOS won't take credit for this. This was a Department of Defence initiative here in Canberra. We've been able to pull together and effectively create a focused product development scheme that produced a better outcome than any single major prime could have done simply by tapping the energy resources and brilliance of the Australian SME ecosystem. So there are many opportunities of that kind, particularly as we move forward into this new domain, because within SMA, we've got very, very important technologies for what we call seeding. We can seed the ecosystem with capabilities and technologies, and we can embed those seeds in SMEs that are largely capable in their own right, but just haven't had the resources to develop that particular element of a navigation system or that particular part of a missile seeker.

And so what SMA brings to this is, is that 30 years experience of living in this ecosystem. This is not United States. This is not Europe. This is a completely different ecosystem where the Australian approach to industry is very largely based on SMEs. That's just a fact. We don't have very, very large primes. We have a whole ocean of SMEs some of them quite brilliant, and all of them looking for opportunities. SMA will be the opportunity that, not just because we're welcoming, but because we have the cornerstones of IP and technology that their capabilities cannot create around. We can create critical mass for them.

Jim McDowell:

So I think the important part of that for me was this is not a hypothetical question for SMA. This is something that both our companies have been doing every day since it was founded, because the companies were founded in Australia 21 years ago, Ben's 35 years ago. And we have built up in the ecosystem that is part of our system, it is part of our anatomy, the supply chain, the SME supply chain.

And the other thing just to bear in mind is we've got these few big primes at the top who are all headquartered in the United States or Europe, and we've got a lot of innovative SMEs down below and we've got virtually nobody in the middle except for EOS and Nova, right? So that gap, we are already filling that gap. And this would give us a bit more scale to do more about filling that gap, to give a much more balanced defence ecosystem than we currently have, and the policy makers know that we have this imbalance. But we have spent our shareholders' money over the last 35 years or 20 years to get critical mass. So that now, as Ben says, would give other smaller companies the opportunity to create around that, to give them the benefit of that mass of two Australian mid-sized businesses of scale.

Liam Garman:

And just touching on a point that Dr. Greene said before. In terms of how you actually organise your supply chain that you create an ecosystem, which is a series of SMEs, and by that, you kind of take the capabilities of each to replicate the capabilities of a prime. Is that correct?

Jim McDowell:

Well, to supplement rather than replicate would be my take. I don't have to have the same capabilities. In fact it is better, if I don't have the same capability or supply chain that Ben has, because there's no point in us duplicating what we're doing, we're very, very complimentary. And our supply chains are very complimentary as well. And then some of these are companies we have had relationships with, the whole time we've been operating. Some of them are new. We have about 300 odd in the supply chain completely across the nation, right? This is not focused in South Australia or New South Wales. It's completely across, and it is complete coverage.

Ben Greene:

And the other point I'd make is it's more than just aggregating the SMEs. If we bring our approach, which is now proven with a track record, we can actually get these SMEs to where one plus one is more than two for those two SMEs coming together because we create an environment for them, which allows them to perform beyond their normal capabilities. And we can draw out the best of each. Obviously, sometimes we've got programmes where we have 14 SMEs contributing IP. And those group meetings can be quite boisterous, but they are incredibly productive. And at the end of the day, the Australian common sense and sense of fair play comes into play, and the outcomes have been really way exceeded expectations. And so we see output coming from what I call these mini collectives of SMEs that we put together where the output is much, much more than some of the parts. And if you're going to build a national capability, that's one of the first things you want to do, is create environments where you get outcomes that are more than the sum of their parts.

Jim McDowell:

Yeah. But you do need a broker. You do need someone in the middle who can do that brokering. You need someone with scale in the middle that can bring these, use it's scale. It's convening power to bring together the SME community to a particular goal, something that of their own devices, the individual companies would not have been able to do themselves.

Liam Garman:

I find talking to a lot of defence SMEs. At one, their biggest criticisms of the defence industry ecosystem that we're in, and it touches what you were saying before, Jim. Simply a lot of them don't know how to get in touch with the primes. They hear all the time that, "We're working to make sure Australian defence SMEs can play a part in the prime supply chains." But so many of them, "Well, how? Where do I start?" And that touches on to your point about that broker in the middle that they can use to kickstart their growth and get them in touch with other defence SMEs. And that's such an important thing because a lot of people simply, they hear the rhetoric of work with primes, but they don't know how to do it, which leads me to ask for our listeners. If they think at home that, wow, my business can really see itself working with EOS and Nova Systems and we think we can play a part in SMA, how can they get in touch and how can they play a role in your ecosystem?

Jim McDowell:

I think, initially, go to the SMA website to start with, and there will be the opportunity to make an introduction, a link there to start the conversation going. And then let's say, this is not a hypothetical conversation for us. We are already doing this for 350, and Ben's company is doing it with 300. We've got this big BS to start with. So it can't be that hard to find 350 or find us so far and 300 or so and find Ben so far. But in the meantime, we have created an SMA website with a link, which allows people. And of course, I mean, I've got an email address as well as everybody else and a telephone. So we're all quite happy to take calls from people on too. But initially, it would be good if they sort of register their interest through the portal.

Ben Greene:

We've got a very large base of suppliers, and SMEs already collaborating with us. That doesn't mean we don't want more. Our perceptions about what we will need and where we will focus will sharpen as the Commonwealth goes down this track and further defines their own priorities. And they'll do that through. I expect competitive RFE process later this year or early next year.

But in the meantime, we're happy to build on our supply chain. Remember that as supply chain, it's not a supply chain in waiting. That supply chain is actually getting fed a quarter of a billion dollars with business every year now because EOS is an exporter, and our critical mass and our capability depends mostly on our export business. And we're an aerospace company, and there's all kinds of tiers of manufacturing. We operate at the highest tier of manufacturing. So we operate very advanced technology, develop and manufacture very advanced technology products. And we own the export those into what we would call tier one markets, starting with the U.S. and NATO allies. And so as supply chain is vigorously exercised, it's not just a supply chain in waiting hoping that some business will come along.

Jim McDowell:

I agree. Look, we are in the same on the professional services side of that. So Ben's got the manufacturing, and we have put in a couple of 100 million a year into the supply chain here for our major services provision to the Commonwealth where we teamed over as the only Australian major services provider to the department. And we are letting contracts every day, every week, every month to the Australian supply chain to support us and not endeavour. We don't have to wait for this to come along. We will continue to, as Ben say, exercise our supply chain.

Liam Garman:

Well, on that, this question is definitely to Dr. Ben Greene. I've heard that the SMA is looking to build on their sovereign-guided weapons and explosive ordinance enterprise, both over the short, medium and long term. But can you elaborate on that? Because I think one of the biggest questions that everyone always has in entities, how long is a piece of string? When can you expect something? When's it going to happen? How long does it take, which considering how many elements. As we've touched on before, there are in a missile. That is how long is a piece of string, but can you elaborate on what we mean by short, medium and long term?

Ben Greene:

We can pick numbers. But generally, most people think short term is in the first five years or thereabouts. And the short term objectives we see, as expressed by the Commonwealth, are in the immediate future. The co-op needs to get more missiles, and the only way you can get more missiles quickly is make the missiles you've already got more available. So EOS has been embedded in a number of U.S. programmes for 30 years where the operational readiness rating of the equipment or the missile has been one paramount key performance estimators for the programmes.

And just by improving the operational readiness of our missile inventory by 20%, we could get a significant increase in the availability. Effectively, the number of missiles we would have. And that could be achieved within a couple of years. If you apply the technology and capabilities and experience of SMA through the T&E domain and the qualification domain and also our experience in field support and doing military equipment support at the high level maintenance and refurbishment levels, you could improve availability of our current inventory significantly. That's the sugar hit that Commonwealth would get very quickly, is improved operation readiness of inventory.

In the medium term, I think there's going to be a requirement for a range of missiles that could not be developed within Australia in the timeframe required. So let's say in that five to 10-year timeframe, although it's Australian missiles will be flying long before then, there'll be missiles required to be delivered against programmes, which already moving forward within defence. And almost certainly, the demand will be met by missiles designed, developed overseas. If they're required in very small quantities, I would not be surprised if they manufactured overseas as well. If they're required in larger quantities, they could and should be manufactured here for two reasons. One is it's more efficient use of our capital in terms of jobs and AIC. Secondly, it improves the resilience of the capability. The more you do here, the less reliant you are. But thirdly and more importantly, it will help to qualify more and more members of the supply chain to what I call missile-ready capability.

And it's slightly different. Even though we work in aerospace all the time, it's a slightly different nuanced requirements sometimes. And those three elements would be very important to meet out of the midterm objectives, which I think we'd express as making foreign missiles here, but in Australian facilities using Australian labour and Australian leadership. And in the longer term, and longer term for us means probably in the seven to eight years and onwards, and I know I'm overlapping short, medium and long, but they're not sharp definitions, we would have Australian missiles. And so the first question one would ask is why would we want bespoke Australian design developed missiles? And the reason is that our requirements are different. We find this every country we go to around the world with what we think is standard products from the OS. Every country has requirements are different, and our missile requirements going forward in the future are really quite different from any other country's.

And so other than where we need interoperability with another nation, and that might be if it has to fit on an F-35 Pylon to be delivered from the air, other than those special cases, there is a huge scope for Australia to develop its own missiles and to produce them and have them entirely dependent on only Australian sovereign control of every element, including the IP. If we did that, it seems to be quite clear, and we have this experience in other domains. We could develop missiles, which would be much, much less expensive, totally sovereign and still do exactly the job that our forces need them to do.

Liam Garman:

I suppose in terms of that, they need to be definitely mentally used by the ADX existing infrastructure, which, to your point before, you do need that bespoke offering to fit in with our current defence structure. You can't necessarily get something off the shelf and just expect it's going to work all the time. One thing that I've always loved about guided munitions and missiles is the science behind the propulsion systems and how the smallest change in those chemical compounds that are propulsion system, depending on environment can radically alter the missile and its usability in different areas. So absolutely. And in terms of building that local capability and local knowledge, you need to really build a local infrastructure here, which has that understanding for the long term and that you can kind of domicile that knowledge here to build a long-term sovereign-guided munitions industry. Would you be able to expand on that, Jim?

Jim McDowell:

Yeah, I think really Ben has covered most of the grind that I would want to cover. But if you look at what happens when we have to, I'm not saying this is that bad thing or a good thing. When we have to take somebody on equipment design for an entirely different area of operations, like a diesel electric submarine designed for Europe and trying to change it into something that is useful for the Royal Australian Navy, which has much different operating parameters in terms of range and endurance and so on, how difficult that is to do.

Now, we have an opportunity here that in the medium to long term, we can design a family of missiles that its prime focus is on Australia's operating environment, which is different than everybody else's operating environment. And the scale of this such is that it's manageable. You're much, much smaller defence economies and economies than ours, such as Norway, for example, has a very, very vibrant guided weapons ecosystem. There is no reason why we cannot do that now that we have got the political will and the budget to do it and companies like SMA and its two partners, Nova and EOS to do that.

Liam Garman:

So what does Norway done right that we can learn from?

Jim McDowell:

Well, they kept going at it, and I think they designed. Well, there are two or three things. They designed weapons that were suitable for use in the theatres that they felt that they were going to be operating it. That's turned out also to be quite good at export weapons. Norway has a slightly different view of its economy than us, very, very high taxation, for example. And it has a national champion. So KONGSBERG is the national champion in Norway for that. We have tended not to have much in the way of industry policy, industrial policy. We just said the market will sort it out. I mean sometimes the market will sort it out, and sometimes it won't. And when it's with regard to national defence in national security, there are times when you have to make a pick. And in this case, the government has decided it is going to build a national champion, which is going to be the guided-weapons enterprise.

So we're kind of on the right track already for that. The same in Singapore, they did that again. Singapore technologies engineering, that's your national champion. And then a big, big scale. The U.K. did that. BAE is their national champion. We have other people there, but they're really the national champion. Here's one field of endeavour where we have all of the ingredients, we'll have two companies of scale, a very, very vibrant R&D ecosystem around the company and in the SMEs. So the policy settings are right for us to move forward with this.

Liam Garman:

We're going to jump to a quick break, but we'll be back with our guests shortly.

And we're back. So how are you going about as a national champion? You would be prioritising skills and jobs and Australian employees for a sovereign-guided munitions industry here. How are you guys going about building that future workforce?

Jim McDowell:

Well, again, it's not a rhetorical question. That's all we've been doing for the last 20 years, is building an Australian workforce. We have about 700 employees and another 200 or 300 under contract that we build every day, that we build to the Commonwealth every day that perform well. So we have got a long history in building that workforce, primarily for the Commonwealth. In our case, primarily for the Commonwealth. So you just got to keep doing that. You just got to keep doing that.

And the other thing I would say is you've got to figure out how best to use the people and setting up a whole bunch of competing enterprises. It may not be the way to do that. So this may well be a really good way to have a partner or a very small number of partners to make best use of the workforce, but it's not a hypothetical question. We have these people. People used to ask me what intellectual property was. I started off life as a very bad lawyer, and I used to say, intellectual property leaves your factory on a Friday and you hope it comes back on a Monday, and that's what we've been doing for the last however many years.

Liam Garman:

Making sure they come back on Monday.

Jim McDowell:

Making sure they come back on Monday.

Ben Greene:

I think the points I'd make, first, if you want to expand your workforce, it's always better if you start with a big workforce to begin with, and SMA draws on over 1,000 employees. So our scale of operations in terms of training, recruitment, indoctrination and so on and up-skilling, that's all based on a base of well over 1,000 people to start with. So we're not starting from an SME base of 100 to 150 people hoping we can add another 200 or 300 people, which we're tripling. We're talking about adding 10%, 20% to the base of operations that we already have. And the second thing I should point out is that we've taken a long-term view of this situation for a very long time. Training is the immediate future. If we go to the other extreme, which is the very long-term future, to the best of my knowledge, EOS by itself is the largest investor in collaborative research and development with Australian universities or the entire space sector. So our funds flow into collaborative research with universities is of the order of $5 million or $6 million a year, just to do the collaborations.

And that funding has produced a stream of PhD level graduates and postdoctoral fellows that then spin out into industry that has been a boom for the aerospace industry in Australia. And we're not the only beneficiaries. We probably only hire 30% or 40% of the people who come through those programmes. And there are tens of them every year. So there's a significant investment in the long-term future, and those people will become very productive within years of graduating, as you know. So we have the long-term perspective. We have the short-term perspective, and we'd like to think all the steps in between. But it's also a matter of using the resources properly. One of the assumptions we make within SMA is that we're not the centre of all wisdom, and we don't need to change what is a really, really vibrant, intelligent ecosystem in Australia already. So harnessing the SMEs to contribute in ways that they may not have seen possible in the past, that's a very rapid way of expanding workforce.

Liam Garman:

You mentioned that it is kind of easier to do this when you already have a larger workforce. We mentioned it before, over 600 SMEs in your ecosystem. For them, what do you think the government can kind of do to invest to help them out and for all defence SMEs to really give them that like kind of kickstart to help them out in the starting blocks? Loaded question apparently.

Jim McDowell:

Certainly. I mean, what we can do is encourage them. You don't have to own everything. You like to have an element of control. So you like to have long-term partnerships with SMEs who are being incentivized to build capability, not just put a bum on a seat. So the policy encouraging it, and I would be giving it from the federal government or the state government is finding those SMEs who are genuinely developing capability and assisting them to do that, whether it be with training people for their workforce, whether it be with grant or other ed or awards to build real capabilities that we need. And that's where the incentives should lie.

Ben Greene:

I'd answered the question this way. I would point the government to one of its own programmes, which has been a spectacular success for SMEs, and that is a programme called C4 EDGE. And C4 EDGE was a government-sponsored programme to see whether or not 20 Australian SMEs would come together and produce the command and control system with full cyber protection beyond state of the art cybersecurity, encryptions, flexible, a high frequency jumping wavelengths and so on. All of that technology existed, but it was spread through the SME ecosystem in Australia. And the Commonwealth stepped forward and put an experimental programme together to see whether that group could be pulled together. And it was done under EOS' as prime for that particular programme. And that programme has been unbelievably successful. The output from that programme has been fit for purpose at a fraction of the cost that it would have been from a monolithic provider.

And so I think there's an opportunity here for Australia to use the lay of the land, the industry structure that it's got to its own advantage now and be more nimble, more flexible and to bring a slightly different way of looking at the problem to the whole industry scenario. And the preference for monolithic large single primes obviously has to be sustained if you want to buy large platforms that sole source manufacturer or come from a single company, but when you have very diverse technical requirements. And the missile is a perfect example, a properly assembled missile is a sum of the parts. And in order of priority, probably the most important single part is the command and control system, which the Australian government has just proven to itself. It can do itself. You can pull that straight out of the SME system in Australia and get command and control, which is better than anything you can buy on the world market.

Liam Garman:

And we've covered C4 EDGE a fair bit on Defence Connect. And one of my favourite things about it is you do really pull together knowledge and intelligence from so many different facets of that supply chain and kind of linking them into one, which is so critical that a lot of these SMEs could be working in a little bit of a silo that they have their one core competency of their small business, and that's kind of all they produce. And because of that silo, they neglect to actually be exposed to other parts of the supply chain and other areas of expertise, which I know EOS was coordinating the C4 EDGE system, wasn't it?

Ben Greene:

Yes. It was our privilege to be asked to coordinate that. A couple of the companies participating at the lower level were sub business units of EOS, but the vast majority of participants were not related to EOS or linked to us in any way. And they were able to come together. And in a framework that was established by EOS come together as if they were one company and produce an outstanding result. And one of the things that we have to understand is Australian industry is different from U.S. industry. If you have a start-up in the U.S., the typical objective of the founders of the company is to sell it to a bigger company. That will be absolutely typical. In Australia. It's exactly the opposite. You get brilliant founders, really, really brilliant people who found their own companies. And all they want to do is control what they do within their own company. And selling to a large company is the last thing they want to do.

So if you recognise that the brains of this country is very largely captured in the SME ecosystem, designing structures that can use that ecosystem better and more efficiently, you got to be critical for the country. The provisory I'll put is you have to have some company in structure and scale above it that also understands the problems and can manage the project and coordinate what will be a very diverse and occasionally fractious process, but it's worth the effort.

Liam Garman:

And that's the brilliance of the SMA, isn't it? Because Nova Systems and EOS, they are coming together as that kind of that middle power if you will, that broker for over 600 defence SMEs to come in. And a lot of the smaller ones, the smaller SMEs can grow to become medium, to become large, and you are operating in that middle ground. And part of the other brilliance is you are bringing in. You are domesticating in Australia, that knowledge that IP which, for generations ahead, you'll bring in the knowledge here, the skills, the workforce, which overreached in decades without much of an emphasis on sovereign industry has been lost, and that's a great shame. We might be out of time for today. Is there anything else you guys would like to quickly touch on, if you'd like?

Jim McDowell:

There's only one parallel I might like to say when you talk about sovereignty and control. We built in Australia an automobile industry of significant scale. We never had control. All of the decisions with regard to that industry were taken in Detroit or in Tokyo. Yeah. And as a result of which, whenever they wanted to turn off the levers, of investment levers, it was turned off. And despite huge subsidies being spent by the Australian government, we wind up with no cars and it being manufactured in Australia where we didn't have control. We didn't have control in this country. So that's the only thing that I thought I might like to add.

Liam Garman:

Yeah. I mean, it definitely demonstrates how fickle an industry is. I mean, you can have thousands of employees and billions of dollars on the line. But unless you have that decision-making that's based in Australia by an Australian company or by Australian decision makers, the whole industry can essentially be shutoff overnight.

Jim McDowell:

Yep. Okay. That's all I've got.

Liam Garman:

Awesome. Ben, do you have anything you'd like to add, if you'd like?

Ben Greene:

Just an observation that you might make, if it's relevant, that Elon Musk in his current launch enterprise in SpaceX is actually copying technology. It was developed in Australia 40 years ago, 40 years ago. So Australia developed the first hovering missile. Did you know that?

Liam Garman:

I did not, no.

Ben Greene:

So exactly, that stabilisation process on the thrusters is exactly the technology that they use to bring the booster back down to land it vertically after launch

Ben Greene:

Nalco, by the way, now was developed by DST in Salisbury in South Australia.

Jim McDowell:

Yeah. And it was then commercialised by BAE.

Ben Greene:

Yes.

Jim McDowell:

Because I was there at the time.

Ben Greene:

Australia think we don't know much about missiles. I mean, even today, there's still copying things we did in the past.

Liam Garman:

I find it so interesting. I mean, that's one huge area of academic debate, which is what's the most important part of a piece of equipment or a piece of technology's timeline? Is it when it was first invented or was it when it was first applied in a new way? Because, I mean, I was completely unaware of that until now. So it was invented decades and decades and decades of it, and it's getting that new life with new application of that technology.

Ben Greene:

Exactly.

Jim McDowell:

Timing's really important.

Ben Greene:

Yes. Timing, in businesses, is almost everything. One of the things that we shouldn't forget here, and just while we're chatting, this is the perfect time for the government to come up with this requirement for sovereign enterprise in missiles because we've got all the technologies, we've got the companies that can come together, we've got the will within government on both sides of government to do this. So there's really no reason why we couldn't do it. The only thing that concerns me a bit is that we talked about short, medium and long-term objectives. What most people don't quite understand yet is you have to start right now on all three. If you don't start now on your long-term objectives, you'll never get there. We have to start all three right now.

Liam Garman:

Yeah. No, absolutely. I mean, you can't keep putting it on the back burner or it's just simply never going to happen.

Ben Greene:

Yep.

Jim McDowell:

Yeah. There's one thing about finishing things and others. You've got to start to count finish.

Liam Garman:

Oh yeah. The best time that this could have happened was a few decades ago, but the second best time is now.

Ben Greene:

No, I don't think so, Liam. I think the best time this could happen is right now.

Liam Garman:

You do.

Ben Greene:

No, I really do. I think five years from now, it would have been too late and five years ago would have been too early.

Liam Garman:

We might be out of time for today, but thank you so much for your time, gentlemen. Thank you, Jim McDowell and Dr. Ben Greene, our guests for today. Obviously, Nova Systems and EOS have come together to build a joint venture, the Sovereign Missile Alliance to build a guided munitions industry in Australia. Thank you so much for your time, gents.

Jim McDowell:

Thanks, Liam.

Ben Greene:

Thank you.

Liam Garman:

And that's all we have time for today. We'll be back again next week with the Defence Connect podcast. Thank you, everybody.