Exporting Frigates to Australia (Part II: Three Risks in Defense Equipment Transfers)

Risk 1: Australia’s Hollow Shipbuilding Base

The greatest obstacle lies in Australia’s domestic construction capability. Of the planned 11 FFM frigates, three are planned to be built in Japan, with the remaining eight to be constructed at shipyards in Henderson, near Perth. But success depends on overcoming Australia’s severe shortage of skilled workers.

Austal, slated to handle the Henderson construction, has a track record building the U.S. Navy’s Independence-class Littoral Combat Ships (LCS), which is a stealth ship required with millimeter-level precision. Yet these were built not in Australia, but by Austal USA, the U.S. subsidiary. The Henderson yards lack the skilled workforce that actually executed the LCS program. Furthermore, Austal’s core expertise is in aluminum, not steel hulls. This means that the New FFM, a steel-hulled stealth frigate, will demand a skill set Henderson currently does not possess.

Canberra is aware of the problem. In 2024, the Defence Ministry unveiled plans to build 26 steel patrol boats between 2026 and 2037 to train welders and engineers. But the program is already delayed by two years. This increases the likelihood of disruption to construction schedule of frigates built in Henderson. Japan, despite its own labor shortages, may find itself pressed to assist in Australian workforce development.

Risk 2: Design Changes Driven by Politics and Alliances

The second risk is repeated specification changes by the Royal Australian Navy. Previous projects—the Arafura-class patrol vessel and the Hunter-class frigate—fell victim to such demands. Prime Minister Albanese has tried to limit modifications to those strictly required for legal compliance, making the hulls built in Japan largely unaffected by the Navy’s bad habbit. But the vessels built in Australia will likely face major changes, driven by two factors.

First, employment creation. With Australia’s civilian manufacturing base relatively weak, the defense sector occupies a disproportionately large role in the national economy. Whereas defense production accounts for only about 1% of Japan’s manufacturing sector, it represents roughly 9% in Australia. As a result, employment effects weigh relatively heavily in procurement decisions. This was evident when the Minister for Defence Industry announced the selection of the New FFM, emphasizing job creation before its security value. Domestic construction may therefore prioritize maximum involvement of Australian firms. Minor additions, such as the locally produced Nulka decoy system, are manageable. However, if Australia insists on integrating its domestically developed radar, it could necessitate extensive redesigns of the platform.

Second, U.S. interoperability. Another driver for potential changes is closer Australian alignment with the U.S. Navy. Australia may press for the installation of the Aegis combat system, already present on its Hobart-class destroyers and planned Hunter-class frigates. In pursuit of engage on remote (EOR) capabilities, Canberra may favor SM-6 missiles and NIFC-CA networking over Japan’s own SAM systems. Such changes would transform the New FFM far beyond its original design and force Japanese contractors into large-scale system overhauls, as well as complex negotiations with U.S. defense firms.

Risk 3: Contract Reduction or Cancellation

The third risk flows from the first two: ballooning costs and delays due to underdeveloped workforce and repeating design changes could force Australia to slash ship numbers—or even cancel the project.

This pattern is not new. The Arafura-class was reduced from 12 to 6 vessels after divided construction—intended to preserve jobs—combined with late design changes. The Hunter-class, meanwhile, saw its unit cost climb from AUD 4 to 9 billion as requirements shifted, forcing procurement down from 9 to 6 ships. But the most dramatic case was the Attack-class submarine: originally awarded to France in 2016, it was abruptly canceled in 2021 in favor of the AUKUS pact with the U.S. and U.K., greatly disrupting the supply chain.

These precedents show the danger. Only BAE Systems, with multiple large contracts with the Department of Defence, has retained a strong presence in Australia. Lürssen exited after selling its offshore patrol vessel business to an Australian engineering company, and France’s Naval Group drastically scaled down after the Attack-class cancellation. With Australia’s limited shipbuilding capacity and the likelihood of specification changes, unpredictability remains high. Japanese firms face the same peril of reductions, cost blowouts, or even abrupt termination.

Conclusion

Other challenges remain—intellectual property transfers, training, and potential third-country re-exports—but the most serious risks are clear: (1) the weak Australia’s shipbuilding base, (2) politically or alliance-driven design changes, and (3) drastic cuts in procurement. Each could threaten the very survival of the program.

Mitigating these risks will depend heavily on the contract scheduled for early 2026. It must involve not only Japanese companies and Australia’s Defence Ministry, but also the Japanese government as a contracting party to reduce unpredictability. The Geelong Treaty signed by the U.K. and Australia in July 2025 to strengthen AUKUS could serve as a useful precedent.

Now that the Japanese frigate design has been chosen, Japan and Australia will be bound together over this platform for the next half-century. To sustain a cooperative relationship, Japan must anticipate Canberra’s tendencies, avoid unrealistic expectations, and craft a contract framework that reins in uncertainty from the outset.

(Photo Credit: AAP/Aflo)

Disclaimer: The views expressed in this IOG Commentary do not necessarily reflect those of the API, the Institute of Geoeconomics (IOG) or any other organizations to which the author belongs.

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