Subs divide: tale of two companies

THERE are only a few companies in the Western world that have the capacity to successfully design and build conventional submarines. That number will soon increase by one, with a dramatic demerger of Germany’s ThyssenKrupp Marine Systems and Kockums of Sweden being played out in Europe. This has major implications for the Collins-class and SEA 1000 as both companies jostle to take advantage of their changed circumstances even before the dust has settled.

While the European defence industry went through a phase of consolidation in the 1990s, this seldom extended into the naval domain and rarely across national boundaries. A notable exception was the merger of Germany’s submarine powerhouse HDW with Sweden’s Kockums — the designer of the Collins-class — in the year 2000. This seemed a good idea at the time: European defence budgets were continuing to shrink; China had not emerged as a destabilising influence in Asia; and R & D costs were continuing to rise.

The original deal saw the owner of Kockums — Celsius AB — acquire 25 per cent of HDW, with an option to exit the business for a lump sum.

Soon after that, Sweden’s Saab acquired Celsius and opted to be paid out — leaving HDW as the 100 per cent owner of Kockums. In turn, HDW was purchased in 2005 by another German company, ThyssenKrupp Marine Systems.

Celsius owned 49 per cent of the Australian Submarine Corporation and those shares should have been transferred to HDW.

However, sections of the Royal Australian Navy, the Department of Defence and its minister of the day, John Moore, saw an opportunity to nationalise ASC by blocking the move. This was because the other shareholder in ASC was the government-owned investment entity, the Australian Industry Development Corporation, which had the right of first refusal on any shares that Celsius decided to transfer.

The reasoning behind the decision to prevent HDW — Europe’s largest and most successful submarine designer and builder — acquiring 49 per cent of ASC was deeply flawed. At the time there was a great deal of unhappiness about the performance of Collins and a lot of the blame was placed unfairly on Kockums.

However, there were many people in the Defence system who also retained a dislike of HDW, because that was the company that lost to Kockums for the Australian contract in 1987. In addition, there was a naive belief that somehow the US could be persuaded to become involved and fix the problems of Collins.

The consequence for Collins was that the well-known builder of submarines, the Department of Finance, became the owner of ASC; the Department of Defence fought a long series of legal battles around matters of intellectual property ownership; the US did not come to our rescue in any meaningful way; the Swedes were offended by the attitude of the Australians; and the management of ASC seemed unable to come to grips with issues of support and maintenance. Not all of these things can be directly attributed to the issue of ownership — but the story of the Collins-class would have been different if HDW had become the new owner.

In addition, the relationship between HDW and Kockums never seemed a happy one and did not improve when ThyssenKrupp became the new owner. While the German part of the combined company won several major export contracts, the Swedes did not fare so well — with the important exception of the sale of refurbished submarines to Singapore.

During the past two years the dissatisfaction, especially on the Swedish side, continued to build, culminating in a dramatic announcement on February 27 that Saab was awarded a contract to examine how it could build a future submarine.

This decision to turn to Saab was taken by the FMV — Sweden’s equivalent of the DMO — and made clear that Kockums might be forced out of the Swedish submarine business. This appeared to come as a shock to TKMS, which might have underestimated the lengths to which Swedish authorities were prepared to go.

The head of FMV, Lena Erixon, explained the background to the Swedish position: “It should be understood that underwater military technology generally — and especially submarines — is considered essential for Sweden’s security interests. This has been recognised by our defence minister and by all of the armed forces as being a vital capability. People need to consider our circumstances and especially our very strategic position in the Baltic Sea to understand why this matter is so important for us.

“To keep the capability we need, we must have an industry base that is stable and there for the long term.

“When it comes to future submarines, we are open to strategic partnerships and developing them in conjunction with other nations — such as Australia.

“Unfortunately with TKMS we did not feel we had a strategic partner for this sort of co-development, which has been an issue for several years. Part of the problem between Kockums and TKMS is that they have been competing with each other.” The solution that is being worked on is that Kockums will be sold to Saab and negotiations are ongoing.

This had an air of inevitability to it once the Swedish government had made it clear to TKMS that Kockums would no longer receive submarine orders while it remained owned by a non-Swedish entity. Saab already has a strong base in undersea technology and is providing not only the software-intense integrated ship control and management system for all Collins submarines, but also Double Eagle remotely controlled mine disposal vehicles to the RAN’s Huon Class.

Ms Erixon explained that Sweden will fund a life extension program for two or three of its submarines, as well as designing a new class previously known as the A26. Both of these activities are directly relevant for Australia, which will need to keep the Collins-class up to date until they can be replaced.

She said that Sweden had “no problem at all” in meeting Australian intellectual property ownership requirements.

TKMS has said little about the dispute, though the company has acknowledged ongoing problems trying to negotiate contracts in Sweden. This has led to frustration in Stockholm, but Swedish tempers really frayed concerning export opportunities — particular to Singapore.

Kockums considered it had the inside running with a proposal for co-development of the A26, but last year TKMS would not permit the offer to be lodged because they — as the parent company — were given no visibility into the details of the bid because it involved sensitive Swedish technology.

Even though the future direction of SEA 1000 remains annoyingly opaque, at least life is simpler because the Swedes and Germans are now clearly in opposite camps. Up until the split, it was unclear exactly how an entity owned 100 per cent by TKMS could submit two quite separate competing proposals.

Additionally, there has been ongoing friction regarding TKMS being given access to Collins-class IP — which Sweden has resisted. That problem has now disappeared.

On a submarine related note:
On 7 March 1968 a Soviet sub ( K-129 ) was one second away from launching a one megaton nuclear ballistic missile rogue attack on the Pearl Harbor...

The book "Red Star Rogue" details the whole story

Instead it blew up in the tube and sunk the sub...

Imagine how history would be different if the Soviet sub was successful...

Kockums was able to build proper submarines but was unable to export a proper version for another Navy. After the Collins-class disaster Kockums only sold several refurbished Swedish submarines.

The divorce between Sweden and TKMS was about property rights. TKMS should develop the A26 for Sweden without any property rights belonging to TKMS. Without the secured rights to build A26 for export TKMS billed the whole development costs. Sweden deemed that as to expensive.

Then SAAB started “buying” engineers from Kockums to develop their own submarine. SAAB is backed by Sweden. TKMS started negotiations to sell Kockums to SAAB. TKMS wants to ride of the trouble.

With SAAB-Kockums Australia will get another Collins-class.

During the same time Australia ordered Collins-class South Korea ordered the Chang-Bogo-class
http://en.wikipedia.org/wiki/Chang_Bogo_class_submarine
This class was years earlier ready and South Korea is now exporting this class to Indonesia!

In 2007 South Korean Navy commissioned the first Type 214 submarine.

Kockums didn’t build any new submarine since 1996. The A26 is just a sketch. Good luck Australia with Kockums.

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