Japan clinches landmark $6.5 billion warship deal with Australia

Reuters

2 days ago

SYDNEY/TOKYO, Aug 5 (Reuters) - Japan clinched a landmark A$10 billion ($6.5 billion) deal on Tuesday to build Australia's next-generation warships, marking Tokyo's most consequential defence sale since ending a military export ban in 2014 in a step away from its postwar pacifism.
Under the agreement, Mitsubishi Heavy Industries (7011.T), opens new tab will supply the Royal Australian Navy with upgraded Mogami-class multi-role frigates from 2029.
Designed to hunt submarines, strike surface ships and provide air defences, the highly automated warships can be operated by just 90 sailors, less than half the crew needed for current vessels.
Australia plans to deploy the new ships to defend critical maritime trade routes and its northern approaches in the Indian and Pacific Oceans, where China has been increasing its presence and activity.
"It's going to be really important in terms of giving our navy the capability to project, and impactful projection is at the heart of the strategic challenge," Australian Deputy Prime Minister Richard Marles said at a briefing.
For Japan, the frigate sale is further step in its efforts to forge security ties beyond its alliance with the U.S. as it seeks to counter China's expanding military power in Asia.
"The benefits include enhanced joint operations and interoperability with both Australia and the United States. This is a major step forward in Japan's defence cooperation efforts," Japan's Minister of Defence Gen Nakatani said at a briefing in Tokyo.
The successful bid helps ease the sting of 2016, when Australia rejected a Japanese submarine programme in favour of a French design. Canberra scrapped that project in 2023, opting instead to build nuclear-powered submarines with the United States and Britain under the AUKUS pact.
The initial contract for three Japanese-built frigates will be Australia's largest naval purchase since the nuclear submarine agreement, while the remaining eight ships are expected to be constructed by Austal (ASB.AX), opens new tab in Western Australia state.
"The broad-based participation of industries from both Japan and Australia in general-purpose frigates is expected to strengthen human resource development in science and technology, as well as the foundations of the defence industry, in both countries," MHI, which also designed the submarine rejected by Australia in 2016, said in a press release.
Shares in MHI rose more than 3% and Austal shares rose more than 5%.
Pricing, sustainment, and the transfer of production to Australia remain key issues for further negotiation, officials from both countries said. They said they aimed to conclude a contract early next year.
MHI's Mogami frigate was selected over German company Thyssen­Krupp (TKAG.DE), opens new tab Marine Systems' MEKO A-200 in a meeting of the Australian government's national security committee.
The upgraded Mogami-class frigate can launch long-range missiles, and has a range of up to 10,000 nautical miles, compared to Australia's current Anzac Class frigates, which can sail around 6,000 nautical miles, Marles said.
($1 = 1.5456 Australian dollars)