Australia to pick $40 billion submarine contract, France seen as favourite | Reuters

SYDNEY/TOKYO Australian Prime Minister Malcolm Turnbull will announce on Tuesday whether France, Germany or Japan is the successful bidder for an A$50 billion ($40 billion) contract to build the country's new fleet of submarines, according to sources.

Two sources with knowledge of the negotiations said the contract for the 12 new submarines, a centrepiece of Australia's future defence strategy, would be announced within hours.

Local media reports suggested last week that Japan's Mitsubishi Heavy Industries (7011.T) and Kawasaki Heavy Industries (7012.T), the previous frontrunners for the contract, had dropped out of contention, leaving France's state-controlled naval contractor DCNS and Germany's ThyssenKrupp AG (TKAG.DE) to battle it out.

One source with knowledge of the process told Reuters he had been told that DCNS had won the contract, while a second source at the French naval contractor said he was "quietly confident" of success ahead of the announcement by Turnbull.

Beyond the contract price tag, one of the most lucrative global defence deals going, Australia's decision on the submarines has political implications both at home and abroad.

Industry watchers had anticipated a decision to come later in the year, but Australian Prime Minister Malcolm Turnbull's recent gamble on a July 2 election has sped up the process.

The contract will likely have an impact on thousands of jobs in the shipbuilding industry in South Australia state, where retaining votes in key electorates will be critical for the government's chances of re-election.

"There are significant expenditures of public money," Treasurer Scott Morrison told reporters ahead of the announcement. "The focus is on Australia getting real benefits from jobs and experience in the future."

France's state-controlled naval contractor DCNS has proposed a diesel-electric version of its 5,000-tonne Barracuda nuclear-powered submarine.

Japan has offered to build Australia a variant of its Soryu submarine.

A deal with the Japanese would cement closer strategic and defence ties with two of Washington's key allies in the region and represent a significant shift in Japan's post-war defence posture, but would also risk antagonizing China, Australia's top trading partner.

ThyssenKrupp is proposing to scale up its 2,000-tonne Type 214 class submarine, a technical challenge that sources had previously told Reuters was weighing against the German bid.

America's Raytheon Co (RTN.N), which built the system for Australia's ageing Collins-class submarines, is vying for a separate combat system contract with Lockheed Martin Corp (LMT.N), which supplies combat systems to the U.S. Navy's submarine fleet.

(Editing by Lincoln Feast)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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Updated Date: Apr 26, 2016 06:30:13 IST

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