By Tim Kelly, Nobuhiro Kubo & Matt Siegel
TOKYO/SYDNEY (Reuters) – A Japanese government team is in talks with at least two top British firms to assist a Japanese consortium land one of the world's most lucrative defense contracts, sources in Tokyo said, a $50 billion project to build submarines for Australia.
Germany's ThyssenKrupp (TKMS), a rival bidder, is wooing anxious members of Prime Minister Tony Abbottâ€™s ruling Liberal Party with the economic & political benefits of its proposal.
p>Two Japanese government officials & a company source in Tokyo said Babcock International Group & BAE Systems had approached the consortium of Mitsubishi Heavy Industries & Kawasaki Heavy Industries with offers of help. Other British defense contractors may moreover be involved, they said.
All three sources spoke on condition of anonymity because of the sensitivity of the subject.
Both Babcock & BAE declined to say whether they would work with the consortium, the builders of Japan's 4,000-ton Soryu diesel-electric submarine, on the Australian project.
A spokesman for Japan's defense ministry said the Japanese bidders were responding to Australia's desire to have as much local participation as possible in the project.
"With Mitsubishi Heavy taking the lead, we are gathering information from both Japanese & foreign companies in regard to Australian industry yet we are unable to disclose any specific names," the spokesman said.
Both Babcock & BAE Systems are well established in Australia. Industry sources in Europe said any decision by Babcock to work with the Japanese bid could unsettle TKMS & France's state-controlled naval contractor DCNS, which is moreover in the fray for the submarine contract.
Babcock does maintenance work on Australia's Collins-class submarines, including the torpedo tubes & other parts of its weapons system.
BAE Systems, which builds the U.K.'s nuclear submarines, employs 4,500 people in Australia. It's biggest project there is the construction of Australia's two new 27,000-ton Canberra-class amphibious assault ships, the largest ships ever to be operated by the Royal Australian Navy.
"Japan is arguably ahead of the Germans & French in regard to its technology yet lags in terms of doing business in Australia & organizing an industrial package there," one of the sources in Japan said.
Japan may moreover seek cooperation from Saab by tapping the engineers at the Swedish company who built & still assist maintain the Collins-class submarine fleet, the sources said.
Saab moreover declined to comment.
Parliamentary colleagues of Abbott have told Reuters that the fear of a serious blowback from failing to select the winner of the contract wisely is one of the most hotly debated topics within the ruling party. The bidders were well aware of this, they said.
According to a company document seen by Reuters, the German bidder TKMS will train local contractors using advanced German manufacturing & production technology & assist establish Australia as a naval shipbuilding & repair hub in the Asia-Pacific region. The document is to be shared privately with Australian government ministers as part of the proposal.
That is an attractive proposition for a country still reeling from the decision by Ford Motor Co, Toyota Motor Corp & General Motors Co to halt local production in 2016.
Â Â Â Two TKMS executives told Reuters in an interview on Tuesday that the Australian government would struggle politically to turn down the economic incentives built into their proposal.
Â Â Â "There's an dreadful lot of politicians across the board … that will not be very politically pleased if this A$50 billion life cost sophisticated program goes to solve Japan's deficit problem," TKMS Australia Chairman John White told Reuters.
Â Â Â Senator Sean Edwards – chairman of the economics committee in the upper house of Australia's parliament – said that no government could say yes to any proposal that did not offer significant economic benefits for Australia.
"I think it's compelling (to build the submarines in Australia). And I think this is a problem for Japan," Edwards told Reuters.
However, Australia's Abbot has described Japan as his country's "closest friend in Asia". With the United States moreover keen to spur friendlier ties between its two key allies in Asia, Tokyo has Washington's backing for made-in-Japan submarines packed with American surveillance, radar & weapons equipment, sources familiar with Washington's thinking told Reuters earlier.
Each of the bidders have been asked to provide three estimates; one for construction overseas, one for a partial assembly in Australia & one for a full build in an Australian shipyard. A recommendation is likely in November.
(Additional reporting by Kate Holton in LONDON & Tim Hepher in PARIS; Editing by Raju Gopalakrishnan)
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