Defence contractors target Australia as it gears up to counter China

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Advanced drones, long-range missiles on display at air show

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To make buys once strategic review made public next month

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Eyeing local production of key items

By Jamie Freed

AVALON, Australia, March 2 (Reuters) - As close U.S. ally Australia gears up to counter China's growing influence in the Indo-Pacific region, global defence contractors this week showed off advanced drones, long-range missiles and military communications satellites at its biggest air show.

The firms are pushing for billions of dollars' worth of purchases expected after Australia's long-awaited defence strategic review (DSR) is made public next month, setting out the force structure and equipment required over the next decade.

Malcolm Davis, senior analyst in defence strategy and capability at the Australian Strategic Policy Institute, said securing long-range strike weapons in three to five years should be the priority given China's growing threat to Taiwan and the high likelihood of Australia joining the U.S. in a fight.

"When the DSR comes out there will be diplomatic language that doesn't necessarily squarely target China by name, but I think everyone gets the reality this has been driven by China, its rapid growth and its military capabilities," he said on the sidelines of the Australian International Airshow near Melbourne.

Like other countries, Australia is also focusing increasingly on securing more local production and supply stocks after observing the depletions caused by the war in Ukraine.

The government's aim is to "speed up the acquisition cycle" and move as quickly as possible once the review is public, Defence Industry Minister Pat Conroy told reporters on Wednesday. The federal budget is due in May and the defence allocation is expected to grow.

At the air show, some defence contractors privately expressed frustration that the tightly held review ordered last August, three months after a new centre-left government took office, had slowed down procurement and delivery times.

Major decisions in the balance from the review include whether to order another squadron of Lockheed Martin Corp F-35 fighter jets, up to four more Northrop Grumman Corp MQ-4C Triton maritime surveillance drones and a major military satellite contract being pursued by five groups, including Airbus SE and Boeing Co.

"Everyone is reading the tea leaves, but we know a lot of capability will be coming out of that DSR," said Stephen Forshaw, Airbus's chief representative for Australia, New Zealand and the Pacific.

Australia ranked 12th globally in military spending in 2021 at $31.8 billion, according to the Stockholm International Peace Research Institute. It is a major buyer of U.S. equipment in particular, having operated alongside the U.S. in conflicts around the world. In 2021, it formed an alliance with the United States and Britain to buy nuclear-powered submarines.

The air show also highlighted how Australia's smaller force is influencing U.S. purchases. Australia has operated Boeing E-7A airborne early warning and control planes since 2009, as the first customer for the type. The U.S. Air Force said on Tuesday it planned to buy 26 of them to replace its ageing E-3s.

Boeing is also looking to sell the MQ-28 Ghost Bat fighter-like drone developed in Australia to the U.S. military, while the local arm of Britain's BAE Systems this week unveiled plans for a smaller armed drone it also hopes to export.

Lockheed was selected last year alongside Raytheon Technologies Corp to accelerate the manufacture and delivery of guided weapons to Australia.

In-country assembly, and eventually manufacturing, are a focus of the project that aims to build local stockpiles, said Ken Kota, vice president of Lockheed's Australian defence strategic capabilities office.

"Manufacturing guided weapons in particular has its own deterrent effect," he said. "It is very important for Australia to have this from a strategic standpoint." (Reporting by Jamie Freed. Editing by Gerry Doyle)