The Department of Defence is reviewing all major foreign military contracts after the United States declared it will not pay any compensation for a new $125 million warplane destroyed by fire due to a faulty engine.

Key points: A faulty engine led to a US-built Australian warplane bursting into flames in 2018

A faulty engine led to a US-built Australian warplane bursting into flames in 2018 Defence officials have confirmed the US has refused to pay compensation for a new plane

Defence officials have confirmed the US has refused to pay compensation for a new plane They also confirmed the Future Submarines could cost $225 billion by 2080

The expensive setback was revealed during a parliamentary hearing where officials also disclosed that the cost of Australia's Future Submarine program could top an estimated $225 billion by 2080.

In January 2018, an American-made Royal Australian Air Force (RAAF) Growler skidded across a runway and burst into flames following a dramatic engine malfunction during an attempted take-off at a US military base in Nevada.

The ABC last year revealed a RAAF investigation had confirmed a high-pressure compressor in the Growler's engine had broken into three major pieces, with one segment piercing through the bottom of the jet and taking a chunk out of the runway.

The badly-damaged aircraft was eventually written off after what senior defence figures privately described as the "most serious incident of its kind for the RAAF in more than 25 years".

Ever since the fiery mishap, Australia has tried to claim compensation from the United States Navy for the loss of the $125 million warplane, but Defence officials have now revealed they have been unsuccessful.

Linda Reynolds said the former Labor government agreed to the contract terms. ( ABC News: Ian Cutmore )

Air Vice Marshal Greg Hoffman, the head of the Defence Department's Aerospace Systems Division, told Senate Estimates that Australian taxpayers would now have to foot the bill.

"The US Navy has formally written to us and advised that unfortunately, and it is very unfortunate that we can't get compensated for this, but the position is there is no compensation," he said.

Under questioning from crossbench senator Rex Patrick, Air Vice Marshal Hoffman said the United States Navy would also receive no compensation from the contractor if it experienced a similar mishap.

Then-defence minister Marise Payne welcomed the first Growler aircraft to Australia in 2017. ( ABC News: Cameron Best )

"In the aircraft industry there's a lot of self-insurance that goes on and so the owner and operator holds the liability for the aeroplane," he said.

Deputy Defence secretary Tony Fraser said the department was examining whether there were warranty protections on other large purchases.

"It has been a difficult lesson and as we've pursued legal advice on all of the foreign military sales and cooperative programs we'll continue to strengthen that," he said.

"We have just taken on an assistant legal adviser, lawyer, to assist me in looking at our contracts and protections for the Commonwealth."

Defence Minister Linda Reynolds told the committee the Growler contract was finalised and signed with the United States Navy before the Coalition came to power.

"Proposals were put up to government and it was a decision of government, and in this case the Labor government of the day, to accept this," she said.

The RAAF has 11 jets remaining in its EA-18G Growler fleet but is yet to decide whether it will replace the damaged aircraft.

Future submarines will replace Australia's existing Collins Class fleet. ( Supplied: Australian Submarine Corporation )

Submarine fleet could eventually cost $225 billion

Defence officials also told the Senate committee that the total cost of Australia's next fleet of submarines could reach $225 billion by the year 2080.

Rear Admiral Gregory Sammut, the head of the Future Submarine program, told the hearing the current estimate of building the 12 French- designed fleet will be around $80 billion in "turned-out dollars", a measure which takes into account factors such as changing currency values.

He also revealed that current departmental estimates for the sustainment of the future submarine fleet would be an additional $145 billion over the next six decades.

"That is our rough estimate as we enter the program noting that we'll have to develop more accurate through-life support costs as the boat is designed and delivered," Rear Admiral Sammut said.