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Problems with Austal USA’s First Steel Ships Results in $40M Write Down for Aussie Parent

Shipyard worker at the Austal USA yard in Mobile, Ala., looking on Independence-class Littoral Combat Ship Augusta (LCS-34). USNI News Photo

Problems with the first ships on Austal USA’s steel line have resulted in an estimated loss of around $40 million (AUD $58 million) for the Alabama shipyard’s Australian parent company, according to an Australian Securities Exchange notice published this week.

The problems are centered on the Navajo-class Towing, Salvage and Rescue Ship (T-ATS) program – the first ship to be built on Austal’s steel line.

According to the notification, an increase in commodities prices, slower than excepted efficiency in building the ships and changes in the ship design from the Navy prompted the overruns. The resulting losses have wiped out an expected profit for the company, according to the statement.

“Although these efficiency issues are expected to increasingly improve as Austal progresses construction of the T-ATS vessels, which is Austal USA’s first steel shipbuilding project, they are slowing progress on the first vessels in production,” reads the statement.
“The exercise of the option to construct the fifth and final vessel in the contract has also added in the associated cost issues to the onerous contract.”

An Austal USA spokesperson would not elaborate beyond the ASE statement when contacted on Wednesday by USNI News.

In the last few years, Austal USA retooled its aluminum-only shipyard, set up to build the Independence-class Littoral Combat Ships and Spearhead-class Expeditionary Fast Transport (EPF), to compete for steel-hulled ships. The steel line was funded by a $50 million Pentagon investment.

An artist rendering of the future USNS Navajo (T-TATS-6). US Navy Photo

In late 2021, the Navy issued a $144.6 million contract to build two of the Navajo-class ships to be the first ships built on the steel line. The Navy exercised additional options bringing the total to $385 million. Following the award, the yard in Mobile won the contract to build the Coast Guard’s Offshore Patrol Cutter and design work for the T-AGOS(X) ocean surveillance ship.

Australian parent Austal LTD. issued a statement that distanced the Navajo program from the other two steel projects.

“The underlying issue is that the T-ATS award was received just prior to a period of unprecedented hyperinflation; some inaccurate assumptions were made regarding the efficiency of the new steel panel line in its first project’ and the project has also been subject to specification changes from the original award,” Austal CEO Paddy Gregg CEO said in the statement.
“It is important to note that the T-ATS contract is different to our more recently awarded programs, which have Economic Price Adjustment clauses that provide important cost escalation and variation protection.”

Austal USA was selected as the second Navajo yard after the first builder Gulf Island Shipyard in Houma, La., ran into cost and schedule delays for the first four ships. The Gulf Island yard was bought by Bollinger Shipyard in 2021. Bollinger assumed construction for the first four of the hulls. The first hull, Navajo (T-ATS-6), was launched in May.

The statement comes as three former Austal USA officials, including former president Craig Perciavalle are facing U.S. federal fraud charges. The charges allege that they intentionally manipulated costs and earnings reports and mislead company investors and shareholders about the true costs of building Littoral Combat Ships for the U.S. Navy.