Austal shares jump after deal to become monopoly shipbuilder in WA
by ANZDD on 24-Nov-2023
Shipbuilder Austal will become the federal government’s monopoly shipbuilder in Western Australia, guaranteeing it a pipeline of navy contracts for smaller warships as part of the rationalisation of Perth’s Henderson shipyard.
Defence Minister Richard Marles and Defence Industry Minister Pat Conroy announced a strategic partnership deal had been struck with Austal, squeezing out rival shipbuilders from securing defence work.
Austal chief executive Paddy Gregg will enter a strategic shipbuilding agreement with the federal government.
The decision preserves Austal’s presence in Australia after staff had been facing layoffs as existing naval contracts neared conclusion. After exiting a trading halt, its shares were up almost 2.5 per cent on Thursday to close at $1.91.
The announcement follows a key recommendation of the Defence Strategic Review, which called for industry consolidation at Henderson, concluding there was not enough defence work to go around to sustain multiple shipbuilders.
The decision may also trigger physical consolidation at the Henderson yard, as some shipbuilders exit the strip. More space needs to be found at the southern end of the strip to service nuclear-powered submarines and as part of beefed-up security requirements, the tenancy of Chinese-owned boat builder Silver Yachts remains an issue.
Also potentially affected is Singapore engineering firm Civmec, which is building 10 offshore patrol vessels for the navy as a subcontractor to German designer Luerssen.
Civmec built a shed capable of constructing large ships undercover, but the company has reputedly sent mixed messages about whether it wants to remain in defence or concentrate on its core business of offshore oil and gas.
As part of the navy surface fleet review, the government is weighing whether to cut the number of lightly armed OPVs and instead build missile-laden corvettes or light frigates. If the government approves corvettes, they will be built by Austal, irrespective of the designer, if the work stays in Perth.
Jobs secure
Thursday’s announcement in the short-term secures 400 jobs at Austal. The government awarded the company a $157.1 million contract for two new Evolved Cape Class patrol boats to keep the workforce going in the interim.
The first projects under the strategic shipbuilding model – which will be piloted for 10 years – will be new medium and heavy landing crafts for the army, which will triple the number of jobs to 1200.
While Austal had partnered with British designer BMT and US defence giant Raytheon to bid for the medium landing craft, the government surprised on Thursday by announcing Port Macquarie-based shipbuilder Birdon’s design was assessed the best and would be built by Austal.
The first 18 medium landing crafts will be delivered in 2026. The heavy landing crafts – by a designer not yet selected – will enter service in 2028.
Alternative to FIFO
The government believes that locking in Austal for continuous naval shipbuilding will help recruit and keep workers in WA’s red-hot jobs market by offering certainty of work and an alternative to the FIFO lifestyle.
In recent years, Austal has set up a yard in Alabama building ships for the US navy, while expanding commercial boatbuilding to the Philippines and formerly China.
While Austal will enjoy a privileged position, the government will impose value for money requirements and key performance indicators to protect taxpayers’ interests.
Mr Conroy said the agreement represented a new approach to Australian shipbuilding and reflected the government’s commitment to local manufacturing.
“A continuous pipeline of work and an efficient, streamlined approach will not only benefit the delivery of Defence capability but create industry confidence to invest in a highly capable shipbuilding workforce in Western Australia,” he said.
“Australian industry can compete with the best in the world, but for too long has suffered the boom-bust cycle of shipbuilding, undermining productivity and workforce retention. This ends with this strategic partnership.”
Austal chief executive Paddy Gregg said it was hoped the agreement with Canberra would be finalised by the last quarter of 2024.
He said the agreement would “further develop a world-class, sovereign naval shipbuilding hub that has the capacity and capability to deliver capability faster, meeting the evolving needs of the Australian Defence Force”.
Source: AFR
