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Navy’s Shock Rating Standards Lead to Austal Revamp, Write-off

Secretary of Defense Ash Carter, in mid-July, outlined a slim manufacturing schedule for LCS vessels through 2018.

Secretary of Defense Ash Carter, in mid-July, outlined a slim manufacturing schedule for LCS vessels through 2018.

It was a Fourth of July bottle rocket from Australia that sizzled through the living rooms of about 4,000 shipyard workers, not to mention a few concerned industry observers, small business owners and Chamber of Commerce types.

Austal USA, named Alabama’s manufacturer of the year by the Alabama Technology Network and Business Council of Alabama just last April, saw trading of its stock halted on the ASX Australian Stock Exchange on June 30. Word of the action spread in the U.S. on Friday, just as the midsummer holiday weekend was starting.

While not a common practice in the U.S., companies in Australia can halt trading to review business practices at critical junctures. After closing at AUS $1.21 June 30, shares reopened July 4 at 95 cents but closed at $1.12, according to Defense News.

Austal USA remained open during the stock trading halt and production was not affected, according to company officials. The parent company has since announced a $115 million write-off related to higher-than-expected costs on its Littoral Combat Ship (LCS) program. The write-off was due, the company said in a note to investors, to “a significantly higher level of modifications to the ship design and cost than previously estimated.” The modifications are based on a contractual requirement to meet the military shock standard and U.S. Naval Vessel Rules, a set of building standards imposed by the U.S. Naval Sea Systems Command.

Nine LCSs are in various phases of construction at the Mobile shipyard on Blakeley Island. Austal USA serves as prime contractor for the U.S. Navy under a $1.6 billion 10-ship block-buy contract to build Expeditionary Fast Transport vessels (EPF) and a contract worth over $3.5 billion to build 11 Independence-variant LCS.

An unnamed Austal USA official told Defense News the ship testing phase is about getting things right on the vessel. “We’d prefer to not have any financial loss to this, but if that’s the price we have to pay to get the ship correct, then that’s what we need to do.”

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