Austal USA subject of federal investigation

The following is text of a report from the U.S. Naval Institute (USNI):

(WASHINGTON) — Federal agents have visited littoral combat ship manufacturer Austal USA in its Mobile, Ala., shipyard as part of an unspecified investigation involving the U.S. Navy, according to local media.

“Department of Defense, NCIS and (the Defense Criminal Investigative Service) have been seen on site,” according to NBC 15 in Mobile, Ala.
“Investigators are expected to be on site for several hours.”

In a brief Thursday statement, Austal said the company was cooperating with authorities but gave no additional details as to the nature of the inquiry.

“Austal USA is working with the U.S. Navy on an open investigation,” reads the statement. “We are unable to provide additional details due to the nature of the investigation. We are continuing business as usual, executing our existing and recently awarded contracts.”

An Austal USA spokesman did not provide additional information when contacted by USNI News. U.S. Navy officials referred USNI News to the Department of Justice when called for comment.

The Mobile shipyard employs 4,000 workers and builds the Spearhead-class expeditionary fast transport and Independence-class littoral combat ship for the Navy. Austal USA is the American branch of Australian aluminum shipbuilder Austal. Earlier Thursday, Australian media reported Austal was under investigation by the Australian Securities and Investments Commission over market updates related to losses around the Independence-class LCS.

The Australian authorities are said to be focusing on statements issued by Austal regarding the blow out, or sudden increase in costs, associated with finishing USS Jackson (LCS 6).

On Dec. 10, 2015, Austal announced it was experiencing “schedule and margin pressure on littoral combat ship (LCS) 6.”

Jackson was a challenging ship in two respects. First, it was the first ship Austal USA had built as the prime contractor, whereas USS Independence (LCS 2) and USS Coronado (LCS 4) were built at the Austal yard with General Dynamics serving as the prime contractor on the project. Second, Jackson was the first LCS to be built under a block buy contract from the Navy. Austal implemented a new manufacturing process for the block-buy ships meant to reduce cost and schedule down the line through serial production, but Jackson being the first serial production ship still meant there were lessons to be learned and procedural kinks to be worked out.

Austal officials conceded in the December 2015 statement that their ability to boost LCS earnings through these new production processes did not live up to expectations. Savings on the LCS 8 and LCS 10 production were also more limited than anticipated, Austal officials said in the December 2015 statement.

“The LCS program is maturing more slowly than we had expected, however we are working hard to manage the risks and expect an improvement across the program after delivery of LCS 10,” Andrew Bellamy, who then served as Austal’s chief executive, said in the December 2015 release. “Austal has a strong balance sheet and is generating good cash flow, which is enabling further investment in the business during the 2016 financial year to best position the company to win additional contracts and service work to build our order book, revenue, and earnings into the future.”

However, according to Austal’s fiscal year 2016 annual report, the company reported a loss of A$84.2 million, compared to a profit of A$53.2 million in 2015.

A significant portion of the company’s loss for the year was the U.S. $115 million charge Austal recorded to account for the increased cost in LCS construction. The sudden increase in cost was related to work required to make the ships meet the Navy’s military shock testing, according to a July 4, 2016, release from Austal. Jackson conducted full ship shock trials in June and July 2016, which required the shipyard to prepare for the trials and then conduct maintenance afterward to repair anything that broke during the underwater blast.

By Professional Mariner Staff