Austal to expand US production facility after securing $670m submarine contract

The Perth-headquartered Austal, which is Australia’s largest defence exporter, has announced construction of a new building for its Mobile shipyard in Alabama to be completed in 2026 in support of the US Navy Submarine Industrial Base program.

The contract is aimed at delivering on the US Navy’s goal of producing one Columbia-class and two Virginia-class submarines a year, with the Viginia-class program critical to meeting the US Government’s commitment to the AUKUS agreement with Australia.

The General Dynamics Electric Boat contract comes on top of the $1.4 billion of new contracts secured by Austal in the US over FY24 and boosts the company’s total work in hand to more than $13.3 billion.

Austal says the latest contract will fund Austal USA’s plans to enhance its existing infrastructure by designing, constructing and outfitting a new module fabrication and outfitting facility at the Mobile shipyard, construction of which will start this US autumn.

When fully operational, the building will support about 1,000 jobs and provide capability to fabricate, outfit and transport submarine components.

Austal CEO Paddy Gregg says the contract affirms a growing partnership with General Dynamic Electric Boat and demonstrates a confidence in Austal USA as a valuable industry partner for the US Navy’s submarine program.

“General Dynamics Electric Boat has recognised that Austal USA is a solid partner to deliver high-quality components for Virginia- and Columbia-class submarines,” says Gregg.

“This growing partnership demonstrates confidence in Austal USA’s commitment to meet the needs of the US maritime industrial base and support the most critical needs of the US Navy.”

The Virginia-class nuclear-powered attack submarines have an estimated procurement cost of about US$4.5 billion ($6.7 billion).

While the US Navy is targeting production of two per year, a report released by the US Congressional Research Service last month showed that since 2022 this has fallen to between 1.2 and 1.4 boats a year with production impacted by limits in shipyard and supplier firm workforces as well as supply-chain challenges. This has led to a growing backlog of boats procured but not yet built.

“The Navy and industry are working to increase the Virginia-class production rate to two boats per year by 2028, and subsequently to 2.33 boats per year, so as to execute the two-per-year procurement rate, replace three to five Virginia-class boats that are to be sold to Australia under the AUKUS submarine (Pillar 1) project, and reduce the accumulated Virginia-class production backlog,” says the report.

US Congress has “appropriated billions of dollars of submarine industrial-base funding to support this effort”.

Austal posted a solid performance from its US division in FY24, despite revenue falling marginally to f $1.17 billion from $1.23 billion a year earlier.

The company says the fall was due to a greater proportion of design phase work for new programs during the year as well as lower construction hours and materials for mature programs that led to a lower level of revenue recognition. However, this is expected to change as vessels progress to the build phase.

Austal’s US business significantly overshadows its Australasian operations in scale where revenue for the latter in FY24 was $ 302.9 million, down from $366.4 million a year earlier.

The company’s Australasian division was hit by fewer commercial contract awards and builds during the year, while also suffering delays in the awarding of key government contracts.

However, Austal reported net profit after tax of $14.9 million in FY24, up from a loss of $13.8 million in FY23, thanks to an improved earnings contribution from the US business.