Newsletter from America: Knot your average shipbuilder | ADM Apr 08

1 April 2008

By Lincoln Parker

There's not much about Austal that could be described as average.

In less than 20 years Austal has gone from one man's dream to being one of the most successful, dynamic and innovative aluminium shipbuilders in the world - the equivalent of nought to 55 knots in less than twenty seconds.

And there's more to come.

Speaking with Bill Pfister recently, Austal USA's vice president for government programs, I gained an insight into the strategy that has steered this company to being the second largest employer in the state of Alabama, with an order book that is driving expansion plans that will soon see them more than double their Alabama-based workforce to around 3,000 employees.

Austal's executive chairman, founder and driving force, John Rothwell AO, understood that in order to grow his already successful, but steady business and reach out to other lucrative markets, the best option for large orders, future growth and efficiencies of scale, was the USA.

But when it comes to the US defence and maritime markets there are a few hurdles needing to be cleared first.

Chief among them is the Jones Act, with a sound market entry and development strategy running a close second.

Austal has achieved both.

The Jones Act
The Merchant Marine Act of 1920 (commonly known as the Jones Act, in reference to the bill's sponsor Senator Wesley L. Jones of Washington) is a US Federal statute that regulates maritime commerce in US waters and between US ports.

In addition the cabotage provisions restrict the carriage of goods or passengers between US ports to US built and flagged vessels.

This means Austal had to commit to manufacturing in the US.

This reality forced the company to develop a strategy that would see them make a substantial long term commitment to the US market and hire seasoned and experienced Americans, like Bill Pfister, that understood the quirky world of US defence procurement.

Bill is an integral part of this success story as he was hired to navigate the new company into US government defence contracting and translate into Australian the complex and sometimes confusing messages emanating from Washington.

Bill is a former Navy officer and Naval Academy graduate, with private-sector shipyard experience as well: he worked at Halter Marine's Mississippi operations before leaving to help Austal secure its location in Mobile.

Littoral Combat Ship (LCS)
ADM has covered the history of the LCS well over the last few years so I won't go into too much detail other than to give a short overview and talk a little about the future prospects of the program - which look very encouraging.

The US Congress funded a total of six LCS sea frames (LCS's 1 through 6) in the 2005, 2006, and 2007 defence budgets.

In 2007, as Congress was acting on the proposed 2008 defence budget, the LCS program was substantially restructured by the Navy in response to significant cost growth and schedule delays in the program.

As part of this restructuring, LCS's 3 through 6 were cancelled, leaving only LCS 1 and 2 under construction (one each for the Austal-General Dynamics and Lockheed Martin teams).

The Navy has stated repeatedly that, the developments of 2007 notwithstanding, the Navy remains committed to a 55-ship LCS program.

The Navy's proposed 2009 budget, submitted to Congress in February 2008, has requested funding for the procurement of two more LCSs.

The Navy now plans to award a contract for a third LCS this August with two more buys next year via a competition limited to General Dynamics-Austal and Lockheed Martin because only they have the knowledge needed "to efficiently and effectively construct these additional follow-on ships," according to a government notice made in February this year.

As was not true for the first two ships, these new contracts will carry a fixed price with an incentive for good performance and a general cost cap of $460 million each.

The vessel launch for Austal's first LCS is scheduled for April 2008 in Mobile, with the handover to the US Navy expected to be later this year.

What's next?
There are a number of military and commercial projects Austal USA is pursuing vigorously.

On the military side, the Joint High Speed Vessel (JHSV) program is a cooperative effort between the Navy and Army for a high-speed, shallow draft vessel intended for rapid intra-theatre transport of medium sized cargo payloads.

JHSV will reach speeds of 35-45 knots and allow for the rapid transit and deployment of conventional or special forces as well as equipment and supplies.

Austal USA, along with two other contenders, has won a $3 million preliminary design contract and expects to be very competitive as the program moves forward. Watch this space.

On the commercial side, last year Austal delivered to Hawaii Superferry, the "Alakai", a 107-metre high-speed passenger/vehicle ferry which is the largest aluminium vessel ever built in the US.

The ferry holds up to 866 passengers and 282 cars, or a combination of cars and large trucks, and can travel at speeds of up to 40 knots.

Expect to see Austal increasingly active in both markets as they build on this success.