Australia approves Austal strategic shipbuilding agreement
Austal Secures Strategic Shipbuilding Agreement with Australia
Austal has finalized a pivotal Strategic Shipbuilding Agreement (SSA) with the Australian government, designating its subsidiary, Austal Defence Shipbuilding Australia, as the primary contractor for Tier 2 surface combatants. This agreement, approved by the government, will facilitate the construction of various landing craft, enhancing Australia’s naval capabilities. The formal documentation for the SSA is set to be executed shortly, following the initial announcement made on November 23, 2023.
Details of the Strategic Shipbuilding Agreement
The SSA positions Austal Defence Australia as the key player in the construction and delivery of the LAND8710 programs, which include 18 Landing Craft Medium (LCM) vessels and 8 Landing Craft Heavy (LCH) vessels. These programs are part of the government’s broader initiative to bolster its naval shipbuilding capabilities. Currently, Austal and the Commonwealth are in discussions to finalize the contractual arrangements for these pilot programs, with separate announcements expected soon.
Austal CEO Paddy Gregg emphasized the significance of the SSA, stating it marks a transformative moment for the company. He noted that the agreement reflects Austal’s strong track record in defense shipbuilding and its commitment to supporting the Australian government’s defense objectives. The SSA aims to ensure sovereignty and resilience in Australia’s naval supply chain amid an increasingly complex strategic environment.
The agreement will establish a management framework for the delivery of key shipbuilding programs in Western Australia. Under the SSA, shipbuilding contracts will generally follow a ‘Target Cost Incentive‘ model, allowing for cost reimbursement plus a profit margin, adjusted for performance. This structure aims to foster a robust supply chain within the Henderson shipbuilding precinct, aligning with the Commonwealth’s continuous naval shipbuilding policies.
While the specifics of the pilot programs are still being finalized, Austal anticipates significant revenue generation from the management and delivery of the LCM program over its eight-year contract term. The expected revenue from the LCH project, if awarded, is anticipated to be even greater, given its larger scope.
Future Prospects and Strategic Objectives
The design and construction of the LCM vessels are expected to be the first projects awarded under the SSA, with contracts anticipated to be finalized in the first quarter of FY2026. The agreement outlines plans for constructing 18 LCMs for the Australian Army, with a projected budget of A$1-1.3 billion and delivery scheduled for 2032. Following the LCM project, the Commonwealth and Austal aim to finalize contracts for the LCH vessels by the end of 2025.
Austal Defence Australia will oversee all aspects of the design, construction, and delivery of the vessels, ensuring cost-effectiveness and efficiency throughout the process. The SSA has an initial term of 15 years, during which Austal Defence Australia will focus exclusively on defense shipbuilding for the Australian government. The company will employ a dedicated workforce, primarily sourced from existing Austal entities, to manage various aspects of the shipbuilding process.
To safeguard its interests and ensure the continuity of shipbuilding operations, the Commonwealth will hold a ‘Sovereign Share’ in Austal Defence Australia, granting it certain rights and oversight capabilities. This arrangement aims to protect national security interests while allowing Austal to maintain day-to-day management control.
Austal is set to confirm the execution of the SSA and related agreements once all documentation is finalized, marking a significant step forward in Australia’s defense shipbuilding landscape.
