LCS design modifications drag Austal’s earnings down

Austal is expecting to book losses of around US$115 million as it underestimated the level of modifications the U.S. Navy littoral combat ships need to undergo to pass the U.S. Navy’s shock trials.

The Australian shipbuilder previously experienced ongoing schedule and margin pressure on the LCS program following delivery of LCS 6 in August 2015, which was Austal’s first as prime contractor.

Preliminary results from the first two physical shock trials of LCS 6 which were undertaken in June 2016, determined that Austal would have to define a revised baseline design for a shock rated vessel built to US Naval Vessel Rules.

Costs associated with the modification will be shared with the U.S. Navy on a 50:50 basis up to a ceiling price per the LCS contract structure, the company said.

Shares in Austal dropped by as much as 22.5 per cent, to a two-year low, following the company’s announcement on July 4.

“Shock tests” are a contractual obligation that requires the ship to survive the effects of a local explosive blast. The LCS is the first aluminium trimaran in the world to undergo such an analysis and test, Austal noted. The test regime qualifies the vessel’s entire class and no further shock trials are expected for subsequent vessels.