Austal CEO: We don’t do what everybody else does
With an order book of over $3 billion, Austal is the only Australian company to make it into the top 100 defence companies in the world.
Operating shipyards in Australia, U.S. and the Philippines, the company constructs ships for both the defence and commercial sector. Defence is at the company’s core, however, with over 80 percent of revenue in 2015 coming from naval vessels.
While the company booked losses in FY2016, Austal CEO David Singleton is positive about the company’s near future.
We spoke to David Singleton while he was at the Euronaval exhibition in Paris, France, where Austal is connecting with design bidders for the Australian Offshore Patrol Vessel and Future Frigate programmes, all of whom happen to be from Europe.
NT: Mr. Singleton, you took over as CEO from Andrew Bellamy earlier this year. How has the experience been so far?
Singleton: I’ve been involved with Austal for four years, previously as a non-executive director. I took over as CEO in April and I knew the business really well. As a company that’s easily Australia’s biggest defence contractor and actually the only Australian company to be in the top 100 defence companies in the world, it is a really interesting position to be in and Australia has real strength in shipbuilding, particularly involved around Austal. For me, it’s been a real privilege to be involved.
NT: Taking up this position marked your return to defence from the resources industry. Could you compare the two industries for us, which one is more interesting?
Singleton: Most of my history has been in defence so really the unusual part of my history was the resources industry. The differences are very stark. The defence industry is very complex, very sophisticated, with a very large stakeholder base with all of the governmental and bureaucratic involvement both in our own country and overseas. So, there’s a lot of sophistication to what we do.
In the resources industry you don’t really have that, there is a very clear line where you either get a project up and running or you don’t, it’s in your own hands.
Defence is like playing three-dimensional chess while the resources industry is like playing dominoes.
NT: You mentioned earlier that you were in talks with European bidders for the offshore patrol vessels whose construction is expected to start in 2018 in Adelaide, South Australia and move to Western Australia in 2020. Austal expressed interest in buying into the government-owned ASC shipyard in South Australia. However, the Australian Department of Defence recently announced that the shipyard would not be privatised. Can you give us your comment on that?
Singleton: Well, the government’s announcement was only a week or two ago so we are yet to understand completely what the government would like to do. Our position remains the same; we think we are in a good position to make a major contribution to shipbuilding in South Australia.
We have indicated that we are prepared to be an investor in that facility. As the only publicly-owned shipbuilder in Australia we think that is an important role for us to play. We continue to be engaged with the government and we’ll work with them towards a preferred solution and I hope that one day we will be a shipbuilder in Adelaide.
Let’s switch to the U.S. where Austal could be said to be successful, with minor problems with the littoral combat ships. You’ve recently been awarded a contract for two expeditionary fast transport vessels which means the U.S. Navy is showing confidence in your operations. What is your guess on how likely Austal is to receive a contract for the frigatised LCS ship construction deal?
Singleton: I think that will depend on the final decision of the US Navy on how it wants to procure the programme. The current understanding is that the intent of the Navy is to convert both versions of LCS into a frigate but it is not clear yet whether they will buy one version or both versions. I think once we get through the current administration changes in the US that issue will become much clearer.
What is true is that we are being funded by the US Navy at the moment to do a series of engineering upgrades to the design of the vessel required to turn it into a frigate. So these are missile upgrades, radar, combat systems and so on.
Is Austal in any way preparing for the eventuality of not getting a contract for the construction of upgraded littoral combat ships?
Singleton: First of all, we have contracts on LCS that run out to 2021 so our primary focus at the moment is concentrating on the order book which is considerable and stretches out for several more years.
There is a purchase in FY17 in which the Navy is intending to purchase at least one, possibly two more LCS from Austal. That would extend the program out to at least 2022.
So that is our primary focus and preparations to position the business for the future frigate are secondary to that. I guess over the next twelve months we will get a really good indication on how that program is going to run.
The problems Austal experienced with littoral combat ships were related to shock trials and the resulting design modifications that dragged Austal to loss in FY 2016. Can you tell us more about what the design review required Austal to do?
Singleton: What that fundamentally was, was a representation of a reduction in the profit of the current programme so we had to revise down the profitability of that programme.
Modifications were primarily related to a whole series of changes that came out of the need for the vessel to meet shock trial rating which we have done. That has been a great success since it’s the world’s first all-aluminium vessel, to my knowledge, ever to meet the full navy shock requirements.
That’s been a bit more expensive to do than we perhaps had imagined but nonetheless it’s been a very successful outcome. And then there have been a number of changes to the vessel in order to meet navy vessel rules and we have completed most of that work now so we are comfortable that the programme is on a good footing going into the future.
To conclude, Mr. Singleton, when one looks at the designs of the vessels Austal is building, one cannot but notice that you are constructing a greater number of catamaran or trimaran vessels than other shipbuilders. Is there a particular story behind this?
Singleton: Well, I think that is where we have specialized and that’s why we are being successful. The company has really specialized in all aluminium vessels, catamarans, and more likely, trimaran designs.
We do have a contract at the moment for steel vessels for the Australian Navy (Pacific Patrol Vessels), but fundamentally, just about everything we have done in the last 27 years has been around aluminium and mostly around catamarans.
We don’t do what everybody else does and that’s why we are being successful in the US; not because we make the same ships as everybody else, but because we do something that’s quite different.