Home Americas Littoral combat ship builder CEO resigns amid financial probes in US, Australia

Littoral combat ship builder CEO resigns amid financial probes in US, Australia

USS Jackson (LCS 6) arrives at the Portland riverfront for Rose Festival Fleet Week
Austal USA builds the Independence-class of littoral combat ships for the US Navy. Photo: US Navy

The president of Austal USA, the US branch of Australian shipbuilder Austal that builds two classes of US Navy ships, has resigned in the wake of investigations into a loss posted by Austal USA in 2016.

The shipbuilder says it accepted the resignation of Austal USA president Craig Perciavalle and has appointed current Austal USA chief financial officer Rusty Murdaugh as interim president.

Austal said the changes were a result of separate but related investigations being conducted by US regulatory authorities (notably, the Department of Justice and the Securities Exchange Commission) and the Australian Securities and Investments Commission into historical matters concerning Austal’s LCS program before July 2016.

The investigations by US regulatory authorities have been focused primarily on Austal’s US operations, including the write back of work in progress (WIP) attributable to the LCS program in July 2016, the procurement of certain ship components for use in connection with US government contracts and charging and allocation of labor hours.

The company noted that an external investigation found that the quantum of the write back of WIP that was announced to the ASX on July 4, 2016 appropriately adjusted Austal’s revenue and profit following the revision that was made to the estimated cost to complete the remaining vessels in the LCS program.

However, the company added that the LCS vessels cost more to construct than originally anticipated due in large part to additional costs incurred to meet the requirements of US Naval vessel rules and mandatory shock standards. Austal announced a one-off write back of WIP in July 2016 to fully reflect these additional costs.

“Prior to mid-2016, inaccuracies in Austal USA’s internally generated cost estimates understated the full costs to construct the LCS vessels, which delayed Austal Ltd’s understanding of the magnitude of those costs and the need to change those estimates,” the company said in a statement.

This overstated the WIP attributable to the LCS program for those periods.

Another issue were instances of misallocation of labor hours between vessels in the early stages of the LCS program but the company says that no material inaccuracies have been identified regarding the total labor hours for the LCS program.

What is more, US officials are investigating the installation of certain valves on board LCS-10 through LCS-20 that did not meet all of the required military specifications at the time of their procurement. Austal says the US Navy has since agreed to modify the contract in regard to these vessels to accept the as-built condition of those valves on board the LCS vessels such that they are not required to be replaced.

“Austal has resolved the US Navy’s contractual claims in relation to the installation of these valves and is in discussions with US regulatory authorities regarding these issues,” the company statement said.