US Navy is Austal’s best defence as South Korea’s Hanwha looms
South Korea’s Hanwha wants a bigger piece of Austal as it carries out top-secret work for the US Navy and emerges as a key player in AUKUS.
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The US Navy is an inescapable presence for Austal’s board and management as it strategises how to coexist with its second-biggest shareholder and failed suitor, South Korea’s Hanwha.
Hanwha has laid siege to Austal’s share register, accumulating 9.9 per cent in a raid, as the Perth-headquartered company carries out top-secret work for the US Navy.
Austal’s growing footprint at Mobile, Alabama, where it has deepwater access to the Gulf of Mexico – renamed the Gulf of America by Donald Trump – is a long way from its origins, building lobster fishing boats in Western Australia.
In Mobile, the US Navy is behind $US650m ($1.04bn) in grants handed to Austal to build infrastructure and increase its land holdings to help produce nuclear-powered submarines.
More than 1000km away in landlocked Danville, Virginia, Austal is coming to the rescue of the US Navy through its lead role in marine additive manufacturing. The adaptive technology is turning the supply chain for delivery of crucial parts on its head in an era when the supplier base has shrunk from 17,000 in the 1980s to about 5000.
When the guided-missile destroyer USS Halsey couldn’t join a battle group deployment because of a broken latch, the navy turned to the Austal team at Danville.
The part was 3D printed within a fortnight and the Halsey joined its battle group. One of the original equipment manufacturers that typically supply the navy had quoted eight months and about $US1m to replace the part.
Austal has also made highly classified parts for nuclear submarines already in service, and been swamped with sustainment part orders for warships and other vessels.
The navy calls the shots, pays most of the bills and retains the IP at Danville, while Austal co-ordinates the research and builds the capability. Austal has just installed the biggest 3D printer in the US – from Adelaide-based AML3D – and is eyeing another expansion at Mobile to produce parts weighing up to 11 tonnes.
Across the road from the Austal-led research facility at Danville, the navy has ploughed $US100m into a shipbuilding training centre expected to produce 1000 graduates a year. They will come from schools, ex-servicemen and women, and other walks of life.
It is all part of US efforts to re-shore manufacturing and create new jobs in places like Virginia, which was hit hard by the demise of the tobacco and textile industries. In Alabama, hundreds of school leavers are being channelled into defence shipbuilding. A training centre built by Austal and run by local authorities offers free welding, among other courses. AUKUS now features prominently in the training centre signage but many people in Mobile have only a vague awareness of the security pact between Australia, the US and the UK.
Austal chairman Richard Spencer, a former secretary of the US Navy, regards AUKUS an outstanding piece of statecraft.
He sees having a strong defensive capability as vital in dealing with the rise of China, aptly demonstrated when Chinese warships circled Australia and staged a live-fire exercise that caught Canberra off guard.
Mr Spencer wants Hanwha to give up its pursuit of Austal and has ruled out giving in to the Seoul-headquartered conglomerate’s request for a seat on the board. It has applied to the Foreign Investment Review Board for approval to own 19.9 per cent of the group and convert the further 9.9 per cent of the stock it controls via options into shares.
Mr Spencer, who departed as secretary of the navy after a falling out during the first Trump administration, argues Hanwha has nothing to offer Austal. He is confident his No.1 shareholder, the billionaires Andrew and Nicola Forrest, and others see it the same way. One of those is an investment fund that has the backing of another billionaire, Hungry Jack’s founder Jack Cowin.
Hanwha’s arrival must also be a hot topic for the Albanese government. Austal has just delivered its first control module for the US Navy’s Virginia-class nuclear submarines that are a key pillar of AUKUS. The company is in a prime position to win more submarine work for the US Navy and may also pick up work building frigates in the States.
Austal is thrashing out the final details of a strategic shipbuilding agreement with the Australian government that will clear the way for it to secure about $20bn of work on heavy landing craft, frigates and other warships at its Henderson shipyards south of Perth.
Many companies have ambitions to be partners with the US Navy. Austal appears to have made genuine inroads at Mobile, Danville and with its ship repair facility in San Diego that sits next to a major naval base.
There are places at the shipyards in Mobile that are off limits even to the company’s chief executive, Paddy Gregg.
As a foreign national, the dual UK-Australian citizen can’t see some of the top-secret nuclear submarine work being done for the US Navy.
Mr Gregg could probably sketch a nuclear submarine design on the back of a napkin if he had to. Before joining Austal, he led the build of the Royal Navy’s second Astute-class nuclear-powered attack submarine. Building control modules for the Virginia-class submarines is just the start. The modules are fitted inside the hull, but it is conceivable that Austal could one day be trusted to build both hulls and modules.
The US is falling way behind in its submarine building targets, producing at a rate of 1.2 vessels a year. Its target is to produce two Virginia class and one Colombia class a year, and that grows to 3.3 from 2028 under AUKUS.
NASCAR nation
There’s a massive recruitment drive to find the workers needed to build the submarines. The US Navy has said it is on a once-in-a-generation journey to transform its submarine fleet and maintain its “undersea advantage” that will require more than 100,000 skilled workers.
It has turned to NASCAR in a variation of the wartime era “Uncle Sam wants you” recruitment drive. RFK Racing’s Ford Mustang, driven by Australian Cam Waters, raced with BuildSubmarines.com splashed across its bonnet at Sonoma last year. RFK Racing co-owner and driver Brad Keselowski is also the owner of Keselowski Advanced Manufacturing, a business similarly hustling for US Navy work.
Austal alone aims to hire 2000 workers over the next 30 months based on a $14bn order book dominated by surface vessel work for the US Navy and Coast Guard.
AUKUS is forecast to cost Australia $268bn-$368bn by mid-2050, with taxpayers pouring vast amounts into boosting US ship and submarine building capacity. Mr Gregg says hundreds of millions, and potentially much more, is already flowing the other way to Austal. Austal has just broken ground on a giant new shed and other infrastructure at Mobile for submarine work on the back of what is essentially a $US450m grant by the US government via General Dynamics Electric Boat, the navy’s long-trusted builder of submarines.
The grant was made last year just days before Hanwha abandoned its initial takeover tilt at Austal. Austal’s US team, led by Michelle Kruger, aims to have the submarine facility built by 2026 – 12 months before the Royal Australian Navy’s Garden Island base south of Perth is due to become a home port for Virginia-class submarines under AUKUS.
The $US450m grant was a sign that the US wants more submarine options. Austal is vying for work against General Dynamics and Newport News Shipbuilding, both of which have been around for more than 125 years.
The new submarine facility is being built with no new contracts in place on a bet there is big upside for Austal.
The Austal footprint at Mobile has grown from 5.6ha in 1999 – when the company’s Perth-based founder John Rothwell started building commercial vessels there – to 74.5ha.
Ms Kruger, who had leading roles working on Virginia-class submarines and on destroyers while at General Dynamics, said Austal had reinvented itself and there was a buzz about its operations at Mobile and the work on additive manufacturing at Danville. She acknowledges there is much more talk about AUKUS in Australia than in the US.
“AUKUS pillar one is all about production, right? There’s undoubtedly effort and energy behind pillar one, and we are 100 per cent involved. And so whether they label it AUKUS, we all know it’s AUKUS pillar one that’s driving us to increase the pace of production,” Ms Kruger said.
“We, as Austal, are seen as pivotal there because we are Australian-owned. The question then becomes AUKUS pillar two and that technology arm and where do we think our strategy is to help lead AUKUS pillar two.
“That is what we are jointly working on now. We’re building the submarine modules, there’s the building that we’re erecting and we’ve got the additive manufacturing. There’s already parts on submarines that are from our Additive Manufacturing Centre of Excellence. Austal is 100 per cent driving and helping accelerate the pace of submarine construction.”
Austal is investing $US750m in expanding infrastructure at its Mobile shipyards on top of the $US266m it has spent over the past five years.
Four years ago, it was at a crossroads. It had made its name delivering aluminium-hulled Littoral Combat Ships (LCS) but the contract was winding down, along with one to build Expeditionary Fast Ferries capable of high speed, high payload deployment. A breakthrough came in 2021 when it secured a contract to build steel-hulled towing, salvage, and rescue ships. The company also faced a fraud investigation by US securities regulator. Austal accepted a $US24m penalty as part of a plea deal to head off criminal prosecution over the fraud investigation.
The plea deal was the result of negotiations with the US Department of Justice and the Securities and Exchange Commission, and involved alleged fraud between 2013 and 2016 within Austal USA.
The 19th and last Littoral Combat Ship built by Austal – the future USS Pierre – is docked at the Mobile shipyards and ready to go, while the second last of the fast ferries started sea trials last week.
Bridge over Mobile Bay
The finishing touches are being put on the first of the super-sized, steel-hulled tugs after a difficult build. Austal is building five of the Navajo-class vessels for the Navy.
Austal is also ditching its dry dock at Mobile and building a ship lift that is wide enough to handle frigates. The move comes as Italian shipbuilder Fincantieri’s US division falls way behind in building the US Navy’s next generation of frigates amid a series of design changes. Austal is eyeing some of that frigate work at its expanded shipyard in Mobile, where one big blip on the radar, beside Hanwha, is the planned construction of a bridge over Mobile Bay.
Designed in the style of San Francisco’s Golden Gate Bridge, the footings for the structure will split Austal’s operations on the waterfront, with the work likely to cause disruption for five years. Austal is confident it can work around the construction.
Meanwhile, Hanwha is set to push its record in churning out multiple ships a year in South Korea to appeal to Austal’s inner circle. It will also point to the $US100m acquisition of Philly Ships and work it has done under the US Navy’s ship maintenance, repair and overhaul program.
The Philly Ships acquisition was approved by the Committee on Foreign Investment in the United States (CFIUS).
Mr Spencer has said Hanwha is unlikely to get CFIUS approval if it forges ahead with another tilt at Austal given the secret work done by the ASX-listed company.
Working in Hanwha’s favour is its investment in Geelong to produce armoured vehicles and self-propelled howitzers. The plant sits in the electorate of Defence Minister Richard Marles, who said last week he was “not worried” about Hanwha’s sharemarket raid.
Brad Thompson travelled to Mobile and Danville as a guest of Austal.
Originally published as US Navy is Austal’s best defence as South Korea’s Hanwha looms
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