Austal’s $US223m deal

Western Australia’s manufacturing powerhouse Austal will make $US110 million from a contract to construct the first of two sea frames for the US Navy.

A $US223 million contract for the first of two planned littoral combat ships (LCS) has been awarded to the navy’s prime contractor, Bath Iron Works, the subsidiary of General Dynamics, Austal’s joint venture partner in the project.

Austal’s part of the contract represents the company’s single largest-ever deal.

The design of the ship, to be built at Austal’s US shipyard, is based on its successful Benchijigua Express, which was delivered to Fred Olsen Express.

The company announced in May the awarding of the $US78.8 million contract to design the vessel.

As well as raising the bar for Austal in terms of contract size, and despite the market’s expectation of the announcement, the new deal is seen as a significant milestone in terms of increasing WA’s reputation of as a naval defence supplier.

Austal also expects it to mark a new chapter in the company’s history, as it seeks to make further inroads into the lucrative defence vessel market.

A US Navy tender decision on another contract to build more of the LCS ships is expected within the coming year.

According to Austal executive chairman John Rothwell, the navy’s latest estimate of LCS fleet requirements is put at between 50 and 100.

Mr Rothwell said he was confident Austal’s unique trimaran hull design would prove to be a significant step forward for defence applications, as it had in the commercial market, and would ultimately become the preferred choice for the US Navy’s LCS fleet.

Shares in Austal jumped on confirmation of the deal, closing 8.8 per cent higher on Monday at $2.34.

The contract is understood to include provisions for risk sharing between the parties, should the cost of construction go over budget.