Austal shares tumble after US Navy cancels order

Henderson-based ship builder Austal Ltd has blamed a difference of opinion between project partner General Dynamics and their client, the US Navy, for a cancelled order that has seen its share price fall 14 per cent today.

Company shares were down 45 cents to $2.72 at close of trade today, after the cancellation of an order for a second Littoral Combat Ship prototype.

However, Austal's first, identical prototype LCS is still in the running to be chosen by the US Navy as the basis for a 55-vessel LCS fleet to be built over the next decade.

Austal executive chairman John Rothwell said the effect on earnings, which could be between 5 and 8 per cent, would depend on the work secured to replace the order.

While Mr Rothwell could not comment on what that work may entail, the head of Austal's US operations, former Alinta chief executive Bob Browning, has had talks with the US Navy's head of acquisitions over what services the aluminium ship-builder could provide.

Mr Rothwell said the 1200-strong US workforce was secure for the moment.

"The US navy has flagged four or five different programs that they may be able to utilise the workforce for," he said.

The deal for the second prototype fell over when the General Dynamics' team was asked to change from a cost-price contract to a fixed-price incentive contract.

Austal is General Dynamics' sub-contractor and is competing with another consortium led by Lockheed Martin to design and build the 55-strong fleet.

Mr Rothwell said he believed Austal's first LCS, which was about 70 per cent complete and scheduled for launch in early 2008, would prove successful during the testing of the two competing prototypes.

He said the US Navy was likely to select a single design but may go with both.

The selection of the successful builder and design would be made in about 12 months, he said.

"We have lots of confidence we will win a good share of the vessels."

"We put our price in to General Dynamics ... and the navy and General Dynamics just couldn't agree," he said.

Mr Rothwell said the company had no control over General Dynamics, which, as the prime contractor, ultimately controlled negotiations on price with the US Navy.

"General Dynamics' profit expectation on this might have been beyond what is certainly good for us and we felt that it was unfortunate, but there was nothing we could do about it.

"The navy needs the ships ... but they confirmed they needed to be robust in their processes for acquiring them."