27/08/2008 - 22:00

Austal takes littoral approach in US

27/08/2008 - 22:00

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For most manufacturers, a $5 billion order book represents a pretty ambitious target - even more so when the company is a shipbuilder from the small suburb of Henderson, Western Australia.

Austal takes littoral approach in US

For most manufacturers, a $5 billion order book represents a pretty ambitious target - even more so when the company is a shipbuilder from the small suburb of Henderson, Western Australia.

But for Bob Browning, newly appointed managing director and chief executive of Austal Ltd, it's a realistic goal that could transform the company into a major contractor to the world's biggest military forces.

One year after relocating to Mobile, Alabama, to head up the company's US operations, Mr Browning has been appointed to Austal's board of directors and charged with managing its global operations, effective this week.

Austal already commands the biggest share of the international high-speed catamaran market, and while it plans to grow this core business, the company is targeting a far more lucrative market in US military contracts for patrol boats.

In April this year, Austal launched its first $460 million warship, or littoral combat ship, for the US Navy, and is now completing the second of what it hopes will be 55 similar vessels.

It also won a preliminary design contract for the US military's joint high-speed vessel program earlier this year, which will produce multi-purpose carriers for troop and equipment delivery, as well as humanitarian work.

"If we're successful at winning that program, that's a 65-ship order. That's over $5 billion worth of ships and represents about 20 per cent of the navy's fleet," Mr Browning told a WA Business News Success and Leadership breakfast last week.

Austal, which reported a record net profit of $52 million for the past financial year, plans to build its commercial fast ferry and after sales service areas, but it's the patrol boat business that will deliver an economy of scale not achieved elsewhere, according to Mr Browning.

"If you can build the same hull over and over again, it provides stability for workforce, it gives you maximum utilisation of your facilities and it provides opportunities for improved efficiencies, which means reducing your costs and therefore greater profits," he said.

Austal set up manufacturing operations in Mobile in 1999 in order to get around protectionist US legislation, and has since invested more than $50 million in infrastructure.

However, the facility that will really enable the company to move into this new arena, according to Mr Browning, will be "the mother of all production lines" - a state-of-the-art, 700,000 square foot modular manufacturing plant.

Construction of the undercover facility started four weeks ago, and will have the capacity to produce six littoral combat ships per year.

For the former Alinta chief there are few similarities between running a utility and a manufacturing operation the size of Austal's.

But Mr Browning said he's learned from the failed management buy-out and its aftermath, although he maintains there were sound reasons for pursuing it.

"I remember walking around with my business development manager in Sydney, where we talked about this idea of going for an MBO and all the reasons were logical. Back then, we were looking for a super source of capital...[and] we were finding it harder and harder to acquire companies when we were competing against private equity, who were beating us in the cost of capital game every time," he said.

"Probably what I didn't factor in was the emotional side and the attachment to being a publicly listed company and everything that comes with that."

In his new role, Mr Browning said the competition for labour remained one of the biggest challenges for Austal, both in Mobile and Henderson.

"In the [shipbuilding] industry in general, turnover rates are in the 25 per cent range. It's a big effort constantly having to recruit talent," he said.

Mr Browning said it was difficult to find experienced aluminium welders in the US, which meant training and development required a large spend.

"The [US] state has kicked in to help with that. They're actually funding the development of a 60,000 square foot training facility next to our modular manufacturing facility and they've given us exclusive use of 40,000 square feet of that."

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