ASX-listed shipbuilder Austal has signed a heads of agreement with the Australian government to establish a “strategic shipbuilding agreement”.

If signed, a Strategic Shipbuilding Agreement would see Austal selected as the Commonwealth’s strategic shipbuilder at Henderson, Western Australia.

As part of a pilot program under the heads of agreement, it is proposed that Austal will build and deliver the Birdon-designed landing craft (medium) capability to the Australian Army under the Commonwealth’s LAND8710 project.

In addition, the Commonwealth has also ordered two additional Evolved Cape Class Patrol Boats at an acquisition cost of $157 million, an important order for Defence to optimise its surface fleet and for Austal to ensure workforce stability.

Austal CEO Paddy Gregg said the SSA heads of agreement was an important first step in developing a head contract framework under which future contracts can be formed for further work in Western Australia; the Cape Class extension would provide important job security for Austal’s ship builders as the last vessel of the current program moves through completion and delivery of the final two vessels; and the landing craft project would introduce a new-build program for Austal at Henderson.

The heads of agreement

The SSA heads of agreement sets out the key principles and provides a framework for further discussions and other due diligence activities to establish the SSA. The creation of the heads of agreement also reflects the intent of both Austal and the Australian government to ultimately establish the SSA on mutually acceptable terms.

Austal is currently building two classes of vessels for the Commonwealth, the Evolved Cape Class Patrol Boats for the Royal Australian Navy and the Guardian-class Patrol Boats to be gifted to Pacific Island nations.

“Austal has a proud record of delivering fit-for-purpose naval vessels to the CoA. In the past five years alone, we have completed and delivered 24 vessels for the Australia Government and Navy, plus a variety of other vessels for navies around the world,” Mr Gregg said.

“That track record, which is a product of our exceptional design and construction teams, provides Austal with the confidence that we can collaborate with the Commonwealth to transition the Heads of Agreement into a SSA which benefits the naval industrial base in Australia and Australia’s security.

“The Defence Strategic Review provided an important blueprint to establish Henderson as a strategic shipbuilding hub. This SSA Heads of Agreement with the Commonwealth is the first step to enliven that blueprint and further develop a world-class, sovereign naval shipbuilding hub that has the capacity and capability to deliver capability faster, meeting the evolving needs of the Australian Defence Force.”

Under the HoA, Austal and the Commonwealth have committed to working towards concluding the formal Strategic Shipbuilding Agreement by the last quarter of the 2024 calendar year.

The pilot project

As part of a pilot project to be undertaken under the SSA, the Commonwealth has nominated Austal to work to construct and deliver the Birdon-designed LAND8710 Landing Craft – Medium capability for the Australian Army.

The Commonwealth is now working with Birdon to undertake further design maturation to prepare the landing craft (medium) design for the construction of these vessels at Henderson.

Subject to the program’s performance and conclusion of the SSA, Austal understands the Government also intends to build the landing craft (heavy) capability through Austal under the framework of the SSA.

Austal said it would continue to work with Defence to understand key matters regarding number of vessels, pricing and delivery timeframes for the LAND 8710 project (including the Landing Craft (Heavy) elements) and will provide further details to shareholders as commercial negotiations progress.