US$3.3bn contract to materially impact Austal's FY22 earnings

Austal (ASX: ASB) was up 22.78% at noon today after the shipbuilder announced a $US3.3bn ($4.35bn) contract to design and build 11 Offshore Patrol Cutters (OPCs) for the US Coast Guard (USCG).

Austal is expected to start building the first vessel at its steel shipbuilding facility in Mobile, Alabama in 2023 and a further 10 vessels may be commissioned thereafter.

It’s understood the USCG’s 110 metre steel OPCs will be used on numerous missions, including law enforcement, drug and migrant interdiction, and search and rescue operations.

FY22 Earnings to be materially higher

Management noted that while awarded in FY23, the contract will positively affect some cost assumptions used to calculate Austal’s FY22 earnings (EBIT).

While not yet in a position to quantify the upside, management expects FY22 earnings to be materially higher than the previously forecast $107m.

Today’s contract adds to a myriad of shipbuilding programs for the US Navy and United States Coast Guard, including:

• Ongoing construction on the aluminium Independence-variant Littoral Combat Ship

• Spearhead-class Expeditionary Fast Transport (T-EPF) programs

• The steel hulled Navajo-class Towing, Salvage and Rescue (T-ATS) ships

• an auxiliary Floating Drydock Medium for the US Navy

Commenting on today’s announcement, CEO, Paddy Gregg said:

“The United States Coast Guard’s new Offshore Patrol Cutters are an outstanding opportunity for Austal USA to further demonstrate the shipyard’s new steel shipbuilding capability; based on years of proven construction experience through the delivery of the LCS and EPF programs for the United States Navy.”

Quality issues

Today’s update follows revelations of numerous problems identified on Austal-built patrol boats gifted by the Australian Defence Department to Pacific Island nations.

Austal accepted fault and has undertaken to fix the defects discovered with its Guardian-class patrol boats, including a potential problem in the exhaust system.

Last year the ABC revealed poor quality aluminium imported from China had delayed Austal's delivery of new $350m evolved Cape class patrol boats to the Royal Australian Navy.

Austal's share price over 12 months.