Austal is in real trouble.
Naval shipbuilder Austal USA is on the edge of the knife. After expanding into steel shipbuilding and creating a massive $11.6 billion backlog, the mood at Austal’s high-tech Alabama shipyard is anything but celebratory.
Instead, the farm has fallen into a dire existential crisis. Austal USA’s first order for its first steel ships is underwater, the shipyard’s management team is experiencing a rapid, unscheduled dismantling, and a cash shortage is looming.
The management of the Austal shipyard is in a difficult transition. Austal announced the sudden resignation of Austal USA President Rusty Murdaugh on the last day of August, hours before Austal Limited executives based in Australia were scheduled to discuss earnings.
However, the company announced bad news at the end of July – a bankruptcy of between 69 and 75 million US dollars on its 385 million US dollar five-ship Navajo class After completing a Towing, Salvage and Rescue Vessel (T-ATS) contract, things obviously haven’t gotten any better. With Murdaugh’s departure, the shipyard appears to be following a path taken by other U.S. shipyards, which, when desperate for new work, bid for more work than they could easily handle.
Austal’s ongoing disarray extends deep into the company’s leadership team. Sources said Austal’s vice president of human resources, Michelle Alcathie, also left the company following Murdaugh’s sudden departure. Other senior shipyard managers are in talks or planning exits in the next 24 months.
No one aspires to climb into Austal’s leadership ranks. According to Austal’s recruiting website, the shipyard is still looking for a vice president of engineering – a position that has apparently been vacant for about a year – and as of September 13, the shipyard began a search for a new vice president of human resources and Vice President of Supply Management.
With Michelle Kruger, vice president of global services and support at Austal USA, chosen as the company’s interim administrator and at least three key leadership positions vacant, Austal will struggle to manage the dysfunctional shipyard.
The leadership vacuum comes at an inopportune time. With Austal as the prime contractor on six naval shipbuilding contracts and supporting several others – including about $100 million in recently awarded submarine and landing craft contracts – Austal USA is in desperate need of a lead engineer. With no human resources manager, the shipyard will struggle to meet its goal of hiring 2,000 new employees over the next two years. And without a supply manager, the company will likely have a hard time recovering from the cost estimating and materials purchasing problems that could derail the shipyard’s T-ATS contract.
The financial clock is ticking. Austal’s transition from aluminum to steel shipbuilding is ongoing, and the yard’s large Offshore Patrol Cutter and T-AGOS surveillance vessel contracts require significant capital investment to move forward. However, as T-ATS losses continue to pile up, a liquidity crisis is looming.
It’s time for Austal shareholders – including myself – to step in and make some changes.
Mr. John Rothwell in happier times.
Fairfax Media via Getty Images
Austal needs to fix things at the top:
To remedy the situation, Austal shareholders might be wise to push Austal’s aging founder and “non-executive” chairman, octogenarian John Rothwell, into retirement and replace the legendary shipbuilder with a more modern leader.
Rothwell had a good run. Rothwell, a scrappy ferry builder, ran Austal for two decades. And although he reportedly stepped away from day-to-day operations in 2008, saying he preferred to work on the “big picture,” the entire company still largely reflects Rothwell’s often combative approach to business.
As the founder, owner and director of the corporate boards of Austal USA and Austal Limited, Rothwell exerts disproportionate influence on the company’s leadership, direction and culture. Making matters worse, Austal Limited executives are often unable to push back on Rothwell’s influence.
This agreement did not go well.
While Rothwell has committed to relentless expansion, the company has made several self-inflicted missteps and failed to realize its full potential. Excluding dividends, shareholders who bought into Austal in 2008 suffered a loss of almost 19%.
Had shareholders known that Rothwell’s “big picture” would include a 2012 liquidity crisis, poor shareholder returns, a devastating international fraud scandal, and a seemingly existential crisis at Austal’s American subsidiary, shareholders likely would have expelled Rothwell from his corporate contribution long ago.
The time is ripe for a change at the top. Rothwell’s rugged, old-fashioned aesthetic as a ferry builder came in handy when Austal’s business focused on ferries. Today, Austal, as a global defense company, needs more sophisticated, politically savvy leadership at the top.
Under Rothwell’s leadership, Austal appears to be simply seeking to replace the ousted Murdaugh with an in-house shipbuilder with whom Rothwell is familiar. Austal, of course, announced a global search, but Paddy Gregg, CEO of Austal Limited, immediately torpedoed the effort by telling analysts: “We have an internal person who we are very happy with operationally and who we will be looking at.” With Austal already focusing on executives “with experience in shipbuilding execution and delivery,” the shallow pool of suitable U.S. candidates becomes even smaller.
To put it bluntly: Pushing a local shipbuilder into the helm of Austal’s U.S. shipyard is a recipe for disaster. The last thing Austal’s top shipbuilding cadre needs is to be distracted from the tasks at hand. As a group, they must focus on managing Austal USA’s evolution from two stable production lines to multiple, multi-facility projects. Outside of shipbuilding, they need to focus on fully commissioning Austal’s repair yard in San Diego and building a healthy pipeline of repair work.
Austal’s US subsidiary definitely needs a leader who knows Austal and can keep an eye on the shipyard’s pulse and take responsibility when necessary. But to cope with the plethora of new tasks, the shipyard urgently needs someone who can help Austal USA break with the past and destroy the shipyard’s top-down, insular and often fear-driven management style – a work culture that which is detailed in federal indictments against former Rothwell-sanctioned shipyard leaders for fraud.
Over the next few years, Austal needs an executive capable of raising money for Austal’s capital expansion needs. Rather than being a brusque shipbuilder, Austal’s corporate leader must be able to persuade local, state and federal stakeholders to support Austal’s shipyard investments, workforce recruitment efforts and workforce training needs.
Austal needs an international operator and someone who can help shape the remaining open parts of the Australia-US-UK agreements to enable Austal to maintain and manufacture submarines in both America also to support in Australia. The U.S. team must help increase the Navy’s demand for Austal’s existing platforms and stop the U.S. Navy’s efforts to prematurely retire its fleet of Austal-built littoral combat ships and expeditionary fast transports.
Austal’s U.S. and Australian leaders should work together to influence defense policy in the U.S., Australia, the Philippines and Vietnam – the places where Austal has manufacturing facilities. By positioning the company as a test case for arms trade regulation reform in the US, Austal has the opportunity to propose and advance the joint manufacturing of landing craft and other critical platforms in both the US and Australia.
These actions would unlock far more value than a retreat to an old-school strategy and outdated leadership style.
It’s sad to see. Instead of seeing Austal take advantage of the world’s sudden interest in securing the Indo-Pacific seas and develop Austal into a shipyard of choice for modern, safe maritime transportation, Austal is flailing again, struggling to reconcile Rothwell’s impulses as a ferry salesman more stable world of modern global defense treaties.
A smart move for both Australia and America is to persuade Rothwell to accept the opportunity for a well-deserved – and somewhat overdue – rest on his own.
Dr. Craig Hooper, a former Austal executive, left Austal USA in mid-2013.
Source : www.forbes.com