Austal Launches Defense Shipbuilding Australia with Government Nod

In what management is calling a “defining moment” for the company, Austal and the Government of Australia have agreed on terms for a Strategic Shipbuilding Agreement. It took nearly two years to reach terms for the agreement, which sets the company up as a major supplier to the military, and in turn, Austal will launch a new subsidiary, Austal Defence Shipbuilding Australia.

Under the agreement, which has an initial maximum term of 15 years, Austal Defence Australia becomes a prime contractor, ultimately responsible for all aspects of the design and integration, construction, installation, integration, testing, delivery/acceptance of vessel programs for Australia. According to the company, the new agreement will establish a management framework and common terms through which it will deliver surface shipbuilding programs under shipbuilding contracts using a variety of key contractors and suppliers.

The government, in announcing the agreement, says it is securing a continuous pipeline of shipbuilding work in Western Australia. It highlights that Henderson in Western Australia, where Austal is headquartered, is one of two major shipbuilding hubs in Australia. Through the agreement, they look to establish a Defence Precinct in Henderson, which will support a wide range of subcontractors and service providers.

“For too long, the Australian shipbuilding industry has lacked the consistent work needed to develop a competitive and reliable shipbuilding capability,” says the Ministry for Defence. “This has had a flow-on effect of hindering the development of Australian-made Defence capabilities and resilience in our shipbuilding industry.”

The agreement will be supported by two pilot programs that were previously announced and which will provide Austal with many years of steady work. First is the Landing Craft Medium program, which is expected to be 18 vessels. It is intended to be the first pilot project, and Austal reports it expects the contract will be finalized in the first quarter of 2026. Work is projected to last for eight years, with the program costing A$1 to $1.3 billion (approximately US$650 to $775 million). The final delivery is expected in 2032.

 

The Landing Craft Medium will be the pilot project and Austal expects to build 18 by 2032 (Austal)

 

The second project is the Landing Craft Heavy, initially announced in November 2024. It calls for building eight Damen-designed LST100 Landing Craft for the Australian Army. The goal is to put this under contract before the end of 2025.

The government will receive a single “Sovereign Share” in the new company along with an associated call option. Under the terms of the call option, the government could move to acquire Austal Defence Australia at a “fair market value” should a new shareholder or third party acquire more than 20 percent of Austal. Existing shareholders of Austal have a higher threshold to trigger the call option. 

This is seen as a direct move in response to the repeated attempts by South Korea’s Hanwha Group to buy Austal. After the group’s initial proposal was rejected by Austal, which said due to its strategic nature, it did not believe the government would approve a takeover, Hanwha has made new approaches. The South Koreans purchased Austal shares on the open market and hold an option on shares while it has applied to Australia for permission to increase its holding in Austal to 19.9 percent.

Austal started operations in 1988 in Henderson and this new government agreement secures Austal’s role as a military supplier in Australia. It comes as the company has also established itself as a major builder for the U.S. government with programs for the Navy and the Coast Guard.