Austal USA President Resigns Amid Investigations Into LCS Program

Australian-based shipbuilder Austal has announced the resignation of Austal USA president Craig Perciavalle amid ongoing investigations in the United States and Australia into the company’s Littoral Combat Ship (LCS) program dating back to before mid-2016.

Austal USA, a wholly owned subsidiary of Austal Limited (ASX:ASB), is a major defense contractor and is responsible for building the Independence-class Littoral Combat Ships (LCS) and multipurpose Expeditionary Fast Transport (EPF) for the U.S. Navy.

Austal said the investigations by U.S. authorities, namely the Department of Justice and the Securities Exchange Commission, concerns the write back of work in progress (WIP) attributable to the LCS program in July 2016, the procurement of certain ship components, and the charging and allocation of labor hours.

The company reports that both Austal and Austal USA have been cooperating with the authorities in the investigations. It also hired an outside law firm to conduct its own detailed investigation into matters that are subject of the federal investigations.

While Austal says it is satisfied with the write back in July 2016, it did note that its internal investigation showed the LCS vessels cost more to construct than originally anticipated and identified “isolated instances of misallocation of labour hours” in the early stages of the LCS program. In addition, certain valves used on LCS 10 through LCS 20 did not meet military standards.

“Following the completion of that external investigation, the Company is satisfied that the quantum of the write back of WIP that was announced to the ASX on 4 July 2016 appropriately adjusted Austal’s revenue and profit following the revision that was made to the estimated cost to complete the remaining vessels in the LCS program,” Austal said in a statement.

As a result of the internal investigation findings, Austal says its Austal USA Board has accepted the resignation of its U.S. President, Craig Perciavalle. Austal USA Chief Financial Officer, Rusty Murdaugh, will serve as president in the interim as the company searches for a new full-time president.

In its statement, Austal assured that its relationship with the Defense Department remains strong and it continue to work closely with the Department, including on a $100 million upgrade to its Mobile, Alabama facility where the recently delivered the thirteenth Independence-class LCS to the Navy.

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