Australian Government Approves Strategic Defense Shipbuilding Deal with Austal

The Australian Government has approved a Strategic Shipbuilding Agreement (SSA) with Austal Limited that establishes the company’s new subsidiary, Austal Defence Shipbuilding Australia, as the Commonwealth’s strategic shipbuilder for Tier 2 surface combatants at Henderson, Western Australia.

This agreement follows the Heads of Agreement announced in November 2023 and will see Austal Defence Australia become the prime contractor for the LAND8710 programs, which include 18 Landing Craft Medium vessels and 8 Landing Craft Heavy vessels.

Austal CEO Paddy Gregg described the government’s approval as “a defining moment for Austal” that “will establish Austal Defence Australia as the Commonwealth of Australia’s strategic shipbuilder for Tier 2 vessels in Western Australia.”

The SSA will operate on a ‘Target Cost Incentive’ structure, providing reimbursement of allowable costs plus a profit margin, subject to ‘painshare/gainshare’ adjustments. A key objective is developing a robust supply chain in the Henderson shipbuilding precinct to support Australia’s continuous naval shipbuilding capability.

Contracts for the Landing Craft Medium program are expected to be finalized in Q1 FY2026, with construction of 18 vessels for the Australian Army valued at A$1-1.3 billion over eight years. The final vessel delivery is scheduled for 2032.

The agreement includes provisions for a “Sovereign Share” arrangement, where the Commonwealth will hold a special share in Austal Defence Australia and enter into a Shareholders Deed with Austal. While Austal maintains day-to-day management control, the Commonwealth secures information and veto rights to protect its strategic interests.

The SSA will have an initial maximum term of 15 years, with Austal Defence Australia establishing its own workforce and maintaining responsibility for all aspects of vessel programs including design, construction, testing, and delivery.

Austal Limited’s other subsidiaries will continue their shipbuilding and sustainment activities across Australia, Asia, and the USA while Austal Defence Australia focuses exclusively on Australian defense shipbuilding projects.

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