Competitor Eastern Shipbuilding’s OPC drive shaft problems are...

Competitor Eastern Shipbuilding’s OPC drive shaft problems are probably to blame for (unfairly) shafting our share price today too:

It looks increasingly like the decision to award Austal the next 11 ships (potentially many more) was a wise one:

https://www.forbes.com/sites/craighooper/2022/10/20/coast-guard-says-main-drive-shaft-issue-puts-opc-delivery-schedule-at-risk/?sh=62f58f043ddf


“...Unless Eastern orders completely new shafting—a long and expensive process—the shipbuilder will likely need the Coast Guard to waive certain contractual specification requirements before accepting delivery of the affected vessels. Coast Guard contracting officers could also suspend or withhold a portion of the Coast Guard’s progress payments until corrective action is implemented.

...As of Monday, no launch date [for Eastern’s first OPC] was in sight. And while the Coast Guard was loathe to characterize the launch delay as an indicator of schedule delay, it said it was “working with the shipbuilder on a repair and remediation plan and will be able to provide an estimated launch date once that plan is finalized.” As an important, albeit symbolic milestone, a vessel launch or float-out is often used as a metric for schedule. And, in shipbuilding, a failure to launch speaks for itself. Jessica Ditto, Eastern Shipbuilding’s vice president of communications, declined repeated requests for comment.

...What Now For The OPC Program?

Despite problems and concerns, the OPC remains the Coast Guard’s highest investment priority. After the OPC program gestated for more than two decades, little more than a total catastrophe—or lengthy litigation—will stop the long-anticipated program.

...The main drive shaft issue is a big deal, but it is not a crisis. With Eastern set, at this point, to only build the first four OPCs, even a significant production delay is manageable. By awarding the next tranche of 11 ships to Alabama shipbuilder Austal USA (where I worked as an executive a decade ago), the Coast Guard has effectively eliminated the risk that any potential delays at Eastern will threaten the current delivery schedule for the rest of the 25-ship OPC fleet. And, if future OPC builders are given an opportunity to accelerate OPC production beyond two ships a year, the impact of any delay in the first few Eastern-built OPCs will be minimal.

...The Heat Is On At Eastern

The Coast Guard’s public comments on the production “issue” suggest that the stakes are now very high for Eastern Shipbuilding. The shipyard, hurt by the Coast Guard’s June decision to award the next tranche of up to 11 OPCs to Austal USA, has embarked upon a high-profile, scorched earth effort to litigate the bid outcome. After withdrawing an earlier bid protest at the Government Accountability Office, the shipyard announced it was pursuing a high-stakes suit in federal court, forgoing a more collegial effort to grow the overall OPC program of record and position itself to compete for the next production run.

...Eastern now faces the uncomfortable task of reconciling its optimistic public statements with the yard’s subsequent performance record.

...In public, as Eastern Shipbuilding positioned itself to contend for the next tranche of 11 OPCs, Eastern accentuated the positive, acknowledging few programmatic problems with the Offshore Patrol Cutter. But now, after the contract award, a retrospective look at Eastern’s sunny external communications suggests a potentially troubling and otherwise unexplained lack of progress on the first two Offshore Patrol Cutters.

...The slow progress on both ships has not been explained, nor has the shipyard discussed any potential financial consequences from the apparently slow production. At best, the numbers reflect scope creep or optimistic production estimates, but, at worst, they may reflect an unexplained stall in production.”