Leadership of Austal USA’s parent company describes the latest seemingly abrupt change in leadership at the Mobile shipyard as a natural part of a major transition, as the company shifts its primary focus from seeking contracts to building ships.

Early Wednesday, Austal USA announced the resignation of Rusty Murdaugh, effective the same day. Later Wednesday, Patrick “Paddy” Gregg, CEO of Australia-based Austal Ltd., spoke to investors, financial analysts and journalists on a call to discuss the company’s 2023 financial results. While the presentation focused on the company’s earning and outlook, Gregg did take a couple of questions about the turnover.

“Rusty’s done a tremendous job of filling the order book and winning new work, turning the business around strategically to resolve that issue we had a couple of years ago,” said Gregg. “Now is the time that we absolutely need that operational focus in the business. That’s the conclusion we’ve come to and that’s what we’re doing. We’re really knuckling down and we’re going to get into operational delivery.”

A few years ago, Austal’s outlook was becoming a major concern. The company specialized in aluminum shipbuilding and had established itself with two major U.S. Navy contracts. The bigger of those, the Littoral Combat Ship (LCS) was nearing the end of its run. The other, the multipurpose Expeditionary Fast Transport (EPF) continued to win orders one or two at a time, but that wasn’t enough work to sustain full production at the shipyard.

Under President Craig Perciavalle, Austal USA had begun scrapping for new contracts, but its specialization in aluminum hampered its ability to compete. In June 2020, Austal announced that it would diversify into steel construction, thanks in part to $50 million in Defense Production Act funding.

Perciavalle’s resignation was abruptly announced in February 2021; Murdaugh, who had been chief financial officer of Austal USA, was announced as the interim replacement and then confirmed as Perciavalle’s successor that September. In October 2021, Austal announced that it had won its first contract for steel work: The U.S. Navy had selected it to build T-ATS ships. Known as the Navajo class, these are built for towing, rescue and salvage work. In July 2022, amid some fanfare, Austal made the “first cut” on its first steel project.

Along the way, work began to pile up. Austal has orders for U.S. Coast Guard Offshore Patrol Cutters (OPCs), a massive Navy dry dock, T-AGOS 25 surveillance ships, modules for nuclear submarines and more. The company, and the community around it, have much more reason to be confident that Austal will maintain its status as the area’s largest industrial employer. This year, Austal USA executives have said they plan a big expansion of their facilities and the addition of about 2,000 jobs. During Wednesday’s call, Gregg made a passing reference to the company making it through a “valley of death,” and he gave credit for that to Murdaugh.

“We’ve gone through a couple of radical transformations,” Gregg said. “The first one, two and a half years ago when Rusty took over, that was really based on the fact that we’d had a lot of years [of] success with building LCS and EPF, LCS was coming to an end, and we absolutely had to find the right person to grow the business strategically, get out there, diversify, win the work, and Rusty did a fantastic job at that. And he really has set this business up for a great 10 years, probably, with the work that we’ve got on the order book.”

“And now it’s time to find the right person that is going to deliver all of that work,” continued Gregg. “Strategy and business-winning are different to execution. We’re just trying to do the best thing we can to make sure that the workforce here are delivering ships for our customers.”

Gregg said there was no immediate time frame for confirming a new president. The company said Wednesday that Michelle Kruger, Austal USA Vice President of Global Services and Support, had been named acting president. In the call, Gregg said that “we have an internal person we’re very happy with, operationally, that we’ll have a look at,” but that a global search for candidates had begun.

The T-ATS program that Austal USA had triumphantly claimed as its first steel work figured prominently in Austal Ltd.’s year-end financial results, and not in a good way. The company had previously warned that the contract had become “onerous” and that cost overruns would wipe out Austal Ltd.’s expected profits for its 2023 fiscal year, which closed on June 30.

Christian Johnstone, chief financial officer of Austal Ltd., said that problems on the T-ATS program would cost $171 million. That included a $61 million loss in fiscal 2023 as well as anticipated future losses. “Because we’ve deemed this contact as onerous, we have to bring forward expected future losses of $110 million,” he said.

That dropped Austal Ltd.’s Earnings Before Interest and Taxes to a $4.8 million loss on the year. However, Johnstone and Gregg argued that Austal’s overall position was good: plenty of cash on hand, strong sales and, most importantly, billions of dollars in contracts to keep its workers busy.

“The provisioned T-ATS losses we announced last month has led to this disappointing financial result, which has detracted from a very bright outlook underpinned by a record order book in the USA and growing support business across both the USA and Australasia,” Gregg said.

Perciavalle and two other former Austal USA executives are under indictment for wire fraud charges, to which they have entered pleas of not guilty. Prosecutors allege that they deliberately concealed overruns in the early days of the LCS program from Austal Ltd., auditors and investors. No such malfeasance has been alleged on the T-ATS overruns: The contract apparently included no provision for inflation, which rose substantially after it was awarded. In addition to much higher material costs, Gregg said, the challenge of bringing Austal USA’s new steel line up to speed also drove higher costs.

Gregg has previously said that Austal will seek relief on the T-ATS contract. The timetable for any such relief is unknown. Gregg said Wednesday that more recent contracts included “robust cost escalation protections.”

“Unfortunately these previously announced T-ATS provisions mask a very respectable set of results, with some great operational financial performance,” said Gregg. “It would have been a really solid set of results if it hadn’t been torpedoed by the T-ATS provision that we had to make this year.”

“The order book of $2.3 billion, increasing to about $11.6 billion when you include all of the options on OPC and TAGOS, is really the highlight of the business,” Gregg said. “If I look back two years ago when we were talking about the challenge of life after LCS, I think we’ve absolutely smashed that challenge, and we’ve got a very long, very bright future ahead of us in the U.S. business.”