Austal USA President Resigns

Shipbuilder Austal USA on Wednesday announced the company’s president of over two years resigned.

Rusty Murdaugh first served as Austal USA acting president starting in February 2021 before being made permanent president in September 2021. He was put in the position following the resignation of his predecessor, Craig Perciavalle, due to an investigation into fraud.

In March, the Securities and Exchange Commission charged Perciavalle and two other Austal USA executives with orchestrating an accounting fraud scheme misleading shareholders related to its work on the Littoral Combat Ship program (Defense Daily, March 31).

In a statement, the company said he “led Austal USA through significant changes that ushered in a period of unprecedented growth. Under his leadership, Austal USA completed the addition of steel shipbuilding capability to the Mobile shipyard, opening the most modern steel shipbuilding facility in the industry.”

Austal USA builds the Independence-variant Littoral Combat Ship.

After the steel production line was added to the Mobile, Ala., shipyard, the company won awards to build the Coast Guard Heritage-class Offshore Patrol Cutter and Navy Ocean Surveillance Ship (TAGOS-25) programs. Austal said this created over $6 billion in new construction backlog.

The company has also won contracts to build five Navajo-class ships at its steel assembly line, T-ATS 11 to T-ATS-15, which is the company’s first steel shipbuilding project.

“Rusty made a lasting impact on the company. The transformation and growth of Austal USA under his leadership has postured the company for the future with a diversified and balanced portfolio. Rusty is leaving Austal USA with unlimited growth potential and we thank him for all his hard work and dedication over the last two years,” Austal Limited Chief Executive Officer Paddy Gregg said in a statement.

Michelle Kruger, Austal USA Vice President of Global Services and Support, was named acting president until a successor is named.

The resignation comes a month after a July earnings forecast update announcement from parent company Austal Limited with a “substantial revision in earnings guidance for FY 2023” related to the steel production line.

The statement said the company’s efficiency assumptions for the new steel manufacturing line, including labor hours and recovery of overheads, “did not meet forecasts and have been subsequently revised.”

Austal argued that while the efficiency issues will improve as it proceeds to build T-ATS ships, “they are slowing progress on the first vessels in production.”

The company added that since the Navy exercised an option to build a fifth and final vessel in the contract, that “added in the associated cost issues to the onerous contract.”

Austal USA submitted Requests for Equitable Adjustment to seek recoveries for additional costs incurred from the T-ATS project, but if any of the claims are successful it would benefit the company’s financial situation no sooner than FY 2024. Austal Limited also conducted a financial year-end review process for forecasts of the T-ATS program led to updates in its guidance for FY 2023 revising down profits to either zero or millions in losses.

The earnings are specifically forecast to reduce from almost $38 million in profit from T-ATS in FY ‘23 to between zero profit and a loss of $6.5 million.

“This is clearly a disappointing financial result for Austal given the success that we have had recently winning new projects to expand our U.S. operations,” Gregg said at the time.

Gregg argued the base cause of this financial result was the T-ATS contract was awarded just before a “period of unprecedented hyperinflation;” some inaccurate assumptions were made about the efficiency of the new steel line in its first project and the project was subject to “specification changes from the original award.”

“It is clear that we need to make changes to some reporting structures and processes so that Austal USA can identify and rectify these sorts of issues in a more timely manner,” he added.

Austal did not indicate why Murdaugh resigned and if this T-ATS earnings forecast issue or potential knowledge related to the SEC charges were factors in Murdaugh’s resignation.