What do the US marines, golfer Greg Norman, and Hong Kong's New World Ferry company have in common? They are all customers of feisty Western Australian ship-building group, Austal, at its base south of Fremantle.
Austal was launched by its chairman, John Rothwell, with money raised by selling his small boat business in 1987 to the late Australian fugitive, businessman Christopher Skase.
The company has grown from a four-man backyard venture building cray boats, to a world leader in high-speed lightweight aluminium ferries, patrol boats and luxury motor yachts. It employs more than 1,300 people. The first big Austal order was a 38-metre passenger catamaran for China. Now its leisure craft feature at boat shows in Monaco and Fort Lauderdale. But it has not been a trouble-free voyage. Orders for new vessels dried up in 1999, leaving the company becalmed, and profits waning.
That period coincided with the arrival of a new managing director, Bob McKinnon, whose previous job at Capral Aluminium involved supplying raw material to Austal. The unsentimental McKinnon sees ship-building as essentially a manufacturing operation. "It is much like cutting out dress patterns and putting them together." he says. "We use state-of-the-art computer design techniques and invest heavily in training for the workforce, which includes almost 200 apprentices. In recent times, the emphasis has been on diversification."
Two years ago, the company took over a troubled luxury motor yacht-building neighbour called Oceanfast, and set it on a new course. McKinnon might well have used the analogy of a bespoke tailor to big-time yacht buyers. Well-heeled customers simply show up with their specifications. Since everything is designed and constructed on the premises, from the hull to the bathroom decor, the vessels are made to measure.
One of the customers is Greg Norman, "The Great White Shark" of the golf links. Norman spent the better part of a year checking out boat builders in Australia and abroad before placing the order with the company. The star attraction for visitors being shown around the cavernous Oceanfast boat shed is his three-quarters-completed 69.5-metre motor yacht named Aussie Rules. Due to be launched in July, the vessel is said to be the biggest privately owned aluminium motor yacht in the word. But she will be no floating gin palace. This is an expedition-class ship with the capacity to sail from pole to pole without refuelling, leading to speculation that Norman will be using his acquisition for something more ambitious than chipping golf balls off the stern. The 10 gas tanks hold 225,000 litres, so she will be expensive to fill up.
Austal will not disclose the price tag for Aussie Rules, but Norman is unlikely to get much change out of A$60 million (US$31 million). He can easily afford it. Business Review Weekly recently named him the richest sports earner in Australia, pulling in US$24 million a year from sponsorships and business deals.
Motor yachts are nice little earners for Austal, but the jam on the bread comes from sales of really big boats. Recently it clinched a number of new orders that broke the drought. New World First Ferry of Hong Kong has signed a contract for three 47.5-metre catamarans with the capacity to carry 415 passengers on the run to Macau. First Ferry has taken an option over a further four vessels following delivery of the first batch in October this year. McKinnon has high hopes that those orders will help the company to re-enter the Hong Kong market - in the mid-1990s, it sold 29 catamarans to operator Yuet Hing.
His optimism may be justified. The end of the 40-year monopoly on casinos held by Stanley Ho and the Sociedade de Turismo e Diveroes de Macau, has prompted 21 consortiums to bid for three casino licences. Apart from Hong Kong bidders, there is strong interest from Genting International in Malaysia and US groups like Sun Entertainment and MGM Mirage. The 10 million annual visitors to the former Portuguese enclave could double in a matter of years, which means a lot more ferries running across from Hong Kong.
In total, Austal has delivered 75 vessels to markets including Europe, the Asia-Pacific and the Mediterranean.
A few months ago, it sold a catamaran to Venezuela for service between Caracas and Margarita Island, a popular duty free destination in the Caribbean. Another high-speed ferry has been ordered by Egypt's largest operator El Salam marine.
Occasionally Austal builds a vessel on spec - known in the trade as a stock boat. That policy was highly successful last year when the yard built a 101-metre catamaran ferry, The WestPac Express, and leased it for US$3.75 million for four months to the US marines. The military liked the ability to load a complete battalion of 950 marines and up to 550 tonnes of vehicles and whisk them off at speeds of up to 36 knots from their base in Okinawa to and from Yokosuka naval base and other ports in Japan. The marines have renewed their lease, which is eminently bankable. That should enable Austal to sell the ferry to a financial institution to raise capital, while the bank would get the cash flow.
McKinnon is excited about his latest move to crack the highly lucrative US market. Under the old established Jones Act, only vessels made in the US are allowed to ply local waters. Austal got around that a year ago by buying 70% of the Bender shipyard in Mobil, Alabama. The unit has already won an order for two supply ships from a Louisiana offshore oil operator. The US venture has the potential to grow as large as the parent.
Meanwhile there is plenty for the local yard to do, with US$175 million worth of work in hand on 16 vessels. Australia's stance on fending off refugees who pay people-smugglers in an effort to reach the country requires stepped-up surveillance of the porous North West coastline. The company has built eight patrol boats for the Australian Customs Service and hopes to do more.
Until a year ago, Australian-built ships got a bounty of 5% on each vessel from the federal government. That was phased out about the same time the EU scrapped the fat 9% subsidy paid to European competitors. McKinnon, who is chairman of the Australian Shipbuilders Association, says: "We are happy with a level playing field and we would not like to see government subsidies creep back in Europe."
While it was probably the America's Cup that put Fremantle on the map, when businessman Alan Bond won and lost the trophy in the 1980s, shipbuilding was already a growing industry. More than 2,500 people are now employed at yards along the coast, in turn supporting another 6,000 jobs.
Austal went to the market with an IPO at A$1 a share in 1998. Since then, the shares have been as high as A$2.65, and as low as 88 cents during the order book doldrums. They have perked up to A$1.30 in recent weeks, where they are selling at around nine times forecast earnings of A$28 million for the current year.
Austal Ships
100 Clarence Beach Rd
Henderson, Western Australia 6166
Fax: (618) 9410 2654
Email: marketing@austal.com