Australian ferry and defense shipbuilder Austal is cooperating with an Australian probe into market disclosures it made in 2015 regarding cost overruns on LCS-6, the Littoral Combat Ship USS Jackson. Austal builds one of the U.S. Navy's two LCS variants, the aluminum-hulled Independence-class. 

In a filing released through the Australian Stock Exchange on Thursday, Austal said that it is "assisting an investigation by ASIC (the Australian Securities and Investments Commission) into market announcements . . . with respect to earnings from its Littoral Combat Ship program." Its American division, Austal USA, confirmed Friday that it is also cooperating with the U.S. Navy in an unspecified investigation. Local media reported that officials from the Department of Defense, the NCIS and the Defense Criminal Investigative Service were spotted at the Austal USA yard in Mobile, Alabama. 

Austal became the prime contractor for the Independence-class LCS variant for the third hull in the series, the USS Jackson, which was commissioned on December 5, 2015. Five days later, Austal warned investors about margin and schedule pressures related to challenges in ramping up series production. The firm cautioned that its ability to increase productivity on follow-on vessels was not as high as expected, and that its earnings in FY2016 would likely be lower than the prior year. By December 14, the firm's stock price had fallen by a third. 

After commissioning, USS Jackson began U.S. Navy shock trials as the representative vessel for her class. On June 30, 2016, after the first trials, Austal entered into a trading halt and issued an earnings announcement to warn investors that its revenues would not be as high as expected. The firm cautioned that it would have to increase its cost estimate for follow-on hulls due to "design changes required to achieve shock certification and U.S. Naval Vessel Rules." 

10 contracted ships were already in various phases of construction at the time of the announcement, and Austal anticipated "significant modifications to vessels already nearing completion" in an "extensive rework program." LCS 6, 8, 10 and 12 would all require at least 4,000 specific modifications each. According to the Navy, these changes included "modifications to some structural details in specific forward fuel tanks and bulkheads," among other items. The expense amounted to a $115 million writeoff and a full-year loss groupwide for FY2016. 

After USS Jackson completed her third and last shock trial in July 2016, Austal announced that the testing program had been a success, and it reported that the U.S. Navy was satisfied with the results. However, in competing testimony later that year, the Department of Defense's director of operational testing reported that shock trials for both LCS classes had been conducted at "reduced severity" due to concerns about the possibility of damage to components. The Navy is now seeking to phase both LCS classes out of production in favor of a more conservative frigate design.