Austal Limited (ASX:ASB) was awarded a US$198 million contract in October 2021 for the construction of two Towing, Salvage, and Rescue Ships (T-ATS 11 & 12).
Options for up to three additional vessels were exercised on July 25 2022, bringing the total contract value to $US385 million (AU$553 million).
During the FY2022 Annual Report, Austal recognised a provision of US$7 million for onerous contracts, which was subsequently adjusted to US$11.6 million due to changes in specification and material quantities.
Austal has submitted Requests for Equitable Adjustment (REAs) to recover these amounts.
A review of later vessels in the T-ATS project resulted in a forecast loss of $US41.2 million if the REAs are not resolved during FY2023, and Austal has determined to include this loss in its FY2023 earnings forecasts.
This reduces the earnings guidance from approximately AU$100 million to approximately AU$58 million.
Austal will continue to pursue its REAs with the intention of recovering as much as possible.
Following the announcement, shares of Austal were up 3.5%.