The Federal Government is considering splitting the nation’s submarine builder into two companies and selling them off for up to $1 billion.

Under the proposal Adelaide-based Australian Submarine Corp would be divided into submarine and warship arms, The West Australian reported on Thursday.

The winner of the contract to build 12 new submarines for Australia would be expected to buy the submarine division while the warship portion would sold off separately to the highest bidder.

One potential bidder for the warship assets is the Australian stock exchange-listed Perth ship builder Austal.

“We have always been interested in getting involved in shipbuilding in Adelaide,” Austal chief executive David Singleton told The West.

The contract for the construction of Australia’s new generation submarines to replace its ageing Collins class is due to be announced this year.

Contenders for the nation’s largest ever defence procurement project – worth tens of billions of dollars – include companies from Japan, Germany and France.

The report, if true, casts doubt on former Prime Minister Tony Abbott’s promise of billions of dollars of shipbuilding work for Adelaide.

Last August Abbott promised 2500 ongoing shipbuilding jobs “focused on Adelaide” from 2020 onwards. He said two major defence construction projects – offshore patrol vessels and new naval frigates – would be brought forward.

“It’s a terrific announcement for Adelaide,” he said.

However, The West reports that the Government’s favoured approach would create two centres of specialisation – submarines in Adelaide, and warships in WA.

Several Perth companies were also in the frame to build the hulls for the future submarines, with construction to happen at ASC.

Austal chief executive David Singleton said the company would be interested in buying an ASC shipbuilding division.

“We have always been interested in getting involved in shipbuilding in Adelaide,” he said.

“If acquiring ASC in Adelaide is part of that route, we are happy to consider it.”