Welcome to SubSim Jazzy!!
When using "Passive" detection (Hydrophone use) it depends on which mods you may have added to your game, or which side your playing....American or German.
In the American side, the S-Class will need to have its Hydrophone Head below the surface in order to pick up a ships screws. Periscope depth should do it. Your sensor head will look like this (mounted on the subs deck):
There are no optional upgrades for the S-Class Hydrophone head. You will always have a deck mounted Hydrophone sensor.
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The early war Porpoise also uses an "on deck" Hydrophone Head, seen here:
It too will need to be submerged to pick up targets. In time, this head can be upgraded to a "Ball" type which will allow for Passive detection while the sub is surfaced. One of the hull bottom "Ball" sensors are for the Hydrophone. The other is for the Sonar......"Active" sonar detection.
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Most of the mid to late war submarines will have the "Ball" type of heads positioned on the bottom of the hull. No need to submerge for them. Here's a Gato:
There's no point of getting into "when" these upgrades are offered......every mod seems to be different as to when the upgrades are offered.
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The German side requires you to be submerged for
all classes of subs in order to use the Hydrophone.
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One thing that's a known issue with the Hydrophone station when you manually use it. You will not hear the target (even if its in eye sight of you),
IF the target is traveling less than half its Maximum Speed. Not that I would expect you to look for yourself. But, in the ships .sim file, there is a parameter for MaxSpeed.
If the traveling speed is say 7 knots along its route, yet the MaxSpeed is set to 16 knots.......your Hydrophone is deaf as a post when you manually try to use it. The Hydrophone Operator will hear it, reporting on the target, but you won't hear a thing.
Much like the upgrade offering.......each mod may interfere with this MaxSpeed issue making it different for every situation (and for each ship for that matter).