General Dynamics officials expect to sign the contract to build the first of the Navy’s next-generation ballistic missile submarine – the Columbia-class – at the end of 2019 but are already preparing the shipyard for this program.
For now and the foreseeable future, profit margins in the General Dynamics shipbuilding business are driven by Electric Boat – which builds Virginia-class attack submarines and is now doing design work and early planning for the new Columbia-class SSBN, Phebe Novakovic, chief executive of General Dynamics, said Wednesday morning during a conference call with Wall Street analysts.
General Dynamics reported third quarter revenues of $9.1 billion, compared to $7.6 billion a year ago, and third-quarter earnings of $851 million, compared to $764 million a year ago.
During the upcoming year, Novakovic told analysts General Dynamics plans to spend $1.7 billion on equipment upgrades – the vast majority of its planned shipbuilding capital expenditures budget – to prepare Electric Boat for Columbia-class production.
This spending comes even as an estimated $6.2-billion contract to build the first SSBN is about a year away. In 2017, the Navy awarded Electric Boat $5.1 billion for Columbia-class detailed design work.
“The key in any capital deployment investment is to as quickly as possible marry, in terms of time, the capital expenditure with the return,” Novakovic said.
General Dynamics is also spending an additional couple of hundred million dollars on upgrades to the company’s other two yards, National Steel and Shipbuilding Company (NASSCO) in San Diego and Bath Iron Works in Bath, Maine.
The Navy during the third quarter awarded General Dynamics $3.9 billion to build four Arleigh Burke guided-missile destroyers. Huntington Ingalls Industries won a larger contract – six ships for $5.1 billion over the same time period, from Fiscal Year 2018 through 2022 – and was given both 2018 ships. Bath Iron Works was given no new work for 2018, which may give the yard something of a reset year to make progress on its remaining Zumwalt-class destroyer and refocus on its Arleigh Burke destroyers before taking on the four ships in this new multi-year contract award.
Novakovic said she was pleased with the outcome of the DDG competition.
“It gives Bath a nice opportunity to improve its profitability,” Novakovic said. “This is a wholesome development for Bath and gets them where they need to be.”
However, Novakovic was clear, General Dynamics shipbuilding is focused for now is on Electric Boat. Initially, the Navy is expected to purchase 12 Columbia submarines, for a total program cost of about $122.3 billion, according to a Congressional Research Service estimate. The Navy now also plans to buy five post-Columbia-class subs, which will likely have designs based on the Columbia-class, according to a recently released Congressional Budget Office analysis of the Navy’s long-term shipbuilding plan.
“We’ve got to prepare for the construction of this very, very large and important Columbia-class missile boat, and that’s what we’re doing now,” Novakovic said. “I am capitalizing for the ships that I know that I’m going to compete in. We do not capitalize for programs that have yet to become programs of record and be fully funded and supported by the U.S. Congress. That’s not a wholesome business decision.”
