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CEO: Steady Flow of Navy Contracts Will Keep HII Building for Years

Launch of Frank E. Petersen, Jr. (DDG-121) on 2018. HII Photo

With a two-aircraft carrier buy approved, contracts for two National Security Cutters and a contract for a guided-missile destroyer awarded late last year, Huntington Ingalls Industries has a healthy backlog of work to keep the company busy for the next several years, company officials said on Thursday.

HII Chief Executive Mike Petters also gave insight into what the Navy’s 30-year shipbuilding plan looks like from the shipyard’s perspective.

“I’ve said this is a very exciting time in shipbuilding,” Petters said during an earnings conference call with analysts. “Orders are in the book and the team can get cut loose to execute those orders.”

The two-carrier buy, announced in January, adds $15 billion to HII’s contracted backlog. Work on these carriers, the third and fourth Gerald R. Ford-class, will continue into the early 2030s.

Despite the healthy construction backlog, the company was predicting modest growth. While the company has contracts for future amphibious assault ships Tripoli LHA-7 and Bougainville LHA-8, Petters said future contract timing for LHA-9 and 10 put at risk some of the cost savings gained from running a hot production line. For the same reason, Petters would prefer signing a multi-year contract to build the Flight II San Antonio-class LPDs.

A significant challenge for the Navy, Petters said, is working to improve the readiness of the submarine fleet. The Navy is trying to increase the number of its aging Los Angeles-class fast-attack submarines into maintenance periods. The service is facing an impending drop in the number of submarines in the fleet as the older Los Angeles subs retire quicker than the new Virginia-class subs can replace them.

Currently, the Navy wants a build rate of two Virginia-class subs year and increasing the build-rate is complicated by the construction of the new Columbia-class ballistic missile submarines. While the service has explored building up to three Virginia’s a year, as of now, Petters said HII doesn’t expect any changes to the pace of sub building.

Chris Kastner, HII chief financial officer, said if the Navy wanted to increase the Virginia-class build rate, concurrent with the Columbia program, “Then that would probably require another thought on capital [expenditures]. But we are not seeing that being the discussion today and so we feel pretty comfortable with the capital investments that we’ve made.”

HII did disclose delays to the delivery of the future USS Delaware (SSN-791). There were both cost and scheduling pressures with Delaware’s construction, which caused HII to reevaluate the delivery date and construction processes. The result is a $20 million increase to HII’s Virginia-class production, which was applied to Delaware, the final Block III sub HII built and the start of HII Block IV production. HII is currently negotiating with the Navy how to divvy up this added expense, which is also being factored into the company’s negotiations to build Block V attack boats.