A flat but stable defense budget outlook was welcomed by the General Dynamics chief executive, who told analysts she expects important shipbuilding programs will be funded by the spending plan agreed to by Congress and the White House this week.
Pentagon acquisition officials and defense contractors are now preparing for what appears to be two years of relatively flat defense spending thanks to a deal reached but not yet formally passed this week. While the defense base budget is expected only slightly to increase in Fiscal Years 2020 and 2021, the deal eliminates the spending caps imposed by the Budget Control Act of 2011.
“Well, it’s certainly very good news that it looks like we’ve got some clarity in our political landscape at the moment,” said Phebe Novakovic, chief executive of General Dynamics, during a conference call with analysts to discuss the company’s second-quarter financial results.
According to the federal budget deal announced earlier this week, the Pentagon can expect a topline base budget of $666.5 billion in FY 2020 and $671.5 billion in FY 2021.
Against this flat spending backdrop, analysts wanted to know if Novakovic worried about potential delays to Navy shipbuilding. Specifically, they wanted to know if there was any risk to the $109 billion Columbia-class ballistic missile submarine program, which is replacing the fleet’s aging Ohio-class ballistic missile submarines.
“Columbia is a national priority, and I have no doubt that as a national priority funding will be made available for it,” Novakovic said. “There are a lot of different ways to do that from a budget perspective, and I think that the U.S. Congress and our customer is talking about various avenues of ways, to ensure healthy budgeting.”
The Navy estimates the total cost to buy 12 Columbia-class ships is $109 billion. The Navy plans to purchase the first Columbia-class sub in FY 2021, the second in FY 2024 and the remaining ten subs at a rate of one per year between 2026 and 2035, according to a June 2019 Congressional Research Service report.
The budget deal’s upside, according to Novakovic, is defense contractors know what to expect as the Pentagon draws up spending plans. General Dynamics is building Virginia-class Block IV submarines and has started purchasing long-lead materials for the Block V subs, Novakovic said. She expects a contract to build 10 Virginia-class Block V submarines by the end of this year. General Dynamics also has a backlog to build 11 Arleigh Burke-class guided-missile destroyers, she said.
There is strong support on Capitol Hill for shipbuilding, Novakovic said, and she doesn’t think the Navy will be in a situation where it prematurely curtails some programs.
“When we did the Ohio in the ‘80s, a separate account was set up. That’s a potential option,” Novakovic said. “So, I don’t worry too much about Columbia crowding other programs out. There is an imperative for the Navy to recapitalize its ships and build more ships.”
