A critical nuclear submarine supplier could take financial hits for years if the Navy sticks to buying just one Virginia-class fast-attack submarine in Fiscal Year 2021.
BWX Technologies – U.S. Navy’s only manufacturer of nuclear reactors – would start feeling the hit to its bottom line by the end of 2020 if the Navy only buys one Virginia-class boat, said Rex Geveden, chief executive of BWX Technologies, during a conference call to discuss the company’s 2019 financial results with analysts Tuesday morning.
“The more significant impact starts for us in calendar year ’21 and then starts to peak out later, two, three years later than that because of the way the funding ledge goes on those nuclear ships,” Geveden said.
If the FY 2021 budget is approved on time and funding for a second Virginia-class submarine is not restored, Geveden told analysts the negative effects would start appearing in BWX Technologies’ fourth-quarter financial reports. However, Geveden said he believes a budget deal will be delayed until at least November, so realistically BWX Technologies would not feel hits to its bottom line until the calendar year 2021.
“In terms of whether or not we can get a budget deal, I’m just looking at history,” Geveden said. “We never get a budget before October and that certainly in an election year, I cannot imagine a budget deal before the election being signed off by the President.”
The Navy’s long-term plan is to buy two Virginia-class submarines a year. The current contract with General Dynamics Electric Boat covers the purchase of nine subs between 2019 and 2023, with an option for a tenth sub.
The Navy has put funding for the second Virginia-class submarine atop its unfunded priorities list submitted to Congress. The $2.7 billion for the Virginia-class sub accounts for more than half of the request, which includes about 30 items ranging from additional aircraft, military construction projects, weapons and software upgrades.
“Congress has demonstrated its strong and bipartisan commitment to this second 2021 submarine, having already provided more than $1.1 billion in advanced funding to support it,” said Rep. Joe Courtney (D-Conn.) in a statement released Thursday. Courtney chairs the House Armed Services seapower and projection forces subcommittee.
Lawmakers get a chance to quiz Navy officials on their budget request on Thursday when Acting Secretary of the Navy Thomas Modly is scheduled to testify before the House Armed Services Committee. Given the pass support by Congress to purchase as many fast-attack submarines as possible, Modly will likely be asked about the thinking only to request one Virginia-class in F.Y. 2021.
By only requesting funding for one sub in F.Y. 2021, the Navy is complying with the Electric Boat contract. However, if the Navy follows through with its current budget request for only one Virginia-class submarine in F.Y. 2021, Geveden said BWX Technologies would have to take the hit and manage the impact.
In future years, the Navy still wants to buy two Virginia-class submarines a year. Columbia-class production will start while the company is building Ford-class aircraft carrier propulsion reactors. For BWX Technologies, this production pace means the firm has to continue investing in its production facilities and employees, Geveden said.
“A Virginia on the margin doesn’t really change our production capacity picture or our capital picture because we’re having to build out to be able to accommodate Columbia and to continue two Virginia-tempo as it is,” Geveden said.