General Dynamics is equipped to meet the Navy’s “increased demand” for submarines, the company’s chief executive officer told investors on Wednesday.
With a multi-billion dollar contract for the Virginia Block V program, the company’s Marine Systems business hit revenue records in Fiscal Year 2020. While the Trump administration forecasted more submarine work in the coming years, it’s unclear if the new Biden administration will continue on the same shipbuilding path. But with the Columbia-class program now under construction at Electric Boat, General Dynamics anticipates more growth in the next few years.
CEO Phebe Novakovic said in an earnings call that, for the fourth quarter of FY 2020, the company’s Marine Systems group saw $2.9 billion in revenue, which is a 11.4 percent increase from the fourth quarter of FY 2019.
Revenue for the maritime group in FY 2020 came in at nearly $10 billion, which Novakovic said is an 8.7 percent increase compared to FY 2019.
“This is the highest quarterly and full-year earnings ever for the marine group. In our mid-year guidance to you, we anticipated revenues about $9.6 billion and operating earnings of $845 million. We came in above that for both revenue and earnings,” Novakovic said.
“In response to significant increased demand from our Navy customer that you can see in these results, we continue to invest in each of our yards, particularly at Electric Boat, to prepare for [Virginia-class submarine] Block V and the new Columbia ballistic missile submarine,” she continued. “So suffice it to say that we’re poised to support our Navy customer as they increase the size of their fleet and deliver value to our shareholders as we work through this very large backlog and improve our return on invested capital.”
In October, Novakovic said the company was not yet preparing for the Navy to purchase three Virginia-class attack submarines per year, an objective former Defense Secretary Mark Esper called for earlier that month when summarizing his Battle Force 2045 fleet architecture.
Since then, the Trump White House unveiled a FY 2022 shipbuilding blueprint that would direct the Navy to buy three Virginia-class submarines a year. It remains unclear how the industrial base, which has never constructed three Virginia-class boats per year, could sustain that build rate while also constructing the Columbia-class submarines.
It’s also unclear what the new Biden administration plans to do with the previous administration’s shipbuilding plans.
At the start of FY 2021, the Navy issued Electric Boat a $9.47 billion contract modification to start building the lead ship in the Columbia class, which will replace the Ohio-class submarines. Electric Boat, along with Huntington Ingalls Industries’s Newport News Shipbuilding, is also on contract for Block V of the Virginia program.
Novakovic attributed 50 percent of the Marine Systems group’s growth in FY 2020 to the Columbia program and said she expects the group to see a revenue boost of $400 million to $500 million per year.
“And then that will continue to accelerate as we pull through more production. So in the moment, for 2021, as I alluded to in my remarks, the opportunity there is for increased revenue,” she said. “And that happens in the shipyards by increased throughput. We pull work in, depending on the work cadence, the schedule, the planning, the availability.”
Asked about the potential for flattening defense budgets, Novakovic pointed to the company’s steady business building the Navy’s submarines, destroyers and fleet oilers. She argued that General Dynamics is in a good position because the Navy has identified submarines as a crucial component of its strategy.
“So I’m quite confident that, given my belief that the defense budget is driven by the threat, that our key elements of our marine group growth will be nicely supported. We believe that the Navy will continue to need destroyers. The DDG-51 is proving to be a very versatile program, platform that can take additional missions,” Novakovic said.
“And then with our auxiliary yard out at NASSCO – you know, with the exception of the nuclear-powered carriers and nuclear submarines, all these Navy fleets need gas,” she continued. “And the gas needs to get there safely, fastly and pumped efficiently. And that’s our new oiler program.”