Bloomberg News

Huntington Sticks to Plan to Close Louisiana Shipyard

April 10, 2012

Huntington Ingalls Industries Inc. (HII:US), the U.S. Navy’s largest builder of surface warships, is sticking to plans to close its Avondale shipyard near New Orleans, the company’s chief said.

Shipbuilding will end at Avondale by mid- to late-2013, after it delivers its last amphibious ship, Chief Executive Officer Michael Petters said today in an interview in Bloomberg’s Washington office. The company continues to seek a “partner,” such as a heavy manufacturer that will develop an alternative use, he said.

“I am not going to leave a stone unturned trying to figure out if there is another way to redeploy the site,” Petters said. “We would continue to think about it even if we get all to the point where the yard is closed. We still have an asset. We would still be thinking about what can we do with this asset beyond locking it.”

Huntington Ingalls of Newport News, Virginia, has been under pressure from Louisiana lawmakers to keep Avondale open instead of consolidating the company’s shipbuilding work outside the state.

The fight to keep Avondale open began as soon as Huntington Ingalls’s former parent, Northrop Grumman Corp. (NOC:US), announced plans in July 2010 to spin off its ship unit and shut the shipyard. Pressure to cut costs is increasing as the Pentagon prepares for as much as $1 trillion in potential budget cuts during the next decade.

As work winds down at Avondale, its workforce has been reduced to about 3,000 from as many as 4,800, according to Beci Brenton, a spokeswoman for the company.

Lawmakers’ Plea

U.S. Senator Mary Landrieu and Representative Cedric Richmond, both Louisiana Democrats, said last year that they want to see the Avondale yard continue building commercial ships or find comparable manufacturing uses. Huntington Ingalls’s shipyard in neighboring Mississippi isn’t enough to maintain shipbuilding expertise in the region, they said.

The company’s yards at Pascagoula, Mississippi, and at Avondale, both on the Gulf of Mexico, between them build the Navy’s DDG-51 guided missile destroyers, LPD-17 amphibious transport dock ships, the new LHA-6 amphibious assault ship and U.S. Coast Guard cutters. The company’s Newport News yard in Virginia builds nuclear-powered aircraft carriers and submarines.

Reducing Overruns

Huntington Ingalls faces congressional scrutiny over the cost of a new class of nuclear-powered aircraft carriers. Petters outlined steps his management is taking to reduce an estimated $884 million cost overrun on the company’s $5.2 billion contract for detailed design and construction of the carrier Gerald R. Ford.

Huntington Ingalls’s share of the overrun is $194 million, which would be taken from its $467 million fee. The Navy’s share is $690 million.

“We’ve created new management and review teams with the Navy,” Petters said. “If someone has a better idea of how to get this done, I am open to ideas because our incentive, in the way the contract is written, is to drive costs down.”

“We are picking up every rock to look at ways to drive cost out of that program,” Petters said. “There is a difference of opinion” between the Navy and Huntington Ingalls over whether the $884 million estimate is accurate, he said.

The Navy added $273 million to its fiscal 2013 budget request to cover part of its $690 million share and will add the remaining $417 million next year, the service told the Congressional Research Service.

Navy’s 30-Year Plan

Petters said in the interview he is reviewing the Navy’s new 30-Year shipbuilding plan for insights useful for strategic planning.

“The 30-year plan is a recognition the nation needs a navy,” he said. “If you looking to invest in us for a quarter, we are probably not the right guy. But if you are thinking about somebody you can look out three to five years on, and think about where their priorities are and how they strategically are placed in the fabric of our society, we think we’ve got a pretty good story to tell.”

Huntington Ingalls fell 4.5 percent to $37.90 at the close in New York trading and has gained 1 percent since it began trading last March.

The Navy shipbuilding plan calls for about 300 warships. The fleet would include 12 to 14 ballistic missile submarines; 11 nuclear-powered aircraft carriers; about 48 nuclear-powered attack submarines; about 90 large surface combat ships and 55 small surface combat vessels; about 32 amphibious landing ships; about 29 combat logistics force ships and 33 support vessels of all types.

The Navy would have four nuclear-powered cruise missile submarines until the mid-2020s and is seeking to expand the strike capabilities of its Virginia-class attack submarines.

To contact the reporter on this story: Roxana Tiron in Washington at rtiron@bloomberg.net. Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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Companies Mentioned

  • HII
    (Huntington Ingalls Industries Inc)
    • $104.04 USD
    • 2.68
    • 2.58%
  • NOC
    (Northrop Grumman Corp)
    • $122.0 USD
    • 1.40
    • 1.15%
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