Huntington Poised for $4 Billion U.S. Naval Carrier Order
By Tony Capaccio
The U.S. Navy intends to award Huntington Ingalls Industries Inc. (HII:US) a contract early next year, potentially for more than $4 billion, to build the second of a new class of aircraft carriers.
“The Navy is still negotiating with the company to reach a fair and reasonable price, and we hope to do that as soon as possible,” Commander Thurraya Kent, a spokeswoman for the service, said in an e-mail. “Early 2015 is still” the intended contract award date, she said this week.
The ship, the USS John F. Kennedy, is the second of three planned in the new carrier class. While Congress has ordered that the Kennedy’s cost be capped at $11.5 billion, the first ship, the USS Gerald R. Ford, is projected to cost $12.9 billion when completed and fully equipped, 22 percent more than estimated five years ago.
A Government Accountability Office report on Nov. 20 said the Ford’s cost may increase even more and that planned savings for the Kennedy assume labor efficiencies never achieved in building an aircraft carrier.
According to Huntington Ingalls, the new class of carriers has a redesigned command center and flight deck, can launch and recover 25 percent more aircraft than existing Nimitz-class carriers can and should save a projected $4 billion in ownership costs over its 50-year lifespan.
Signing the contract may trigger increased congressional scrutiny of the $43 billion program that so far has focused on the Ford, the costliest warship ever. It’s about 83 percent complete and scheduled for delivery in 2016. The Kennedy is planned for a 2023 delivery.
Navy officials have estimated the Kennedy construction contract at more than $4 billion, which doesn’t include items such as the ship’s nuclear power plant and radar, launch and command-and-control equipment.
Newport News, Virginia-based Huntington Ingalls gets 94 percent of its revenue from the U.S. Navy, according to Bloomberg Intelligence.
The Navy already is grappling with how to pay for a shipbuilding plan that anticipates the three-carrier Ford class, as well as $22.6 billion for at least 32 Littoral Combat Ships and a 12-vessel nuclear submarine fleet to replace the Ohio-class submarine, which may prove most expensive of all.
The contract to begin the Kennedy’s detailed design and construction originally was to be awarded to Huntington Ingalls in September 2013. Instead, the Navy extended an existing $296 million “construction preparation” contract without disclosing details on the reasons for the delay.
The GAO said in its report last month that the contract award was delayed because Huntington Ingalls’ prices grew “beyond the Navy’s expectations,” and the service took interim steps “to allow additional time for the shipbuilder to reduce cost risks prior to awarding a construction contract.”
Senator John McCain, the Arizona Republican who’s in line to be the next chairman of the Senate Armed Service Committee, last year praised the Navy for delaying the award, saying it would save money by giving the service more time to assess the technical challenges of building the second vessel.
McCain has been a leading critic of cost overruns on the first carrier.
Beci Brenton, a Huntington Ingalls spokeswoman, said in an e-mail that negotiations on the Kennedy carrier continue, and she referred additional comment to the Navy.
Michael Petters, the shipbuilder’s chief executive officer, said at a Nov. 13 conference sponsored by Goldman Sachs Group Inc. that “we need to get those negotiations done so that we can” transfer workers completing assembly of the Ford to “ramp up the work on the Kennedy.”
The GAO said in its report that the Navy’s cost estimate for the Kennedy assumes Huntington Ingalls “will significantly lower construction costs through realizing efficiency gains” that reduce the construction time by as much as 12 million labor hours from what it’s taking to build the Ford. The watchdog agency said that would be “unprecedented in aircraft carrier construction.”
“While performance to date has been better than” the Ford’s, “early indicators suggest that the Navy is unlikely to realize anticipated efficiencies at the level necessary to meet cost and labor-hour reduction goals,” the agency said.
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