Northrop Grumman’s Shipbuilding Spinoff Proceeds Smoothly
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The first major shake up in the U.S. defense industry since the implementation of the reforms by Secretary of Defense Robert Gates completed last Thursday as Northrop Grumman (NOC) spun off its shipbuilding arm to its shareholders. One of the biggest defense contractors in the world the company had announced last year that they were looking at leaving the business of building warships primarily for the U.S. Navy due to contraction in that service’s plans and expected budget reductions in the future.
As soon as the transfer of the assets to the new company, Huntington Ingalls Industries (HII), was complete the U.S. Navy followed up with the announcement of an order for the tenth San Antonio class amphibious assault ship, the U.S.S. John P. Murtha. The $1.5 billion ship is named for the former Congressman from Pennsylvania and Marine Corps veteran. Huntington has also inherited four other LPD-17 class ships already under construction at their Pascagoula, MS and Avondale, LA yards.
Prior to the decision to spinoff the business Nortrop had announced plans that they would consolidate their capabilities which would lead to the closing of the Avondale facility. This is still on track to be done by 2013 but the new company says there are opportunities to keep it open if viable work can be found for the shipyard. As well as the two Gulf Coast yards Huntington Ingalls now also operates Newport News shipbuilding which constructs aircraft carriers.
The decision by Northrop has led to rumors that the remaining company now separated from its services arm, TASC, and no longer building ships might be planning on merging with one of the other large defense contractors such as Boeing (BA), Lockheed Martin (LMT), General Dynamics (GD) or Raytheon (RTN). Moves like that were not uncommon in the Nineties when last the defense budget declined precipitously. This time around, though, the Pentagon has made it clear that it does not want to reduce industrial base capabilities and may not allow such mergers.
Huntington Ingalls must compete with primarily General Dynamics for a small shipbuilding budget for cruisers, destroyers and larger amphibious ships. The Navy is building at least twenty Littoral Combat Ships (LCS) over the next several years but these are smaller combatants made in smaller yards owned by Austal America and Marinette Marine. The U.S. if it wants to preserve industrial base must award enough ships to keep both companies going and their yards open.
Photo from surfaceforces’ flickr photostream.