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Budget Allows Navy to Move Forward on Carrier Contracts

The signing by President Obama of the full year’s funding bill has allowed the different U.S. services to begin issuing contracts that had been waiting to see how sequestration and the Continuing Resolution would be resolved.

On Friday the Navy moved quickly to issue a contract to Huntington Ingalls Industries (HII) for the overhaul and refueling of the U.S.S. Abraham Lincoln, a Nimitz class aircraft carrier. The contract has a value of around $2.6 billion.

The work is expected to take over 3 years and will include upgrades to different parts of the ships as well as refurbishing components and compartments along with refueling the reactors that power the ship. Included are the necessary modifications to operate the Navy’s version of the F-35 Joint Strike Fighter which will fly in a Short Take-Off-and-Landing (STOL) configuration.

HII was also awarded a contract worth over $400 million to continue buying material for the new CVN 79, designated John F. Kennedy. The CVN 79 contract was started in 2009 and is expected to be delivered in 2020. It is of a modified Nimitz design referred to as the Gerald R. Ford class.

HII is the only company able to build the large nuclear aircraft carriers for the U.S. Navy.

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GD’s Electric Boat Wins Contract to Design Next SSBN for U.S. and U.K.

One of the largest contracts to be awarded this Fiscal Year was just given to General Dynamics (GD) submarine building arm, Electric Boat. The 5 year, nearly $2 billion contract is for design and development efforts supporting a new ballistic missile submarine.

This new boat will potentially replace the current U.S. Ohio class submarines and the Royal Navy’s similar Vanguards. Electric Boat is the primary producer of submarines for the U.S. Navy. While the Vanguard replacements will be built in the United Kingdom much of the design work will be done in the U.S. due to the fact they utilize a U.S. missile.

While there has been some reductions in the size of the U.S. nuclear arsenal with some of the Ohio class retired or re-designated there will ultimately still be a need for modernization of the design and new submarines. The U.S. is currently only building the Virginia class of fast attack submarines at Electric Boat and partner Huntington Ingalls Industries (HII).

Even with the potential for large cuts to the defense budget if sequestration takes effect these kind of contracts will continue to be awarded. Reductions in funding will limit how much is executed each year and potentially stretch out the work over more years then currently planned.

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Northrop to Support HII Ship Construction

Last year Northrop Grumman (NOC) spun off its shipbuilding division into a new company, Huntington Ingalls Industries (HII). This meant that the company was no longer building ships for the U.S. Navy. HII assumed the yards owned by NOC in Louisiana and Mississippi and the current contracts.

That does not mean that Northrop no longer is part of the military shipbuilding program though. It was just recently awarded a contract to provide a component for a new amphibious warship under construction by HII. The approximately $50 million contract will provide the Machinery Control System (MCS) to HII for installation on the new ship.

The Navy is building a new class of LHA ships to supplement existing LHA’s of the Tarawa class and the LHD ships of the Wasp class. These new LHA will combine features of both previous class ships and carry helicopters, V-22 tiltrotors and landing craft. They will be able to support Marine units and transport them to shore. The new LHA-6 America class ships also have the capability to support the F-35 Joint Strike Fighter providing a measure of ground attack and air defense capability.

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Navy Orders USS Tripoli from Huntington Ingalls Industries

The U.S. Navy continued its investment into new amphibious warfare ships by awarding a contract to Huntington Ingalls Industries (HII) for LHD-7. The USS Tripoli will follow its sister ship, USS America, onto the ways in the near future. The value of the contract is for over $2 billion.

Currently the Navy is building two major amphibious ship classes. The LSD-17 class San Antonio ships and the bigger, more capable LHA class. The America and Tripoli are numbered sequentially with the Tarawa class built in the Seventies. Due to the need to support the bigger tilt rotor V-22 aircraft the America and Tripoli are designed for maximum aircraft capability and do not have a well deck for landing craft. That has been corrected in future ships of the class.

The LHA provide the ability to support large number of helicopters and V/TOL aircraft as well as carry Marines and their support equipment. The ones with a well deck allows landing craft to be loaded and deployed. They also offer hospital and C2 capabilities for operations.

The LHA and LHD ships followed the LPH class of helicopter carriers that went into service in the Sixties and saw extensive use in Vietnam. The new Tripoli name comes from one of those class ships although the Navy has operated several other ships in honor of the Marine service in North Africa against the Barbary Pirates.

HII is the ship building division of Northrop Grumman (NOC) that was spun off into a separate company. It builds amphibious warfare ships, destroyers as well as nuclear submarines at yards in Mississippi and Virginia.

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Defense M&A — Seeking Alpha

Here is an article I wrote for Seeking Alpha on potential defense M&A activity.

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Congress, Defense Budget and Contractors — Seeking Alpha

Here is an exclusive article I wrote for Seeking Alpha on Congressional changes to the defense budget and how they will aid contractors.

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House Begins Markup of 2014 Budget with Add of Submarine

The House and Senate are in the process of considering the President’s 2014 budget request. As often different committees will review it and make changes sometimes based on their own priorities which means adding things or removing items from the original request. The budget has to go through two committees in each the House and Senate. Then it is voted on and a Conference Committee held. This means that often the final budget is not necessarily similar to what was submitted in February.

Not only do different companies lobby Congress for inclusion of their products and projects but sometimes the Services will indirectly. There exist lists of “unfunded priorities” and needs that Congress may address even though they are not part of the budget request.

The House Armed Services Committee as part of its review has reportedly increased the Navy’s buy of U.S.S. Virginia class attack submarines by 1 more then requested. The Navy had originally planned to buy two a year but in order to meet budget cut goals and reduce spending only 1 was asked for in 2014. The HASC has bumped that back up to 2.

Congress also wants the Navy to consider signing a multi-year contract for 10 submarines. Multi-year contracts are normally for five years and done for systems, especially aircraft, in steady state production. This allows efficiencies and better pricing due to stable quantities and funding. Virginia submarines are currently built by two companies – Huntington Ingalls Industries (HII) in Virgina and General Dynamics (GD) Electric Boat in Connecticut and Rhode Island.

One of the problems that the Pentagon will face as it tries to cut money required to meet budget goals is that Congress is loathe to reduce programs. There are 435 House members and 100 Senators who see defense spending as a way to bring money and jobs into their districts. The idea of keeping one more submarine in the current budget will do so. It will also require the Navy to cut less money or take it from other budget priorities.

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