Engineering and procurement giant Fluor [FLR] reversed course and decided not sell its government contracting business, which has contracts with Department of Energy’s nuclear weapons complex, and Department of Defense, the company said Tuesday.
The Irving, Texas-based company announced the now-canceled sale in September. Belt-tightening over the past year, along with the anticipated sale later in 2020 of the AMECO equipment leasing and services business, are relieving Fluor of the need to part with its federal contracting unit, Carlos Hernandez, the company’s chief executive officer, said during a quarterly earnings call with Wall Street analysts.
“As Fluor worked through the fourth quarter and realized some of the early benefits of its restructuring plan, the Company gained confidence in its solid liquidity position and its viable options for generating cash flow such that the Company no longer deemed it advisable or necessary to proceed with the sale of this business,” Hernandez said.
Through subsidiaries or other partnership, Fluor is a major player in the Department of Energy’s National Nuclear Security Administration (NNSA), which manages the entire civilian nuclear weapons complex.
Management knew government contracting is a valuable business with good cash flow, Hernandez said, adding that Fluor was approached by several viable buyers during the time the unit was on the market.
Fluor subsidiary Fluor Marine Propulsion runs the NNSA’s Naval Nuclear Laboratories in New York State and Idaho. The unit does research, development and design for nuclear reactors and nuclear fuel to power Navy warships and submarines. The contract, awarded in 2018, is worth $30 billion over 10 years, with options.
Fluor is also one of two major industry subcontractors for Triad National Security, which since November 2018 has managed the Los Alamos National Laboratory under an NNSA contract potentially worth more than $20 billion over 10 years, including a five-year base worth about $10 billion. Los Alamos is the older of the two U.S. nuclear-weapon design laboratories.
On the other side of the country, Fluor is the lead partner on Savannah River Nuclear Solutions, which manages the Department of Energy’s Savannah River Site in Aiken, S.C. The site hosts the NNSA’s tritium refining mission. Tritium is the radioactive hydrogen isotope that boosts the yield of all current U.S. nuclear weapons. Tritium’s natural radioactive decay requires the NNSA to refill and replace tritium reservoirs on all nuclear weapons periodically.
In October 2019, DoE extended Savannah River Nuclear Solutions’ Savannah River management pact for the second time in as many years. The extension includes 14 months of guaranteed work through Sept. 30, but DoE holds a pair of one-year options that could stretch it out to 2022. The base extension is worth about $1.5 billion. Including the 14-month base, the DoE pact awarded in 2008 — which mostly funds work other than NNSA tritium extraction — will be worth at least $12 billion or so through September 2020.
Fluor is also a major player at DoE’s Environmental Management Office, which with an annual budget of between $6.5 billion and $7 billion a year cleans up some of the shuttered nuclear weapons production sites that helped build up the U.S. nuclear arsenal during the Cold War.
With the planned sale of the government business now canned, the Fluor subsidiaries and joint ventures that serve DoE will maintain their ability to reach back to Fluor corporate for help with various nuclear security missions. Had the business been sold to a buyer without a history in the DoE weapons complex — as Amentum, the former AECOM Management Services, was earlier this year — those sites could have lost a reach-back capability that is closely marked at DoE headquarters.
Meanwhile, Fluor is not reporting final quarterly and 2019 yearly earnings numbers this week because it is under a Securities and Exchange Commission (SEC) investigation of its accounting and financial reporting for the second quarter of 2019.
“We do not believe at this time that we have material errors,” Fluor Executive Chairman Alan Boeckmann said during the call. But the books remain open, he added.
Full year new awards for the government segment were nearly halved, from $4.1 billion in 2018 to $2.2 billion in 2019.
Fluor’s 2019 ending backlog is expected to be $3.8 billion, compared to $4.6 billion a year ago.
This story first appeared in Defense Daily affiliate publication ExchangeMonitor, which covers Department of Energy nuclear weapons and waste programs, and civilian nuclear waste issues.