By Geoff Fein
The recent decision by Northrop Grumman [NOC] to consolidate its shipbuilding sector into one unit should, over time, provide benefits to the Navy, a service official said.
In January, Northrop Grumman combined its two shipbuilding sectors, Newport News and Ship Systems, into a single operating sector. The move will enable Northrop Grumman to more effectively utilize its shipbuilding assets and deploy its talented shipbuilders, processes, technologies, production facilities and planned capital investments to meet its customers’ needs, Ronald Sugar, Northrop Grumman’s chairman and CEO, said at the time of the merger (Defense Daily, Jan. 17).
“I actually think there is a lot of benefit. I think we will see it over time,” Allison Stiller, deputy Assistant Secretary of the Navy (Research, Development & Acquisition) ships, told Defense Daily in a recent interview.
Among the advantages the consolidation might bring is work sharing between the Gulf Coast and southern Virginia shipyards.
“I think that is something I know Mike [Petters, Northrop Grumman Shipbuilding president] is going to tackle and we have thought for a long time that that’s a good tool for them to be able to manage when they have peaks and valleys,” Stiller added. “It’s important for them to be in a stable environment. This gives them that opportunity.”
Stiller said she didn’t know what changes Petters might initiate, “but I thought for a while that there’s synergy, not just in Northrop Grumman, but across all shipyards, that we could benefit from…even in commodity buys and other things.
“I guess I am cautiously optimistic that we are going to see a lot of benefit from this consolidation,” she added.
One issue that will certainly rise up as lawmakers look to add more ships to the Navy’s top line in FY ’09 is the shipyards’ ability to take on more work.
Stiller was confident the nation’s shipyards have the capacity.
“Does the country have the physical capacity to surge higher? Absolutely,” she said. “Does that come at some cost if you are going to go up and come right back down? Yes. That’s what we try to mitigate, in both the yards and the Navy, to understand the level loading you want to do across the yards.”
Every shipyard right now has had higher employment levels in the past, so they have the ability to grow again, Stiller said.
“But right now, knowing the workload that they can plan, the best thing they can do is plan it to be very stable,” she said.
The issue of shipyard stability recently surfaced at a House Appropriations Committee defense (HAC-D) subcommittee hearing on shipbuilding. At the Feb. 27 hearing, lawmakers told Stiller and Vice Adm. Barry McCullough, deputy chief of naval operations for Integration of Capabilities and Resources, they would like to increase the number of T-AKE dry cargo ships the Navy is buying from two to four.
But Stiller made it clear, General Dynamics‘ [GD] NASSCO shipyard in San Diego likely could not execute four in one year (Defense Daily, Feb. 28).
Currently, NASSCO is building two a year and, according to Stiller, that number will drop back down to one a year.
“If I go back to four, it puts an unnatural flex on the workforce. While Congress could appropriate four ships in ’09, they likely are not going to execute all as ’09 ships,” she said. “We have options on the contract that take us out [to] ’10, ’11…we’d likely execute the options that way because that is the way they are building it.”
What the Navy doesn’t want is for NASSCO to have to staff up and ramp up, knowing that they are eventually going to have to ramp back down, Stiller noted.
She also sees opportunity for second-tier yards, such as Marinette Marine [MTW], Textron Marine & Land [TXT], Bollinger Shipyards, and Austal USA, to participate in Navy shipbuilding.
“They are available to build some ships, but [they are] also available to be an outsource opportunity for the bigger yards,” Stiller said.
She pointed out that in the aftermath of Hurricane Katrina in August 2005, Northrop Grumman Ship Systems turned to outsourcing in some cases just because they wanted to get the labor force stabilized and the company had some attrition issues at its Pascagoula, Miss., shipyard.
“They did outsource. They have outsourced quite a bit,” Stiller said. “That opportunity exists for the second tier yards as well.
“Certainly that is a business decision the yards have to make on their own,” Stiller noted. “They do have to come to the Navy if it is a large outsourcing to inform us. The business case has to make sense to us too.”
In addition, Stiller believes there are opportunities for the second tier yards to build portions of ships, and modules.
Several second tier yards are playing a big role in building the Navy’s Littoral Combat Ship (LCS). Austal USA is teamed with General Dynamics on construction of the second ship, the USS Independence (LCS-2). Lockheed Martin [LMT] and Marinette Marine are building the lead ship of the class, the USS Freedom (LCS-1). Lockheed Martin was also partnered with Bollinger Shipyard for LCS-3. However, the Navy terminated that contract over cost increases on LCS-1 and the inability to reach an agreement with Lockheed Martin on a new contract for LCS-3 (Defense Daily, April 13).
Austal and Bollinger were also awarded phase one firm-fixed price contracts to develop a preliminary design for the Joint High Speed Vessel (Defense Daily, Feb. 1).