By Carlo Munoz
Early revenue projections for the new shipbuilding firm Huntington Ingalls Industries [HHI] shows the company raking in just over $6.5 billion in its first year, its president and CEO told reporters yesterday.
The company already is under contract for a backlog of Navy work topping out at $17 billion, Huntington Ingalls Industries chief Mike Petters said during a briefing in Washington. But those dollars would not be included in HII’s initial earning statements for that first year. But that combination of anticipated new Navy business and shipbuilding work already under contract –totaling out to $23.5 billion–is designed to support the sea service’s goal of achieving a 313-ship fleet over the next few years, he added.
Last week, HHI completed its spinoff from defense giant Northrop Grumman [NOC], completing the planned divesture of Northrop Grumman’s shipbuilding interests and their formation into HHI. Earlier in March, the Northrop Grumman board of directors approved the spin-off of its shipbuilding operations to company stockholders pending final approval from the Securities and Exchange Commission (Defense Daily, March 16).
Despite its relative youth, Petters said HHI would not be like any other start-up company–defense or otherwise–that would require a long learning curve. “It is day one of a company that actually has 125 years of history” in the shipbuilding industry, Petters said. “This is not a company that is just starting out here…trying to figure out what our products are.”
The company will organize its shipbuilding efforts into two divisions, one for nuclear-driven ships and one for non-nuclear vessels, with the nuclear work being done at the company’s shipyards in Newport News, Va., and non-nuclear work at the other locations along the Gulf Coast, such as the shipyard in Pascagoula, Miss.
As far as prioritizing the Navy workload, Petters said the construction of the Navy’s 11 carriers will take precedence as those ships are “a big driver for what makes that number up.” This carrier-focused approach also reflects the requirements outlined in the service’s latest 30-year shipbuilding plan, released last March.
The new Northrop Grumman spinoff company is the sole source provider for the Navy’s carrier and amphibious platforms.
With the focus on submarine and carrier construction, the majority of HHI’s near-term work will be based in Newport News. During that time, company officials will look to revamp its Gulf Coast operation, Petters said.
“Basically what you have got is half of the business that is operating at [one] level, you got the other half of the business that is operating at [another] level, and the opportunity for us is…as we recover the margin of performance on the Gulf Coast, that will actually give us a chance to grow our earnings and grow our cash flow.”
HII officials are looking at “shifting the focus of the business” back to more of a serial production approach at their Gulf Coast locations, he said. That approach, he added, should drive down costs and create efficiencies in the company’s operations. “We have one thing we are trying to get right, and that is we have got to get the underperforming work that we have on the Gulf Coast and get that completed,” Petters said.
A big part of that change, he added, would be attempting to change “the software of the business” he said, referring to the underlying culture and approach Northrop Grumman had taken toward shipbuilding in the past.
“We would have four ships under contract, and four different ways of building it,” Petters said. “No opportunity to achieve [lessons learned], also no real opportunity to coming close to achieving the financial performance we were looking for.”
Streamlining production practices, finding efficiencies in the development process, from the design to construction phase, are all elements of HHI’s plan to resurrect its Gulf Coast entities.
That said, the HHI chief said he was keeping an open mind regarding plans to shut down the company’s Avondale shipyards in Louisiana. Under Northrop Grumman, company officials opted to close down the facility shortly after Hurricane Katrina.
“Our plan of record is just to lock it [up]. That is kind of our baseline plan,” Petters said of the way ahead to shut down the company’s Avondale shipyard. As the current ships in the yard work their way toward completion, certain portions of the Avondale location will be shuttered as those boats come off the line, he said.
However, Petters said that should “credible alternatives” for the Louisiana-based facility arise, HHI may keep the facility on-line.