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December 22, 2008

Navy awards $14 billion Virginia Class sub contract

The U.S. Navy today awarded General Dynamics Electric Boat a contract valued at $14 billion for the construction of eight Virginia-class submarines. Electric Boat is a wholly owned subsidiary of General Dynamics (NYSE:GD).

The multi-year contract--the largest submarine procurement in U.S. Navy history-- allows Electric Boat and its teammate, Northrop Grumman Shipbuilding, to proceed with the construction of one ship per year in 2009 and 2010, and two ships per year from 2011 through 2013. The eighth ship to be procured under this contract is scheduled for delivery in 2019.

The Virginia-class submarine is the first U.S. Navy warship designed from the keel up for the full range of mission requirements in the post-Cold War era, including anti-submarine and surface ship warfare; delivering special operation forces; strike; intelligence, surveillance and reconnaissance; irregular warfare; and mine warfare.

The contract immediately provides $2.4 billion to fund construction of SSN-784, which has been named the "North Dakota;" advanced procurement for SSN-785; funding to purchase materials, parts and components for multiple ships at one time (SSN-785 through SSN-791, as yet unnamed), achieving significant economies of scale; and funding for additional cost-reduction design changes (known as Design For Affordability).

From 2012, the contract calls for the two shipbuilders to begin producing each submarine at a cost of $2 billion in FY 2005 dollars and cut construction time of each vessel to 60 months.

"This award is significant for our country, the U.S. Navy, our company and the entire submarine industrial base," said Electric Boat President John P. Casey. "As we attain the production rate of two submarines per year, we will have the stability required to further increase production efficiencies. This will benefit the U.S. taxpayer, while providing the Navy a class of nuclear submarines with the capabilities required to retain our nation's undersea superiority well into the 21st century."

"In addition, at a time when the country has a challenging economic outlook, this contract will provide good jobs not just in Connecticut, Rhode Island and Virginia, but in thousands of communities across the country as our vendors gear up for increased production on the Virginia class," Casey said.

"Today's contract award is an exciting moment for the entire team," said Matt Mulherin, sector vice president and general manager of Northrop Grumman Shipbuilding's Newport News, Va. shipyard. "It brings stability to the submarine program, to our work force and to the shipbuilding supplier industrial base for the next decade. This achievement is also a result of our shipbuilders', suppliers' and Navy partners' successful efforts to reduce cost, accelerate schedules and improve construction processes of the previous Virginia-class boats."

Electric Boat and Northrop Grumman Shipbuilding already have delivered five Virginia-class submarines to the Navy: USS Virginia (SSN-774), USS Texas (SSN-775), USS Hawaii (SSN-776), USS North Carolina (SSN-777) and USS New Hampshire (SSN-778). Five additional submarines are under construction.

The contract comes on the heels of the delivery of USS New Hampshire in August eight months ahead of schedule and more than $60 million under target cost, performance that, the two shipbuilders say, demonstrates the commitment to reduce the cost and shrink construction schedules during the term of the contract.


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