The Big Six

The worst kept secret in the U.S. shipbuilding industry is the need for renewed, elevated levels of naval ship construction to maintain the fleet at a level, which allows it to meet its worldwide operational strategies. The bestkept secret is exactly what combination of political pressure, world events and market conditions must conspire to achieve this goal.

Ever since the large-scale military drawdown in the wake of the Cold War, those most closely allied to the big U.S.

shipbuilding infrastructure have been lamenting the direction of fleet procurement and naval shipbuilding capability.

The market has seen the "Big Six" shipyards of Avondale Industries, Bath Iron Works (BIW), General Dynamics Elec- trie Boat, Ingalls Shipbuilding, NASSCO and Newport News Shipbuilding by corporate consolidation become the Big Three, with General Dynamics owning Electric Boat, BIW and NASSCO; Litton owning Avondale and Ingalls, and Newport News remaining the sole independent.

These companies, through their American Shipbuilder Association, have kept the budget fires burning on Capitol Hill, repeatedly discussing the growing discrepancy between military operational need and fleet capabilities.

At a recent American Sea Power in the 21st Century forum held earlier this year, RADM A1 Konetzni, commander of the submarine forces in the Pacific called for a 350 to 360 ship Navy, saying "Real world experiences are reinforcing what those of us in the force providing business have been saying for several years: that a fleet larger than 300 ships is required to satisfy our current and projected war fighting and overseas requirements.

A more realistic requirement for naval forces is one that would be sized at 15 carrier battle groups, 14 amphibious ready groups, 68 attack submarines, 134 surface combatants and supporting ships competthat more closely approximate a 350 to 360 ship Navy. Yet at the same time we see a future where this gap between reality and requirements may be widening, not shrinking." To date, the prospects of maintaining RADM Konetzni's vision seems bleak at best, as newbuild levels through 2005 are about eight ships per year, following a low of orders for just four new ships per year during a period in the early 1990s (See Fig. 1); a stark contrast to the 26 orders placed in 1990. As a natural result, the Naval Vessel Orderbook (See Fig. 2) has suffered mightily, dropping from a high of 111 ships in 1983 to 41 at the close of 1998.

Commercial Prospects While the U.S.' largest yards definitely count a strong U.S. Navy orderbook at the head of its wish list, a steady stream of commercial work integrated with other U.S. government projects would help ensure that the core of the U.S. shipbuilding capability is kept sharp. Pascagoula-based Ingalls Shipbuilding has arguably been the most active member of the small fraternity in bidding and winning work outside of the naval realm, as it has built an impressive reference list of projects in two technically demanding areas: offshore construction and cruise shipbuilding. The latter is the most important, if not surprising aspect of Ingalls' repertoire, as the U.S. presence in the cruise ship construction realm has been virtually nil for decades. However, the ships being built for United States Lines, while certainly posing a challenge to a shipyard more accustomed to making warships, should benefit from Ingalls' expertise at constructing some of the most complicated and technically advanced ships in the world. There are two "X" factor in Ingalls' favor; one being the marine equipment manufacturers and two being its strong executive and support team.

The marine equipment business has become more consolidated and compet- itive than ever, and to say competition is more intense in one instance than another is not wholly correct. However, there is a certain fervor of product and system suppliers to be represented on these historic ships, leaving at Ingalls' disposal a breadth of products and systems, as well as the technical expertise to make the first ship proceed as smoothly as possible.

On the personnel front. United States Lines has at its disposal one of the premier talents in the cruise industry in the last 25 years in Rod M c L e o d (see related story, page 33), as well as the talent pool of Ocean Development Corp., headed by Jon Rusten, who has made a career of coordinating the construction of outstanding cruise ships, including the Disney Magic and Wonder.

The Lone Wolf Newport News Shipbuilding is unique in many ways, with unmatched size of facilities and capabilities, as well as the fact that it is the last "solo" big U.S.

shipbuilders. NNS has forged a strong bottom line despite the paucity of naval shipbuilding orders. The shipbuilder, the only U.S. yard capable of constructing the nuclear aircraft carriers, still depends on these $5 billion ships and its nuclear submarine capabilities to sustain itself, but it has strengthened its core by divesting from traditional shipbuilding endeavors.

Newport News Shipbuilding recently reported net earnings of $21 million for the first quarter of 2000.

"This was an impressive quarter for Newport News," commented chairman and CEO William P. Fricks. "We delivered significant earnings gains and generated exceptional free cash flow. Moreover, our future programs are receiving broad support in the Pentagon and the Congress. The combination of our consistent and strengthening financial performance on existing contracts, and the revenue and earnings potential provided by future programs, puts us on track for an outstanding year." NNS' 1Q results were significantly buoyed by the activities surrounding work on the next aircraft carrier, CVN 77 . NNS posted first quarter revenues of $469 million versus $430 million in the same period in 1999. This revenue growth was attributable to gains in the Construction and Engineering segments.

Construction revenues improved $25 million to $206 million as a result of advance planning work on the next aircraft carrier (CVN 77), and increased activity on the Virginia-class submarine program. Engineering revenues of $68 million advanced $27 million largely due to development work on the propulsion plant for the next generation of aircraft carriers. While revenues in the Construction and Engineering segments exhibited growth, the Fleet Services segment revenues of $192 million were slightly lower than last year because of the reallocation of resources to construction programs as the refueling and overhaul of the carrier Nimitz enters its final stages. Also during the quarter, the Navy awarded a contract modification valued at approximately $200 million for the advance planning and procurement for the complex refueling and overhaul of the aircraft carrier Dwight D. Eisenhower, increasing the total value of that contract to more than $400 million. Eisenhower is scheduled to arrive mid-2001 and will be the second Nimitz-class aircraft carrier to be refueled at Newport News.