EDITORIAL COMMENT


New name for largest warship builder in the USA


Mike Petters, President and CEO of Huntington Ingalls Industries holds a ceremonial HII stock certificate on the floor of the New York Stock Exchange.


building nuclear-powered submarines, sold by parent company Northrop Grumman. Te largest naval shipbuilder in the US is now owned by Huntington Ingalls Industries (HII), a new, independent and publicly traded company. “Our strategy,” said Mike Petters, president


T


and chief executive officer (CEO) of HII, “is to better align our business with the US Navy’s priorities and to continue improving our shipbuilding performance while meeting our customer commitments. Operating as an independent company will allow us greater focus and agility to accomplish these important objectives, which should create significant value for our shareholders.” Te Huntington Ingalls Industries name


reflects the long-standing legacies of the two shipbuilding business divisions of the new entity: Newport News Shipbuilding and Ingalls Shipbuilding. Collis P Hunting- ton founded Newport News Shipbuild- ing in 1886, and Ingalls Shipbuilding was established in 1938 by the Ingalls Iron Works of Birmingham, Alabama, a company founded by the Ingalls family. “Incorporating the names of our founding


families and legacy companies into our new enterprise will build upon our 125-year tradition of commitment to quality, customer focus and building the best military ships in the world,” said Mr Petters. “I am very excited about our future, about the strength and depth of our leadership team, and the skill and dedication of our shipbuilders.” Work today at HII includes the construc-


tion of the Gerald R Ford class aircraft carriers, refuelling and complex overhaul of Nimitz class aircraſt carriers, construction of Virginia class submarines and submarine


Warship Technology May 2011


he end of March saw the only US shipbuilder still building aircraſt carriers, and one of only two yards


design and life-cycle management, and the provision of fleet services. Te company is also constructing San Antonio class amphib- ious ships and an America class amphibious assault ship. It has built 28 out of 62 Arleigh Burke class destroyers with long-lead materi- als awarded on the first two ships in the ongoing DDG-51 programme. Recently, the company was also awarded a fourth National Security Cutter for the US Coast Guard. Northrop Grumman’s board approved the


spin-off of HII approximately eight months aſter it announced it was exploring a sale or spin-off of the shipbuilding unit, citing little ‘synergy’ with the company’s other businesses. A more cynical assessment of the reason for the sale was simply that the yard wasn’t making enough money. Since announcing the intended sale/


spin-off, the company had worked hard to convince the US Navy that a new stand-alone unit would have the financial wherewithal to survive on its own. Te deal marked the end of Northrop


Grumman’s near decade-long ownership of Newport News, a period that saw the re-start of a submarine building programme there and the design and the beginning of construction of the US Navy’s newest class of aircraſt carrier. The famous Newport News yard once


again will be known as Newport News Shipbuilding, and HHI’s problematic Gulf Coast operations, which were also part of the sale, will be called Ingalls Shipbuilding. Earlier in March, Sean Stackley, the US


Navy’s Assistant Secretary of the Navy, who is responsible for acquisition programmes, said that Northrop Grumman had made what he called “appropriate adjustments” to its spin-off plan, adjustments which he said had resolved concerns about the risk involved to what he called “this important


segment of our shipbuilding industrial base”. Under terms of the transaction, Hunting-


ton reportedly transferred a whopping US$1.43 billion of debt to its former parent and as a result has started life with around US$1.58 billion in net debt. Leading credit ratings agencies rated HII’s debt as ‘non-investment grade’, or ‘junk,’ but Mr Petters said he was confident that HII was financially stable. “We think the balance we have between our credit side, equity side and our liquidity puts us in a very strong place,” he said. “We have a very balanced structure that’s going to support us for the future.” Newport News is not, however,


the


main problem facing Mr Petters – the main one being HHI’s newly acquired Gulf Coast operations, having had a series of underperforming shipbuilding contracts and the lasting effects of Hurricane Katrina to deal with. Closure of the Avondale shipyard – which employs more than 4500 people – is said to be on the cards. “Let’s be clear. Northrop Grumman did


not spin off the operation because it didn’t fit into their grand plan. It was because it didn’t make enough money and its future looked dodgy,” said Tim Colton, one well-known commentator not known for pulling his punches. “Te Newport News operation makes money, the Gulf Coast operation doesn’t. Look at their backlog… and at the government’s current shipbuild- ing programmes. All being well, HII will have steady work in both divisions for at least the next 10 years, equivalent to revenues of around US$7 billion a year. But what happens if these programmes are cut back and/or stretched out?” A lot, it seems, will depend on HII’s


margins, whether it can reduce its overheads, and whether US government contracts keep rolling in. WT


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