Carrier Watch

Credit Suisse analysts, in a research note sent out this morning, write that Huntington Ingalls Industries' work on the Navy's aircraft carriers "bear watching." Further:

With DoD budgets under review, carrier centerlines (delivery frequency) are being discussed. Any delay to CVN-79 (already started, and accounting for ~10%/13% of our projected sales/EBIT for 2011-13) could be significant. Also, there are reports that HII is ~10% over target cost on CVN-78 (Ford), but HII noted this is typical of lead ships and financial targets are unchanged, which is supported by NN margin in Q2. Still, both carriers are a watch item for us.

During a conference call with Wall Street analysts yesterday, Mike Petters, HII's president and chief financial officer, pushed back against rumors that the Pentagon might consider stretching out the procurement plan for Gerald Ford-class carriers, or even cancel one altogether. As InsideDefense.com reported:

"There's a lot of speculation regarding the shipbuilding budget, including not only the timing of the next carrier in the Ford class, the John F. Kennedy, but also long-term," he said. "The ultimate outcome is only certain once the defense budget is finalized and signed into law."

He noted that HII has already started cutting steel on the Kennedy, and he argued that a carrier build cycle of six or seven years would increase shipbuilding costs and harm suppliers.

Asked about reports that the lead ship in the new carrier class, the Ford (CVN-78), was $562 million over budget due to construction inefficiencies, Petters only said that the company was performing well and on track.

"I'm not going to comment on any particular story out there," he said.