SHIPBUILDING GIANTS MAY SWAP LPD-17 AND DDG-51 WORK WORTH BILLIONS

January 28, 2002

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Shipbuilding juggernauts Northrop Grumman and General Dynamics are discussing possibly swapping billions of dollars worth of shipbuilding work involving the construction of LPD-17 amphibious dock ships and DDG-51 destroyers, according to multiple sources.

Under discussion, sources said, is a deal that would have GD's Bath Iron Works in Bath, ME, relinquish to Northrop Grumman work on four LPD-17s. In exchange for the LPD-17s, Bath would build four DDG-51s that would have otherwise been constructed at Northrop's Ingalls Shipyard in Pascagoula, MS.

A one-for-one exchange of LPD-17s and DDG-51s is among the options being discussed, a service source said. Not everyone thinks the deal is a wise idea. A congressional source close to one of the defense oversight committees noted Bath might have something to lose because LPD-17s are more manpower intensive to build. For that very reason, however, GD could receive an additional payment of some sort from Northrop Grumman if the deal goes through. A source close to the issue said getting a third DDG-51 in FY-03 might provide such payment.

The Navy is supporting and attempting to broker the deal. All parties involved want the deal to happen if the details are right, sources said. There are a lot of very sensitive issues that underlie the deal, ranging from financial to political to perceptions, the service source said. Such issues could derail the deal, but there is also a lot of support for it, the source said.

The changes would benefit the Navy by concentrating at one company all 12 ships in the LPD-17 class, resulting in "extraordinarily high" cost savings, the service source said. With this deal, the Navy would no longer have separate four-ship and eight-ship LPD-17 learning curves at two competing shipyards.

Cost concerns with the LPD-17 program have reached the point now that Pentagon acquisition chief Pete Aldridge is required to submit a selected acquisition report to Congress with the upcoming FY-03 defense budget detailing the cost of the program, Inside the Navy recently reported. A letter from Aldridge is expected to follow within 30 days, saying the ships are essential to national security, not replaceable, under control from a cost standpoint and well managed (ITN, Jan. 14, p1). That certification letter is required because the program has experienced a Nunn-McCurdy unit-cost breach, as it is at least 25 percent over budget in FY-02, sources said.

Though on the surface the deal would appear only to take work way from Ingalls, Northrop Grumman has begun more closely aligning Ingalls with the company's other Gulf Coast shipyard, Avondale in New Orleans. Under this arrangement, all future shipbuilding contracts will be bid and contracted by Northrop's Ship Systems sector, rather than by Avondale or Ingalls individually (ITN, Jan. 21, p14). Further, the yard has a strong patron in Congress, Senate Minority Leader Trent Lott (R-MS). If Ingalls were to give up the DDG-51s it needs to sustain its industrial base, it seems likely Northrop would bring a significant amount of LPD-17 work to Ingalls. Avondale and Bath are the only yards that have been building LPD-17s.

"I think we have seen, mostly driven by market dynamics, a lot of changes out there in the industrial base," Vice Adm. Dennis McGinn told ITN two weeks ago at the Surface Navy Association's national conference. McGinn is the Navy's top requirements official (N7). "A key example would be the blending of Avondale and Ingalls and now Newport News under Northrop Grumman. I think that is going to continue. I think it will be driven somewhat by market demands."

The admiral stressed the service's interest in supporting reconfigurations of shipyards that help reduce costs while providing needed shipbuilding capabilities.

"From a Navy perspective, we are keenly interested in what kinds of opportunities those reconfigurations in the shipbuilding industrial base present to us because we are very, very concerned about the affordability of the ships, about the ability of the industrial base to achieve the capabilities that we sign up for," said McGinn. "We are very, very interested in trying to see some sort of a stabilization of workload in the industrial base so we can get a more beneficial match between workload and capacity to reduce the overhead burden."

Such questions "are being addressed very, very effectively" by Navy acquisition executive John Young, the admiral said. "He's had good discussions inside of government, as well as with industrial partners about all of those things."

A spokesman for Ingalls declined to comment. General Dynamics spokesman Kendell Pease would only say the company is under contract to build LPD-19 and the company expects to complete a total of four such ships at Bath. -- Christopher J. Castelli