BWX Technologies takes $27 million charge for missile tube rework

By Marjorie Censer  / November 7, 2018

Realizing the rework necessary for missile tubes slated for the Columbia-class submarine was "more substantial than previously contemplated," BWX Technologies has reserved $26.7 million to cover repairs, the company disclosed today.

The contractor in August said it had identified missile tube welding problems and disclosed the situation to the Navy and Columbia-class prime contractor General Dynamics Electric Boat.

In a call with analysts today, Rex Geveden, BWXT's chief executive, said the company earlier this year identified an issue with "inspection technique and the quality of missile tube volumetric welds."

The company's ultrasonic inspection technique was "inappropriate," resulting in BWXT missing some workmanship issues, he said. Additionally, the company's "weld techniques were not adequate for those large volumetric welds."

Geveden said BWXT undertook an examination of "the scope and extent of the required remedies."

"Since that time, we identified several causal factors related to the issue and have implemented corrective actions to prevent recurrence," he said. "A comprehensive reinspection of all affected components has been largely completed, and weld repairs have begun. It is worth noting that none of the affected missile tubes were integrated into a submarine."

Geveden noted the company completed a joint investigation with its customers that "determined that the issues and the rework efforts were more substantial than previously contemplated."

"Accordingly, we took an incremental $26.7 million reserve in the third quarter, which we estimate will cover the expected repairs with a reasonable contingency for residual uncertainties in cost," Geveden said. The company is "certain that the issue is restricted to particular types of welds on this product line only."

He told analysts BWXT has "changed both the qualification standards and intensive training standards" associated with the welds.

Meanwhile, the company reported sales in the most recent quarter in its nuclear operations group, which includes its naval work, hit $319 million, down 1.6 percent from the same three-month period a year earlier.

The decline was "driven primarily by lower missile tube revenue partially offset by an increase in naval nuclear fuel and downblending services," the company said.

The unit recorded quarterly profit of $45.6 million, down 31 percent as a result of the $27 million charge.