GD execs: Submarine supply chain remains 'very fragile' while workforce picture improves

By Nick Wilson  / October 25, 2023

General Dynamics Electric Boat continues to receive late deliveries of submarine components from a "very fragile" supply chain, company executives said today, noting enduring production challenges within the Navy's two critical submarine programs.

Despite a proposed $3.4 billion investment in the submarine industrial base included in the White House’s recent supplemental spending request, Chief Financial Officer Jason Aiken said General Dynamics’ AUKUS execution timeline is unchanged and the company’s focus remains on gradually improving Virginia-class submarine delivery rates.

“There's a lot of talk around AUKUS and obviously we're going to do everything we can to support our customer in that regard,” Aiken said during a quarterly earnings call with Wall Street analysts. “But the fact is, the supply chain still remains very fragile. We’ve got a lot of work to do to get this whole industry back to, from a submarine perspective, back to two [Virginia-class submarines] per year.”

“Any additional funding and support, whether it's through this supplemental or other Navy support, would be extremely helpful. But our focus today is to get to that two [Virginias] per year plus Columbia, and then we'll look to AUKUS beyond that,” he continued.

Electric Boat and HII’s Newport News Shipbuilding collaboratively build both Virginia- and Columbia-class submarines. The companies are juggling efforts to improve Virginia delivery rates while keeping Columbia -- the Navy’s top acquisition priority -- on a tight delivery schedule.

The lead Columbia submarine is a little more than 40% complete and is “right on schedule,” Aiken said. In recent months, Navy officials indicated the vessel has slipped from the accelerated 78-month delivery timeline desired by the Navy to the official 84-month contract schedule.

While Electric Boat continues to see late material deliveries from its supply chain, causing “out-of-station work and internal scheduling disruptions,” Aiken said the company is experiencing faster-than-expected improvements within its work force.

“I think we've seen stabilization in both attraction and retention of labor in the shipyards at a faster rate than we anticipated. So that's an encouraging sign that drives the throughput in the yard,” he said. “We’ve just got to see that play out because as you know, shipbuilding is a long-term venture.”

To alleviate supply chain woes, the company is also pursuing a “strategic sourcing” approach, Aiken added, moving subsystem construction work into different facilities to remove “bottlenecks” from the primary production and assembly yards.

Despite initial projections indicating Marine Systems business would remain largely flat through FY-24, the company has recorded steady revenue growth and an increasing order backlog across its marine portfolio, which includes shipbuilders NASSCO and Bath Iron Works in addition to Electric Boat.

Executives noted several significant Navy contract awards during the quarter including a cumulative $1.5 billion in contracts for Virginia-class submarine lead yard services, development studies and design efforts, and spare parts for maintenance availabilities. General Dynamics also received a multiyear procurement contract of undisclosed value for the construction of three Flight III Arleigh Burke-class destroyers.

In the Mission Systems business sector, executives indicated instability in the Middle East, surrounding conflict in Israel, has increased demand for artillery and munitions both from the U.S. government and international customers.

Aiken said the company has already increased artillery production from a rate of 14,000 rounds per month up to 20,000 and is working to boost production further, to as many as 100,000 rounds per month.

“Frankly, we don't see that demand signal slowing down,” he said.