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Northrop to Share Record Order for Subs

August 15, 2003|Jerry Hirsch | Times Staff Writer

Northrop Grumman Corp. and its shipbuilding partner General Dynamics Corp. won the largest order for submarines in the U.S. Navy's history Thursday -- an $8.7-billion contract for six new Virginia-class nuclear-powered vessels.

This is the second Navy contract for Virginia-class vessels, which are intended to be low-cost replacements for the current Los Angeles-class attack submarines. The Navy ordered four Virginia-class boats in 1998 and the new order calls for one submarine a year through 2006 and two in 2007. The contract requires approval each year by Congress.

The 377-foot boats are the Navy's most advanced attack submarines, capable of carrying the kind of Tomahawk cruise missiles used in the war with Iraq as well as nuclear-tipped missiles and Navy SEAL commandos. The first of the four subs under construction, the USS Virginia, is to be christened this weekend and completed next June.

"It is a huge contract," said Paul Nisbet, a defense industry analyst with JSA Research in Newport, R.I.

The deal was announced after the stock market closed. Century City-based Northrop's shares rose $1.79 to close at $92.96, while General Dynamics, headquartered in Falls Church, Va., saw its stock rise $1.10 to $80.35. Both trade on the New York Stock Exchange.

General Dynamics' Electric Boat division in Connecticut will serve as the prime contractor and Northrop's Newport News shipyard in Virginia will be the subcontractor. The companies have agreed to evenly split profits and work.

Defense officials estimated a $150-million profit per submarine for the manufacturers.

The agreement contains an unusual clause for submarine building that with congressional approval will allow the Navy to convert the deal into a multiyear contract, an initiative that would allow the builders to make volume orders of specialized parts for multiple ships.

Frustrated by cost overruns and delays in past submarine-building programs, Congress has been mulling over what system to use for purchasing the submarines. In conventional naval ship contracts the builder buys what it needs to construct one ship at a time.

If Congress ultimately approves conversion of the agreement to multiyear status, the Navy will save up to $1 billion, said John J. Young Jr., a Navy assistant secretary. Three of four congressional committees have approved the multiyear contract idea.

Nisbet of JSA Research said Northrop and General Dynamics would like to see the order converted into a multiyear deal "because it lets them know exactly what their sub business will be over the next several years without having to wait for Congress to ... authorize the building of each ship. There are all sorts of savings you can get once you know for sure what your requirements will be."

The two shipbuilders will alternate final assembly and testing of the ships. Each fully outfitted submarine will cost about $2.2 billion, Young said.

All told, the Navy plans to spend as much as $81 billion to purchase 30 submarines, the Pentagon's second-largest program, after the $228-billion Joint Strike Fighter aircraft.

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Times wire services were used in compiling this report.

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