The Virginian-Pilot July 19, 2010
Think Newport News shipyard could close? Two reasons not to worry.
By Robert McCabe
No matter who ends up owning Northrop Grumman Corp.'s Newport News shipyard, it's likely to have little impact on the nearly 20,000 employees who build the nation's aircraft carriers and attack submarines there.
Days after the company announced it was consolidating its Gulf Coast shipbuilding operations and planning to sell or spin off its entire shipbuilding business, industry experts say the Newport News shipyard and its workers will be just fine.
"Newport News is not the problem," said John E. Pike, director of globalsecurity.org, a military information website.
Northrop Grumman officials cited the lack of "synergies" between its shipbuilding operations and other businesses in aircraft and electronics as the reason for its decision. But analysts say quality issues that blemished the Newport News yard and blackened the eye of the Gulf Coast operations are just as significant because they alienated the Navy, the principal customer.
"It's hardly a secret," said Seth Cropsey, a senior fellow at the Hudson Institute, of the quality issues in Northrop Grumman's shipyard business.
Still, the Navy is counting on the Newport News yard to produce carriers and subs for decades to come, Pike said. "The Newport News part of it is pretty steady for the foreseeable future."
The Navy's 30-year shipbuilding plan, presented to Congress earlier this year, calls for six new carriers and 44 attack submarines - a stay-the-course volume of work that should keep the Newport News shipyard busy through 2040.
"I am confident that the future of the Newport News shipyard will be secure regardless of what course of action Northrop Grumman takes," said Sen. Jim Webb, a former Navy secretary, in an e-mail. "Newport News shipbuilding and its skilled, 20,000-member workforce are indispensable assets to the U.S. Navy and our nation. The shipyard has a stable workload for aircraft carrier and submarine construction for the foreseeable future."
The nation's largest shipyard, Newport News is the only one that builds carriers and one of two that build submarines.
"What we call for in the shipbuilding plan is what we call for," said Cmdr. Victor Chen, a Pentagon-based Navy spokesman, who characterized the Northrop move as a business decision.
The Navy's priorities remain the same, Chen said.
"It's important to ensure there's adequate capacity to produce the ships in our plan; it's important that's there adequate competition in the industrial base; and it's important that the shipbuilding business is flexible - that they adopt new processes, optimize facilities and train the work force to be able to affordably build the future fleet," he said.
Competition is a key issue for the Pentagon, which is why one likely buyer, General Dynamics Corp., would have a difficult time.
General Dynamics, based in Falls Church, owns the other submarine builder, Electric Boat in Groton, Conn. Its Bath Iron Works in Maine builds surface combatants such as destroyers, the same vessels built by Northrop Grumman's yard in Pascagoula, Miss.
When General Dynamics attempted to purchase the Newport News shipyard in 2001, the Justice Department sued on antitrust grounds, clearing the way for Northrop Grumman's competing bid.
Another prospective buyer is BAE Systems PLC, the London-based global defense giant. BAE is the United Kingdom's leading shipbuilder and already owns ship repair yards serving the Navy in the United States, including the former Norshipco in Norfolk.
But a bid by BAE would raise questions about a foreign firm owning strategic U.S. assets.
Northrop Grumman officials made it clear in a teleconference Wednesday that the company will look at selling the shipbuilding unit, but its primary option would be spinning it off to shareholders.
"A spinoff is much more likely than a sale," said Loren Thompson, an analyst at the Lexington Institute.
Shipbuilding never really fit in at Northrop Grumman, Thompson wrote in a note posted Thursday at www.lexingtoninstitute.org.
In 2001, Northrop acquired Litton Industries' two Gulf Coast shipyards - one in Pascagoula and the other near New Orleans - only because they came as part of what it really wanted - Litton Industries Inc.'s "well-positioned military electronics business," Thompson wrote.
Kent Kresa, Northrop's CEO at the time, never planned to get into shipbuilding, "but he wanted the Litton electronics business so much that he took the shipyards to get it."
Northrop Grumman backed into being a Navy shipbuilder, Thompson wrote, and never grew comfortable with that role.
"Northrop is predominantly an aerospace and electronics company," he said in an interview last week.
While history may provide the backdrop to Northrop's announcement last week, the immediate reasons appear to have a lot to do with quality issues.
"Most of the reason now is because of the problems at the Gulf Coast yards," Thompson said. "The problems at Newport News are relatively modest by comparison."
Northrop's shipbuilding operations in Newport News and on the Gulf Coast have had problems resulting in Navy investigations. There were weld issues on submarines built in Newport News and weld and engine issues on the San Antonio, a first-in-class amphibious ship built in its Avondale yard near New Orleans.
A Navy investigation of weak welds found in 2007 in water pipes in the new Virginia-class of attack subs found that welders at the yard used the wrong weld filler because of "inadequate processes. " After a 16-month review, the Navy announced last September that it was "satisfied that our people and platforms are not at risk due to this issue."
Early this month, the Navy released a report from a six-month investigation of defects on the $1.8 billion San Antonio, which has spent much of the past 16 months undergoing repairs at Earl Industries' shipyard in Portsmouth.
The Navy traced the problems to poor welding and shoddy work during the ship's construction, as well as to design defects.
Early this year, the Navy announced that the New York, the latest amphibious ship in the same class, needed major engine repairs after bearings failed in the ship's main propulsion diesel engines after its commissioning in November.
Northrop Grumman said last week it will close the Avondale yard in 2013 after it delivers two more ships in the class and move future orders to the Ingalls shipyard in Pascagoula.
"The Navy customer has not been happy with the performance of the Gulf Coast shipyards," Thompson said.
© Copyright 2010, The Virginian-Pilot
