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Will Sequestration Sink General Dynamics' Aegis Destroyer?

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By Katie Spence, The Motley Fool

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Sequestration’s in full swing, and it’s putting a kink in the Navy’s ship-buying plans. Before sequestration took effect, the Navy signed a multi-year procurement contract, which saved money by buying ships in bulk. Now, however, the defense budget has been cut, and that contract’s in jeopardy. This is bad news for defense contractors on the DDG 51 Aegis Destroyer contract and could also be bad news for investors. Here’s what you need to know.

U.S. Navy photo by Paul Farley. Public domain, via Wikimedia Commons. 

Who builds what
Both General Dynamics‘ Bath Iron Works shipbuilding company and Huntington Ingalls Industries‘ Ingalls Shipbuilding build the DDG 51 Aegis Destroyer, with the Navy typically buying ships from each builder.

In a move to save money, the Navy signed a 30-year shipbuilding plan that saw the purchase of 10 Aegis Destroyers for the price of nine. It also increased the Navy’s shipbuilding budget from $15 billion to almost $19 billion annually. Now, Rep. Randy Forbes (R-Va.), chairman of the House Armed Services Committee, has expressed grave concerns about funding the 30-year plan and has asked the Navy for “a scintilla of evidence” that it can be done.  

One of the reasons the Navy’s costs are so astronomical is that the service also has to replace the Ohio, a nuclear-capable submarine dating to the 1980s. Adm. Jonathan Greenert, chief of Naval operations, has stated, “People ask me what is my No. 1 program of concern, and I will tell you it’s the Ohio replacement program.” Not only is the Ohio outdated, but the replacement program will also provide 70% of the United States‘ nuclear deterrent capabilities.  

With the price of the new subs and the need for new ships, the Navy is seeing its costs escalating, which of course conflicts with the 10-year, $500 billion cut to defense spending under sequestration . 

Will the Navy remain mission-capable?
Ships aren’t the only area where the Navy is seeing cuts; the service was also planning on purchasing one P-8A maritime surveillance plane from Boeing , one E-2D Hawkeye battle management aircraft and two unmanned Fire Scout helicopters from Northrop Grumman , and one F-35C carrier fighter from Lockheed Martin — all of which face being cut.  

Clearly, this is all bad news for defense contractors. It’s also bad news for the Navy, as it relies on these systems to remain mission-ready.

What now?
What’ll happen to the Aegis Destroyer contract remains to be seen, but it’s not looking great. If it does get cut, General Dynamics and Huntington Ingalls could see their stocks suffer. On the other hand, that might end up being a great time to load up on defense stocks at a discounted rate. Yes, sequestration is hurting defense, and contracts are being cut, but as I’ve said before, defense contractors are essential to the military. Consequently, while defense contractors may be hampered in the short term, in

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

General Dynamics Wins $43.7 Million in Navy Contracts

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By Rich Smith, The Motley Fool

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Preparations to build the U.S. Navy of the future continue apace.

On Tuesday, the Department of Defense announced it has awarded General Dynamics two Navy contracts worth a combined $43.7 million. The larger of these awards, for $25.7 million, modifies a previously awarded contract to fund the production of eight MK46 MOD 2 Gun Weapon Systems.

The first two guns are to be installed upon an LPD 17 (San Antonio) class landing platform dock warship. The remaining six MK46 guns will be part of “gun mission modules” to be ready for installation upon Littoral Combat Ships LCS 5 through LCS 7. Work on this contract should be complete by November 2014.

GD‘s second contract award Tuesday went to its Bath Iron Works division, which will be paid $18 million under a contract option to perform design and construction work on new DDG 1000 (Zumwalt) class guided missile destroyers. At a sticker price that has already shot up past $3.3 billion apiece, only three Zumwalt-class destroyers are currently expected to be built. This contract’s due date is September 2013.

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The article General Dynamics Wins $43.7 Million in Navy Contracts originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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Business, Finance, Occupation & Industry

Lockheed Nabs Nearly $173 Million in Pentagon Projects

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By Rich Smith, The Motley Fool

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Over just the past two in-sequester days, the Pentagon has awarded a total of 42 separate contracts to various contractors, worth well over $4 billion in aggregate.

Lockheed Martin made out particularly well with the following pair of contracts.

The larger of these two Lockheed awards is a $100.7 million contract tapping Lockheed to perform “design, development, integration, test and delivery” work on software and hardware comprising the Aegis Combat System Engineering Agent (CSEA). Lockheed will be upgrading Aegis on U.S. Navy CG 47-class guided missile cruisers and DDG 51-class guided missile destroyers, as well as installing the system on “future surface combatant Aegis ship classes.” Work on this contract should be completed sometime in May 2018.

The smaller of these two awards, at $72.2 million, goes to the company’s Aeronautics division and is designated an “undefinitized modification” to a previously awarded Low Rate Initial Production Lot 6 advance acquisition contract. This contract modification pays Lockheed for supplying support equipment to the F-35A Pilot Training Center 1 at Luke Air Force Base in Glendale, Ariz. It also hires Lockheed to perform “associated Data Quality Integration Management supplier support tasks” related to the warplane at locations in Italy and Australia. Italy and Australia are members of an eight-nation consortium assisting the U.S. in building the F-35, in line to order it when it’s ready, and helping to shoulder the financial costs of developing the plane.

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The article Lockheed Nabs Nearly $173 Million in Pentagon Projects originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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