U.S. Navy Awards General Dynamics $8.7B Contract for Six Virginia-Class Subs

The U.S. Navy has awarded General Dynamics Electric Boat an $8.7 billion block-buy contract for the construction of six Virginia-class submarines, the largest submarine order in U.S. history. Electric Boat is a wholly owned subsidiary of General Dynamics (NYSE:GD). The contract authorizes Electric Boat, the lead shipyard, and its teammate, Northrop Grumman Newport News, to proceed with the construction of one ship per year from FY 03 through FY 06, and two ships in FY 07. "This is an extremely significant contract award," said Michael W. Toner, president of Electric Boat and executive vice president of General Dynamics Marine Systems group. "The two shipyards now will have the stable workload required for increased production efficiencies, which will benefit the Navy, the Department of Defense and the U.S. taxpayer. We'll also be providing the Navy a class of nuclear submarines with the capabilities to guarantee our nation's undersea superiority well into the 21st century." "The positive impact to the industrial base and to our ability to provide the Navy with the most capable and cost efficient platform is significant," said Tom Schievelbein, president, Northrop Grumman Newport News. "Stability is key to reducing costs and this contract award will greatly enhance the stability of the Virginia-class program." Electric Boat will christen the lead ship of the class, Virginia (SSN-774), Aug. 16 and deliver it to the Navy in 2004. Three other ships are currently under construction. The contract could transition to a multiyear agreement for seven ships from FY 04 through FY 08 -- including two submarines in FY 08 -- contingent upon congressional approval of the multiyear approach. The FY 03 submarine would not be included in the multiyear contract. Altogether, up to eight submarines could be procured from FY 03 through FY 08. The multiyear arrangement is expected to produce savings to the government of more than $1 billion on the submarines to be authorized through FY 08. A multiyear contract would enable Electric Boat to purchase materials, parts and components for multiple ships at one time, achieving significant economies of scale. Under the block buy approach, the company buys what it needs to build one ship at a time.