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Pentagon Awards General Dynamics and Austal $727 Million for LCS, Submarine Work

The Department of Defense awarded nine separate defense contracts Monday, worth $1.6 billion in total. Among these, two contracts went to General Dynamics (NYSE: GD  ) and Australian shipbuilder Austal (NASDAQOTH: AUTLY  ) , its partner in building half the U.S. Navy's fleet of Littoral Combat Ships, or LCSes.

Austal won the larger of the two contracts, a $683.7 million contract to perform basic seaframe construction on two LCSes, purchase select systems equipment for installation aboard the vessels, and integrate and test this equipment. This contract will run through June 2018.

USS Independence. Photo: Wikimedia Commons.

Austal/General Dynamics' version of the LCS, as seen above in the second ship of the LCS line, USS Independence (LCS-2), deviates from the standard "monohull" concept of warship design. It uses a "trimaran" design that is expected to give the vessel more stability and allow it to move at greater speeds, and supports a wider flight deck for helicopter and UAV operations. Displacing 3,100 tons, the vessel measures 418 feet in length, carries a crew of from 40 to 75 sailors, and can carry up to two helicopters aboard. In addition, these LCSes are designed to carry various mission modules which can be switched out as needed to tailor the vessel to the missions it will be expected to perform on any given voyage.

Today's funding does not cover the entire cost of building General Dynamics' two vessels, which are expected to cost approximately $670 million each.

Separately, General Dynamics was awarded a second contract Monday through its Electric Boat subsidiary. Electric Boat was awarded a $57.2 million contract modification to prepare for "post-shakedown" maintenance, repair, alteration, testing, and other work on the nuclear attack submarine USS Minnesota, which was commissioned last year. This work is expected to continue through February 2015.

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  • Report this Comment On March 11, 2014, at 3:52 AM, shai33 wrote:

    so Austal won the larger of the two contracts, a $683.7 million contract , meaning we should have strong "buy" for it ?

  • Report this Comment On March 11, 2014, at 10:50 AM, TMFDitty wrote:

    Not necessarily, no. For one thing, DoD is splitting the LCS contracts basically down the middle, one for LMT, one for GD/Austal.

    Also, you can't be certain of the total value each company will receive based on just the initial funding -- it doesn't cover the whole cost of the ship.

    And finally... getting the contract is just the first step. Earning a profit from it for your shareholders is what's really important.

  • Report this Comment On March 12, 2014, at 12:28 PM, shawnyj wrote:

    The news release was a little tricky to decipher. Here is a snipit that helps to convey what was in the LCS portion of the news release.

    These are the seventh and eighth ships fully funded for each contractor under its previously-awarded, fixed-price incentive "block buy" contract for the design and construction of up to ten LCS Flight 0+ ships. The two block buy contracts provide for the acquisition of a total of up to 20 Littoral Combat Ships from fiscal year 2010 through fiscal year 2015, subject to availability of appropriations. 

    The amount of funds added under the block buy contract with Lockheed Martin Corporation for the fiscal year 2014 LCS ships is $699 million. The amount of funds added under the block buy contract with Austal USA for the fiscal year 2014 LCS ships is $684 million. The ships will be built at Fincantieri Marinette Marine Corporation in Marinette, Wis., and Austal USA in Mobile, Ala., respectively. 

    The additional funding obligated is for the 17th - 20th ships in the LCS class.

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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