Alas, poor Huntington-Ingalls
Yesterday, we learned from DefenseNews.com that the U.S. Navy is "seriously" considering depriving Huntington of a big piece of its business. The lead contractor building the Navy's John F. Kennedy aircraft carrier, Huntington has been counting on revenues from JFK to help keep it afloat as it adjusts to its newly independent status. But the Navy has other ideas. Faced with a suddenly stingy Congress, and noticing that JFK is "the most expensive ship" on its shopping list, the Navy says it may postpone construction of the vessel by two years, to 2015.
Now, this may not be too big of a deal for Huntington, because delaying delivery of JFK will entail hundreds of millions of dollars' worth of higher costs -- money that would eventually be paid to Huntington. And eventually, the company should collect the full $10 billion to $12 billion estimated price of the ship.
A bigger issue is that defense budget cuts are more likely to increase than decrease, as debt-ceiling negotiations drag on. Realizing this, the Navy is now floating plans to cancel its order for a second carrier (designated CVN 80), due in 2018. That decision, if it comes to pass, could pick $10 billion out of Huntington's top line.
Foolish final thought
This isn't just bad news for Huntington shareholders, either. Remember that the raison d'etre for aircraft carriers is, well, to carry aircraft. Delay JFK two years, and you delay the need to buy Poseidon sub-hunters from Boeing
Stay tuned, and stay up to date on the Navy's decision-making, by adding Huntington-Ingalls to your Watchlist today.
Fool contributor Rich Smith does not own shares of (or short) any company named above. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. We Fools don't 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.
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