It's fiscal 2015 budget time in Washington, and industry trade groups are bringing out their big guns in the annual fight for taxpayer dollars. Lately, some of the loudest lobbyists clamoring for loot has come from an unexpected quarter -- U.S. military shipbuilders.
It seems they think they're getting short shrift from the Defense Department.
You see, the Pentagon is already busy building a $13 billion aircraft super carrier called the USS Gerald R. Ford. And just this past week, the Pentagon gave defense contractor Huntington Ingalls (NYSE:HII) a $1.3 billion down payment on a second supercarrier, the USS John F. Kennedy.
Regardless, the industry is in a tizzy over the possibility that the Pentagon might not proceed with plans to build out a full fleet of 12 smaller San Antonio-class (LPD-17) "amphibious transport docks."
Introducing the San Antonio
Designed to conduct amphibious assaults on hostile beaches, the San Antonio-class warship boasts a flight deck capable of launching everything from helicopter gunships to troop transports to the new MV-22 Osprey tiltrotor aircraft built by Boeing (NYSE:BA) and Textron (NYSE:TXT). The vessels also feature "well decks" from which they can launch landing craft and hovercraft, to assault a beachhead with everything from Marines to M1A1 Abrams main battle tanks.
Such capability doesn't come cheap, however. Your average "LPD 17" can cost as much as $1.8 billion to build. The U.S. Navy originally planned to build a dozen of them -- so more than $20 billion in potential revenue for their builder, Huntington Ingalls (NYSE:HII). But according to lobbyists from the Amphibious Warfare Industrial Base Coalition (AWIBC), the Navy may now reverse course and ratchet back its orders, buying only ... 11 such LPDs.
This ship goes to 11
Granted, the Navy already has 27 amphibious warfare vessels of various shapes and sizes -- Landing Helicopter Assault ships, or LHAs; Landing Helicopter Docks; Landing Ship Docks; and, of course, LPDs like the San Antonio. But according to AWIBC, we need at least 33 such "amphibs" in the fleet.
More importantly, they say we need to keep building these vessels continuously. Warns AWIBC: "Building these warships on a regular schedule ensures stability in construction, keeps production lines active and allows ... suppliers to allocate their resources and manpower to support the cost-effective and fiscally efficient production of amphibious warships. ... It is ... critical to national security that the U.S. industrial base that provides parts and products for amphibious warships remain strong."
Translation: If ever the Navy pauses and says "we've got enough ships," that will be the moment when America's military shipbuilding industry begins to shrivel and die -- rendering the U.S. incapable of building new warships in the future.
That sounds like an overreaction. Between revenues from building not one, but two separate $13 billion supercarriers simultaneously; the $3.4 billion LHA-type mini-aircraft carrier USS America, due to be commissioned this year; at least one more America-class LHA already under contract; and the two San Antonio-class LPDs now also under construction, it seems to me that Huntington Ingalls and its subcontractors should be keeping quite busy for quite some time.
The fate of the Republic hardly hinges on whether on a decision to build 11 new LPDs as opposed to 12. And that's before we reach the question of a new amphibious assault ship class now under consideration, the proposed "LX" class, which the Navy says could begin filling U.S. naval bases as early as 2024.
Worst case, if against all odds Huntington Ingalls does run out of work to do, and its employees are threatened with idle hands, the company could take a page from General Dynamics' (NYSE:GD) playbook, and build a few civilian liquefied natural gas tankers while waiting for the next fat DoD contract to roll in.
Long story short, I think the nation's mini-aircraft carriers, its amphibious warcraft, and the companies that build them are going to do just fine.