For years, Huntington Ingalls has been the Coast Guard's go-to builder for building its multiple coastal and deepwater patrol vessels. News that Huntington didn't even make the short list in February, however -- and that its archrival, General Dynamics (NYSE:GD), did -- must have cut Huntington Ingalls stock owners to the quick. Worse, the Coast Guard's reluctance to entrust the building of its OPC fleet to Huntington appeared to bode ill for the company's plan to bid on an even bigger contract to build a new class of warship for the U.S. Navy.
OPC, meet SSC
Earlier this year, we told you about the Navy's plan to design and build a fleet of new "Small Surface Combatants," or SSCs. Essentially a new class of frigate to replace the FFG 7 Oliver Hazard Perry-class warships, the SSC would be bigger and more capable than the Navy's much-maligned Littoral Combat Ships, but smaller than its popular line of DDG 51 destroyers.
With as much as $40 billion in Pentagon defense dollars potentially up for grabs, the SSC would be pretty popular itself. Indeed, at last report, everyone from Huntington and General Dynamics, to Lockheed Martin (NYSE:LMT), Australia's Austal (NASDAQOTH:AUTLY), and even Raytheon (NYSE:RTN) is angling for a piece of this pie. Huntington's loss of the Coast Guard OPC contract, however, appeared to make it odd-man-out in this next competition.
Or did it?
Huntington finds a port in the storm
Last month, a news item reported by DefenseNews.com gave us one clue as to why Huntington's race to build the Navy's new SSC may not be lost just yet. You see, according to DN, Huntington's work on the National Security Cutter program -- a bigger vessel than the OPCs -- has recently "hit its stride," with the company reporting "a steady drumbeat of successes."
Sea trials of Huntington's fourth National Security Cutter, the USCGC Hamilton, are producing "50 percent fewer" reports of items that still need work before the Coast Guard will accept the ship, than were found in previous versions of the NSC. This, notes Huntington, is helping to keep the ship's construction "on cost and on schedule." If improvements in the construction process on the Hamilton translate into similar improvements in cost and timeliness on the other three NSCs that Huntington currently has in various stages of completion (eight vessels are currently planned), the Coast Guard should end up being a very satisfied customer indeed.
Music to the Navy's ears
And maybe not just the Coast Guard. "On cost and on schedule?" In an era of constrained defense budgets, those are the kinds of things that Navy ship-buyers like to hear, too.
Lockheed Martin and General Dynamics, after all, are behind schedule and overbudget on their respective versions of the Littoral Combat Ship (in fact, by some estimates they're charging the Navy twice what they promised initially). Combined with increasing criticism over the vessels' performance (which has itself contributed to the Navy's desire to build the SSCs as a bigger, better, frigate-class of warship), Huntington's recent performance on the NSC program just might be the factor that tips this contest in its favor.
The right ship for the job?
At last report, many experts were of the opinion that Lockheed Martin's version of the Littoral Combat Ship, if upsized and built a bit bigger than it presently is, was best positioned to win the SSC competition. But being half again as big as Lockheed Martin's Freedom-class Littoral Combat Ship already, Huntington's NSC design wouldn't need to be scaled up much -- if at all -- to reach the size the Navy envisions for its SSC.
What's more, the $684 million average cost of the eight NSCs that Huntington Ingalls is building appear to line up quite nicely with the Navy's desire to build its new SSCs for $700 million to $800 million apiece. It suggests that a more militarized version of the Cutter could slot right in with the Navy's requirements for SSC -- and give Huntington Ingalls the win on this multibillion-dollar contract.
Rich Smith owns shares of Raytheon. The Motley Fool recommends BMW and Nike and owns shares of General Dynamics, Lockheed Martin, Nike, and Raytheon. Try any of our Foolish newsletter services free for 30 days. 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.