Bath Iron Works learned Friday that the shipyard had secured one of five $15 million contracts to create a conceptual design for a new class of Navy frigate known as the FFG(X).
The news came two days after the Maine shipyard announced it would lay off 60 electricians, highlighting the choppy political and fiscal waters BIW continues to navigate.
Bath Iron Works partnered with Spanish shipbuilder Navantia to submit a version of that company’s F100 frigate. With work on the contracts to be completed by June 2019, a single contract for detail design and construction of the frigates will be awarded in 2020, and worth about $15 billion.
According to the Navy’s 30-year shipbuilding plan, it would contract for the first frigate in 2020, with another in 2021, and then two per year for a total of 20 at a cost of up to $950 million each.
BIW will vie for that contract with Huntington Ingalls of Newport News, Virginia; Lockheed Martin of Bethesda, Maryland; Fincantieri/Marinette Marine of Marinette, Wisconsin; and Austal USA of Mobile, Alabama, and analysts say they are well-positioned to land the work.
But with a long-term federal budget proving elusive for congressional leaders, the shipyard is taking a multi-pronged approach to ensuring the company’s long-term survival while maintaining its reputation for building the Navy’s best ships.
Under the guidance of new president Dirk Lesko, the shipyard — which currently employs about 5,700 workers — is busy finishing the second of three Zumwalt-class DDG 1000s (the future USS Michael Monsoor), with the third underway.
BIW also has seven Arleigh Burke-class destroyers in the pipeline, the next of which is slated for delivery to the Navy in June.
Although the shipyard was unsuccessful in its bid for a $11 billion contract to build a new class of 25 or more Coast Guard cutters, BIW and Ingalls in April will submit a bid for a new multiyear contract to build what the proposed budget currently pegs at 11 more Arleigh Burkes.
The Navy has also expressed interest in reactivating decommissioned Oliver Hazard Perry-class frigates previously built at BIW.
But plans for any new work remain on hold as Congress contemplates a new defense budget and rearranges priorities under President Donald Trump. Trump says he supports a 355-ship Navy.
Stymied in Congress
According to the Congressional Budget Office, the Navy fleet currently includes 275 ships and that shipbuilding rates are projected to increase from about eight a year to up to 15 within a decade.
Loren Thompson, a defense analyst for the nonprofit Lexington Institute, said the short-term continuing budget resolutions Congress has cobbled together to keep the government running in recent years “lock shipyards into last year’s priorities, because funding cannot be raised to match current conditions.”
The proposed defense budget allocates about $700 billion for defense — significantly more than the $606 billion in the current budget. But according to Marcus Weisgerber, global business editor for Defense One, the increase for procurement and research and development is 8 percent, versus a 59 percent increase in ground forces.
In addition to federal funding, shipyards are investing in their own growth and looking to taxpayer investment to help them land and complete more work. In January, General Dynamics Chairman and CEO Phebe Novakovic reported revenue for 2017 was up $412 million or 1.3 percent, the Motley Fool reported.
General Dynamics has announced it will invest $2 billion in its shipyards — most at Electric Boat in Connecticut, but $200 million at BIW and National Steel and Shipbuilding Company (NASSCO).
In Maine, BIW seeks an extension of a 20-year-old tax credit program that has benefited the company by $60 million. The credits will end this year unless the Legislature and Gov. Paul LePage approve, but some opposition has mounted. Opponents liken the credit to “corporate welfare,” and say General Dynamics’ revenues don’t require tax breaks.
But business leaders say the economic impact BIW has is crucial in Bath and the state.
The yard is also facing a surge in retirements in the next few years due to a significant hiring increase in the 1980s. To address that, the company began partnering with Southern Maine Community College last month to train manufacturing technicians and welders, according to the college.
BIW is the largest taxpayer in Bath, paying nearly $11 million for 2016. The city also received more than $1 million in reimbursement from the Business Equipment Tax Exemption program, according to Bath City Assessor Brenda Cummings, who added the company is also the fourth-largest taxpayer in neighboring Brunswick.
Rep. Jennifer DeChant, D-Bath, has sponsored the bill, which she recently said is meant to encourage investment and “boost the competitiveness of Maine’s shipbuilding industry” and reduce the likelihood of layoffs, according MaineBiz.
Later this year, when the Navy awards contracts as part of the multiyear procurement for fiscal year 2018-2022, shipbuilders will be watching to see how they stack up against Ingalls. In 2013, Ingalls landed five Arleigh Burkes, while BIW was only contracted for four — although the Maine yard eventually was awarded a fifth.
And when the contract to build 20 of the FFG(X) frigates is awarded to a single bidder in 2020, BIW will likely be a strong contender, according to Jay Korman, senior Navy analyst with the Washington, D.C.-based consulting firm The Avascent Group.
“The ship is closer to a ‘tried and true’ acquisition for the Navy with requirements that BIW should be very comfortable with,” Korman said in January. “On top of that, BIW has been involved with the design of both older legacy frigates as well as the more recent Littoral Combat Ship and its derivative, and by modifying an existing design, BIW will be able to retire some cost and risk for the Navy. Combined, all this should make BIW competitive for the program.”
Writing for The Drive, Tyler Rogoway said some of the proposed designs, including that by BIW, match the Navy’s requirements more closely than others.
The F100 class derivative was built for the Aegis system, he notes, and certain design elements of the F100 derivative may be difficult for other shipbuilders to integrate.
While analysts consistently echo the BIW slogan, “Bath built is best built,” Bath built can be expensive, given the scale of the shipyard, the cold, the distance to Maine and, perhaps most importantly, cheaper labor, Korman said.
In December 2015, workers in BIW’s largest union, Local S6 of the Machinists Union, ratified a four-year contract that included no raises, as well as other concessions.
Ingalls is a much bigger yard with a more diverse mix of vessels, is located in a more favorable climate, where costs, including labor are less than in the Northeast.
“The regulatory environment in Mississippi is less demanding than in Maine,” Thompson said.
According to Bath Iron Works vice president and general counsel Jon Fitzgerald, the Mississippi House of Representatives recently approved a $45 million bond for Ingalls Shipbuilding by a margin of 110-6.
“This new $45M bond is in addition to bonds for Ingalls that were passed in 2016 ($45M) and in 2015 ($20M),” Fitzgerald wrote in an email to the Bangor Daily News. “These Mississippi legislative expressions of support for shipbuilding result in direct funding appropriations, not a tax credit that is metered out over a 20 year period as is the case with the legislation currently being debated in Maine.”
“The main assets the BIW brings to the competition are a strong work culture, a world-class management team, and a supportive congressional delegation,” Thompson said. “However, Ingalls management has improved in recent years, and it will be a challenge for BIW to compete if costs are not tightly controlled.”
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