Thursday, November 15, 2007

HI Superferry: The Maker's Current Market Position

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Navy's plans for next littoral combat ship buy uncertain
Posted by SEAN REILLY November 15, 2007 8:54 AM
Categories: Top Stories
WASHINGTON -- Now that a massive defense spending bill hasbeen signed into law, the Navy is supposed to have enoughmoney to buy one new littoral combat ship this fiscal year. But just because money is available doesn't mean the Navywill use it immediately, analysts say. For Austal USA, stungby the recent cancellation of a previously ordered littoralcombat ship, the outcome could be key to sustaining itscurrent Mobile County work force of almost 1,200. Austal executives had predicted "no impact" on employment forthe next nine to 12 months after the Navy dropped the secondof two warships that the company was supposed to build. But without other orders to take up the slack, thoseexecutives acknowledge that the workforce's size couldnonetheless shrink during that time through attrition andmore selective hiring. Instead of adding 50 people through an apprenticeshipprogram, for example, "we would take in half that number,"Bill Pfister, vice president of government programs, saidTuesday. He did not have specific figures on how deep thereductions could be. Whether such steps are needed depends in part on Austal'ssuccess in uncovering more commercial or Navy work. Besidesconstruction of the first LCS, now about 70 percent complete,the company's yard on the Mobile River is also building asecond Hawaii Superferry vessel scheduled for delivery nextSeptember. But the size of Austal's workforce may also hingeon what the Navy decides to do with the $339.5 millionapproved to buy another of the ships during fiscal 2008,which began last month. The money is sandwiched into a $471 billion defense billsigned by President Bush on Tuesday. A Navy spokesman had noimmediate comment on the Navy's intentions for the LCSdollars. But some outside analysts doubt that the service will beprepared to proceed with a ship purchase this fiscal year.That means the third LCS buy could be pushed back into fiscal2009 or later. "The program is in a very unsettled and uncertain way rightnow," Robert Work, a vice president at the Washington,D.C.-based Center for Strategic and Budgetary Assessments,said Tuesday. "It's hard to see the '08 ship being executed." Over time, the Navy wants to build 55 of the relativelysmall, speedy ships, intended for submarine hunting and othertasks in shallow coastal waters. Under its original buying plan, two rival teams -- ledrespectively by Virginia-based General Dynamics Corp. andMaryland-headquartered Lockheed Martin Corp. --were eachsupposed to build several prototype vessels. The Navy wouldthen pick a winning design as the basis for future orders.Austal is part of the General Dynamics group. That plan has now fallen apart as the first Lockheed andGeneral Dynamics/Austal vessels have both gone far overbudget. Apart from a commitment to buy more ships and to do so withfixed-price contracts, "we really don't have an acquisitionstrategy," Deputy Assistant Navy Secretary Allison Stillersaid at the Nov. 1 news conference announcing thecancellation of the second General Dynamics/Austal LCS. Thecancellation came after weeks of negotiations failed toclinch a deal on limiting costs. The Navy had canceled thesecond Lockheed ship in April for similar reasons. Despite the program's ills, Navy officials say they remaincommitted to the LCS, which is essential to their long-termgoal of pushing the size of the fleet back above 300 ships.While agreeing to additional funding this fiscal year,Congress added a proviso in the defense bill signed Tuesdaythat other shipbuilders get a chance to compete for LCSconstruction work once a final design is selected. The Navy had broached that possibility earlier this year, butCongress' action now requires it. Should his team win the LCS design face off, Austal ChiefExecutive Officer Bob Browning said last week that he wasn'tworried about rivals taking away future business. "We think we're in a strong position to win that work," hesaid.

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