By Tony Capaccio (Bloomberg) –General Dynamics Corp. has received a $22.2 billion contract from the U.S. Navy to build nine more nuclear-powered Virginia-class submarines, the largest shipbuilding contract in the service’s history.
The contract includes an option for a 10th vessel over five years, the Navy said Monday. Huntington Ingalls Industries Inc. is the top subcontractor.
The Virginia-class submarines are designed to attack both land and sea targets with Tomahawk cruise missiles and other weapons.
Eighteen of the attack submarines have been delivered to date, including $17 billion for the prior installment that had been the Navy’s largest contract.
If exercised, the option for a 10th sub would bring the value of the new contract to $24 billion, James Geurts, the Navy’s acquisitions chief, told reporters.
Geurts said the new multiyear contract, combined with the planned start of the new Columbia class next year, stabilizes the Navy’s submarine plans.
It is a signal to skilled welders and other workers that “you can execute your future with confidence,” he said. “That stability will help ensure we retain that high-caliber talent.”
Building vessels for the Navy is crucial for General Dynamics. The marine systems business is the company’s biggest by sales, accounting for 24% of 2018’s total, narrowly outpacing its aerospace unit. The U.S. government accounted for 65% of 2019 revenue through the first three quarters.
The bulk purchase is estimated to save a minimum of 6.8% over buying the vessels annually, if General Dynamics and Huntington Ingalls, which split construction, exceed their target costs but more if they meet cost targets.
The savings over annual purchases could climb as high as $4.4 billion if the companies meet their cost targets, as they have in past Virginia-class contracts, Geurts said.
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