Huntington Faces Pressure to Keep Avondale Yard Open

Huntington Ingalls Industries Inc., the U.S. Navy’s largest builder of surface warships, is under growing pressure from Louisiana lawmakers to keep its Avondale shipyard open instead of consolidating the work at a facility out of the state.

Senator Mary Landrieu and Representative Cedric Richmond, both Louisiana Democrats, said in interviews they want the Avondale yard to continue building commercial ships or find complementary manufacturing when it completes work in 2013 on two Navy amphibious ships. Huntington’s shipyard in neighboring Mississippi isn’t enough, they said.

“We don’t need one shipyard on the Gulf Coast. We need two, potentially even three,” Landrieu said in an interview. “You do not put all your eggs in one basket.”

The fight to keep open Avondale -- which employs about 4,800 people -- began as soon as Huntington’s former parent, Northrop Grumman Corp. (NOC), announced in July 2010 plans to divest its ship unit and shut the shipyard. Pressure to cut costs is escalating as the Pentagon prepares for as much as $1 trillion in potential budget cuts during the next decade.

Huntington agrees with the lawmakers about finding other uses for Avondale. “But I’m not going to start a new business there on my own,” Chief Executive Officer Michael Petters, said in an interview yesterday in New York. “If I can find a partner who knows the business and who wants to use that facility, I’m more than happy to work with them.”

Cost Reimbursement

Whether Huntington shuts Avondale or finds other uses may determine how much in restructuring costs it can recover from the Navy under federal contracting rules.

The company is seeking about $270 million from the Navy if Avondale is shut as planned, said Beci Brenton, a company spokeswoman.

“We continue to analyze those costs in order to reduce them,” Brenton said. Huntington told the Navy earlier this year that closing Avondale would yield savings of $600 million from 2013 through 2019.

In October, Huntington and the Navy signed an agreement that says the company could recover costs allowed by Federal Acquisition Regulation even if the yard isn’t closed. Until the Navy receives and evaluates Huntington’s specific plans regarding the shipyard, all allowable restructuring costs are not yet known, Navy spokeswoman Captain Cate Mueller said in an e-mail.

Seeking Partners

Under the agreement, the Navy acknowledges that Huntington “has incurred and will continue to incur costs related to its decision to discontinue naval shipbuilding operations at Avondale,” Mueller said.

Petters said in July he was seeking partners to turn Avondale into a manufacturing site for non-shipbuilding work.

If those efforts succeed “we would expect that the restructure costs -- such as capital asset write-offs and human capital costs that would be incurred as a result of the cessation of all business operations at the Avondale facility -- would be significantly reduced,” Mueller said. “Any costs associated with the alternative use would be borne by” Huntington and its potential partners, she said.

Huntington, with 2010 sales of $6.7 billion, became a separate company in March. Former parent Northrop and Huntington have said the Avondale yard would be shut when work on the Navy’s two amphibious ships there is completed in 2013.

Huntington’s Yards

The company’s yards at Pascagoula, Mississippi, and at Avondale, both on the Gulf of Mexico, between them build the Navy’s DDG-51 guided missile destroyers, LPD-17 amphibious transport dock ships, the new LHA-6 amphibious assault ship and U.S. Coast Guard cutters. The company’s Newport News, Virginia yard, builds nuclear-powered aircraft carriers and submarines.

Louisiana lawmakers Landrieu and Richmond are seeking to keep Avondale employees in their jobs in the state, which has an unemployment rate of 7 percent, 2 percentage points below the national unemployment rate.

“It is important to keep shipbuilding expertise here in the United States,” Landrieu said. “We’ve lost so much of it, we literally can’t afford to lose more. It’s not good for our national defense. It’s not good for our manufacturing base.”

Landrieu said that there are “potential suitors” to either build ships or use the facility for other manufacturing that is “comparable” to shipbuilding.

“We are just open. We are not going to limit it only to shipbuilders, but the state is aggressively seeking partners and the company is seeking partners,” she said.

Jones Act

The closure of Avondale would leave Huntington’s shipyard in Pascagoula as the company’s sole naval vessel builder on the Gulf of Mexico.

Richmond said he and Landrieu may introduce a bill next year to help U.S. commercial shipbuilding compete globally. The legislation would range from tax incentives to waivers to the Jones Act “to make our shipbuilding competitive,” Richmond said in a telephone interview. The Jones Act of 1920 requires that goods and passengers transported by water between U.S. ports be done in U.S.-made ships, owned and operated by U.S. citizens.

Richmond said that he and other state officials will “do whatever we can to make Avondale a viable place to still employ thousands of people.”

Petters said Huntington is not willing to take on commercial shipbuilding by itself.

Other Uses

“If a commercial shipbuilder said they wanted to build commercial ships at Avondale and they had a plan and an order book I would listen, but I’m not going to stand up and be the commercial shipbuilder,” he said. “That’s a business I don’t know. The aperture is wide open on exploring other uses for the Avondale yard.”

In the absence of alternatives, Avondale is “on the path to closing,” Petters said. Any alternative plans would have to be in place before 2013, when the yard is scheduled to close.

The Department of Defense in May awarded Louisiana a $1.49 million grant to assist the state in studying alternative uses for the Avondale yard. The state supplemented the Pentagon grant with $165,000, according to information published by the Louisiana Economic Development Office.

Huntington fell 5 cents, or 0.16 percent, to $31.70 in New York Stock Exchange Composite Trading.

To contact the reporters on this story: Roxana Tiron in Washington at rtiron@bloomberg.net; Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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