July 6 (Bloomberg) -- Huntington Ingalls Industries Inc., the U.S. Navy’s largest shipbuilder, may keep its Avondale, Louisiana shipyard open beyond 2013 by turning it into a site for other manufacturing, Chief Executive Officer Michael Petters said.
While the “plan is to finish work and close the facility” at Avondale, “I’m open to alternatives to that,” Petters said in an interview at his Washington office. Petters said he was “working very hard” to find partners and closing the plant is “the least desired outcome.”
Huntington, with 2010 sales of $6.7 billion, became a separate company in March when Northrop Grumman Corp. spun off its shipbuilding unit. 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, based in Newport News, Virginia, operates two other yards. One is in its home city and the other at Pascagoula, Mississippi.
Avondale, with 4,800 workers, is the largest private employer in Louisiana, according to Huntington. In July, 2010, when Huntington’s former parent Northrop announced its plan to shut the yard, the state’s Republican governor, Bobby Jindal, said he would work to find alternative uses for the site.
The 268-acre Avondale site, about 10 miles upriver from New Orleans, would be suitable for “heavy manufacturing, whether in energy or in marine” applications, Petters said. “The question is, is there a partner,” he said.
The Department of Defense in May awarded Louisiana a $1.48 million grant to assist the state in studying alternative uses for the Avondale yard, Stephen Moret, the secretary of the Louisiana Economic Development office, said in an e-mail.
The state is supplementing the Pentagon grant with $165,000 for a total of $1.65 million, Moret said. The development office has hired Chicago-based consulting firm A.T. Kearney, Inc. to study Avondale’s capabilities and identify other uses including other shipbuilding work and manufacturing industries that may use the yard, Moret said.
Moret declined to offer details citing a non-disclosure agreement with Huntington. The study may take eight months to complete, he said.
In May, Representative Cedric Richmond, a Louisiana Democrat whose district includes the Avondale yard, proposed an amendment to the 2012 defense budget that would have barred Huntington from receiving $310 million in federal assistance for the planned closure of the shipyard. The amendment failed to garner enough votes.
Petters said the Pentagon’s procurement rules allow a contractor to recover costs for closing facilities if a company can demonstrate that doing so would yield “net savings for the government.” The company has filed documents seeking about $310 million if Avondale is shut as planned, Petters said.
Huntington has told the Navy that closing Avondale would yield savings of $600 million from 2013 through 2019, Navy spokeswoman Captain Cate Mueller said in an e-mail. The Navy is in discussions with Huntington on the proposed restructure costs and no agreement has been reached, she said.
If Huntington transfers Avondale to a different owner, the Navy “would assist in making the yard more competitive for commercial shipbuilding work,” Mueller said.
The Navy may sign an agreement with Huntington under the Shipbuilding Capability Preservation Act that allows a Navy shipbuilder to claim indirect costs attributable to private sector work as allowable costs on Navy contracts, Mueller said.
Huntington was forced to consider shutting Avondale because the U.S. Navy’s 30-year shipbuilding plan released in 2010 called for canceling two $2 billion command ships that would have been built at the yard, Petters said. “That made it inevitable there would be no work for Avondale.”
Of five LPD-17 Navy transport ships completed since 2000 at Pascagoula and Avondale, three needed to return for repairs after the Navy found poor-quality welding or lubrication-oil contaminants that damaged the ships’ engines.
Huntington’s former parent Northrop took a $326 million pretax charge in April 2008 for exceeding budget and delays on one class of ship, and $105 million more in July 2009 for cost increases to finish vessels from two other classes.
While seeking alternative uses for Avondale, Petters said he wouldn’t get into any unfamiliar businesses. For example, “many years ago at Newport News we built cable cars there to fill in work,” Petters said. “The fact you can do it doesn’t mean we should do it.”
Avondale is currently building two LPD-17 class Navy transport ships. Huntington’s yard in Pascagoula builds DDG-51 destroyers, amphibious assault ships as well as later orders for the LPD-17 transport vessels.
Newport News is the sole builder of the U.S. Navy’s nuclear-powered aircraft carriers and shares work on nuclear-powered submarines with General Dynamics Corp.’s Bath Iron Works.
Huntington rose 61 cents, or 1.8 percent, to $35.25 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 12 percent since the company was listed on the New York Stock Exchange on April 1.
To contact the reporter on this story: Gopal Ratnam in Washington at email@example.com.
To contact the editor responsible for this story: Mark Silva at Msilva34@bloomberg.net