A Marine Systems group shipyard of General Dynamics Corporation (GD) has received a $744 million modification contract for its Mobile Landing Platform (MLP) from the U.S. Navy. Under the contract, NASSCO, one of the three shipyards in the group, will construct the first two ships of the new ship class.
However, the contract includes an option for the construction of a third MLP which, if exercised, will increase the total contract value to approximately $1.3 billion. Construction of the first ship will begin immediately with first delivery slated for the spring of 2013.
The Mobile Landing Platform is a new class of auxiliary ship for the Navy. These ships will be 233 meters in length and 50 meters in beam, with a design draft of 12 meters. The deadweight tonnage is in excess of 60,000 metric tons.
On delivery, MLP ships will join the three Maritime Prepositioning Force squadrons and will become the core of the Navy and Marine Systems sea basing concept. It is touted to change the way the Maritime Prepositioning Force operates. The first MLP ship will start production with more design, engineering and planning work complete than any ship that NASSCO has constructed since World War II.
With the progress in ship construction, the total number of employees at the shipyard may increase by the end of 2011. This will significantly reduce the number of employees affected by the previously announced potential layoffs at General Dynamics NASSCO.
Based in San Diego, General Dynamics NASSCO is the only major ship construction yard on the US West Coast. It has already delivered 11 T-AKE ships to the Navy and is currently building the last three ships of the class for a total class of 14 vessels.
General Dynamics was the fourth largest U.S. defense contractor in terms of revenue in fiscal 2010, following sector leaders like The Boeing Company (BA), Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC). The company is one of the two contractors equipped to build nuclear-powered submarines in the U.S. Looking forward, key drivers of growth for the company include a diversified revenue exposure, its stable business of U.S. military vehicles, and strong cash flow generation.
However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the company’s the recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.
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