Northrop decision to close shipyard another blow for Louisiana

Louisiana politicians could face an uphill battle in their efforts to prevent Northrop Grumman from shutting down a major shipyard in a state already battered by a slew of disasters.

Sen. Mary Landrieu (D-La.) and Gov. Bobby Jindal (R) have vowed to do everything possible to keep Northrop Grumman’s Avondale yard open, including pressing the secretary of the Navy and the Pentagon to intervene in the defense giant’s decision.

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Northrop Grumman announced late Tuesday that it would close its Avondale shipyard in early 2013 after it completes work on two Navy LPD-17 amphibious assault ships. The company will transfer the work on the remaining LPD-17 ships to its yard in Pascagoula, Miss. Northrop Grumman CEO Wes Bush on Wednesday announced that the company will also shutter smaller yards at Tallulah and Waggaman.

Bush said that the decision to close the Louisiana yards was made with the goals of improving efficiency and addressing the problem of excess shipbuilding capacity.

The Avondale yard is one of the largest employers in the region; about 5,000 people work at the yard. Jindal in a statement this week said the shipyard also supports about 6,500 indirect jobs in the New Orleans region, making the impact of the closure even more dramatic.

It also comes at an inopportune time. Louisiana’s politicians are already struggling to create jobs in a state reeling from the Gulf oil spill that has hit the state’s oil and fishing industries hard. The region is also still recovering from 2005’s Hurricane Katrina.

The Defense Department does not get involved in business decisions and usually lets the market forces play out.
Pentagon press secretary Geoff Morrell on Wednesday said it is “fundamentally” a decision for Northrop Grumman to make. Morrell indicated that the Pentagon welcomed efforts by Northrop Grumman to make its shipbuilding more efficient and affordable, but also stressed that it is important that the decision does not ultimately harm the industrial base.

“If this decision ultimately leads to more affordable ships for the department without harming the industrial base, then it’s a good thing. And we’re clearly supportive of it,” Morrell said.

The affordability of shipbuilding is “a real issue” for the Department of Defense, Morrell said at a press briefing on Wednesday. Morrell acknowledged that the business decision is going to be a difficult outcome for the community.

Secretary of the Navy Ray Mabus considers Northrop’s decision to be “an internal business decision,” said Capt. Beci Brenton, Mabus’s spokeswoman.

“The secretary has always been, and will continue to be, open to meet with all members of Congress. He has spoken to members of the Louisiana delegation as well as Gov. Jindal about Avondale in the past,” she said.

Bush, Northrop’s CEO, said that the company is committed to spending the next couple of years working with state officials to find alternative uses for Avondale.

The Navy will stay engaged with Northrop Grumman, said Navy spokesman Cmdr. Victor Chen.

“We will continue to evaluate how it progresses, with the goal that we are able to affordably execute the [Navy’s] shipbuilding plan,” he said. He added that having adequate competition in the industrial base “is important.”

While the Navy can’t do much to stop Northrop Grumman’s business decision, it could face a significant quandary down the line if Northrop decides to get out of the shipbuilding business.

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Northrop Grumman officials on Wednesday indicated that they are weighing whether to  sell their entire shipbuilding unit or spin it off into a separate company, including the Newport News shipyard where the company builds nuclear carriers and submarines.

That could allow General Dynamics, the only remaining shipbuilder with nuclear capabilities, to make a move to buy the Newport yard, said Jim McAleese of McAleese and Associates. General Dynamics is the second largest shipbuilder for the Navy.

General Dynamics already tried to buy the Newport News yard in 2001, but the Justice Department and the Pentagon blocked the move. Northrop Grumman’s congressional supporters also staged an intense lobbying fight at the time to prevent a purchase that they argued would have created a monopoly in the nuclear shipbuilding arena and driven up costs.

Northrop Grumman’s indication that it is looking to exit the shipbuilding market magnifies the importance of General Dynamics as the “only survivor,” McAleese said.

“General Dynamics should try [to buy Newport] because it would cement a dominant position for them,” said Jon Kutler, chief executive officer at Admiralty Partners, a private-equity firm specializing in aerospace and defense.

“The real issue would be for the Navy. That is a major strategic and industrial-base decision” to allow General Dynamics to be the only maker of submarines and aircraft carriers.

The Navy may be faced with the “unpalatable” choice of having a sole provider, said Ian Van Tol, a senior fellow with the Center for Strategic and Budgetary Assessments.

General Dynamics refused to comment on its potential interest in Newport News.

General Dynamics is the only company that has the know-how to build nuclear ships and manage the complex yards. Analysts have indicated that it would be a politically difficult option for Newport News to be bought by a foreign shipbuilder.

Meanwhile, Kutler said that one option for the Navy would be to run Newport as a government depot.

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