General Dynamics NASSCO Receives Additional Eight-Ship Contract to Build T-AO 10-17

Rhea-AI Summary

General Dynamics NASSCO, a subsidiary of General Dynamics (NYSE: GD), has secured a block-buy contract from the U.S. Navy for up to eight additional John Lewis-class fleet replenishment oilers (T-AO 214 through 221). The initial ship under this new contract is valued at $780 million, with the potential total contract value exceeding $6.7 billion if all eight ships are exercised. This award brings NASSCO's share to 17 out of the Navy's 20-ship program of record, making it the longest Navy production series in NASSCO history.

The 742-feet vessels, designed to transfer fuel to U.S. Navy ships at sea, have a full load displacement of 49,850 tons and can carry 162,000 barrels of oil. NASSCO has already delivered three ships, with more currently under construction. The company's president, Dave Carver, expressed gratitude for the Navy's continued support and the opportunity to build these essential vessels.

Positive

• Secured contract for up to 8 additional ships, potentially worth over $6.7 billion
• Initial ship under new contract valued at $780 million
• Now building 17 out of Navy's 20-ship program, longest production series in NASSCO history
• Demonstrates strong, ongoing relationship with U.S. Navy
• Provides long-term revenue stream and production stability

Negative

• None.

Insights

Financial Analyst

This contract marks a significant financial boost for General Dynamics NASSCO. The initial $780 million award for the first ship, with a potential total of $6.7 billion if all options are exercised, represents a substantial revenue stream for the company. This long-term contract provides stability and visibility for NASSCO's future earnings, which is highly valued by investors.

The T-AO program becoming the longest Navy production series in NASSCO history underscores the company's strong position in the naval shipbuilding sector. This consistent government business can act as a buffer against economic fluctuations, potentially reducing risk for investors. However, it's important to consider the profit margins on these government contracts, which are often tighter than commercial projects.

Defense Industry Expert

This contract solidifies NASSCO's dominant position in the U.S. Navy's fleet replenishment oiler program. Securing 17 out of 20 ships in the program of record demonstrates the Navy's confidence in NASSCO's capabilities and strengthens the company's long-term relationship with this key client. The extended production run allows for potential efficiencies and cost savings through learning curve benefits and economies of scale.

The strategic importance of these oilers in supporting naval operations globally cannot be overstated. As geopolitical tensions persist, the demand for such support vessels is likely to remain strong. This contract also positions NASSCO favorably for potential future Navy programs, enhancing its competitive edge in the defense shipbuilding sector.

Supply Chain Analyst

This long-term contract provides stability for NASSCO's supply chain, allowing for better planning and potentially more favorable terms with suppliers. The extended production timeline enables the company to optimize its procurement strategies and potentially lock in prices for critical materials, mitigating some inflationary risks.

However, the shipbuilding industry faces ongoing challenges with skilled labor shortages and supply chain disruptions. NASSCO will need to carefully manage these issues to maintain profitability and meet delivery schedules. The company's ability to navigate these challenges while delivering on this significant contract will be important for its financial performance and reputation in the coming years.

 NASSCO is currently under contract for the first nine ships of the class, and has delivered three to date. With this award the company will build seventeen of the Navy's twenty-ship program of record.

SAN DIEGO, Sept. 13, 2024 /PRNewswire/ -- General Dynamics NASSCO, a subsidiary of General Dynamics (NYSE: GD), announced today that it has received a block-buy contract from the U.S. Navy for the construction of up to eight additional John Lewis-class fleet replenishment oilers (T-AO 214 through 221) . The tenth ship, and first under the new contract, has been awarded for $780 million. If all eight ships are ultimately exercised, and including incentives and other contract options in support of those ships, the contract value will total over $6.7 billion.

"We are pleased to continue building these ships, with seventeen of the Navy's twenty-ship program of record now on contract. This will make the T-AO program the longest Navy production series in NASSCO history," said Dave Carver, president of General Dynamics NASSCO. "The NASSCO team is honored to continue working with our Navy customer and thankful for their unwavering support."

In 2016, the Navy awarded NASSCO with a contract to design and build the first six ships in the next generation of fleet oilers, the John Lewis-class. In 2022, that contract was modified to add an additional three oilers (T-AO 211 – 213). Designed to transfer fuel to U.S. Navy ships operating at sea, the 742-feet vessels have a full load displacement of 49,850 tons, capacity to carry 162,000 barrels of oil and significant amounts of dry cargo, as well as providing aviation capability while traveling at speeds up to 20 knots.

The first ship, USNS John Lewis (T-AO 205), was delivered to the U.S. Navy in July 2022. The USNS Sojourner Truth (T-AO 210) and the USNS Thurgood Marshall (T-AO 211) are currently under construction, while the USNS Lucy Stone (T-AO 209) will be christened and launched on September 21, 2024. Start of construction for the USNS Ruth Bader Ginsburg (T-AO 212) will be in October 2024.

General Dynamics NASSCO specializes in the design and construction of Navy and commercial ships and is a major provider of repair services for the U.S. Navy, with capabilities in San Diego, California; Norfolk, Virginia; Mayport, Florida; and Bremerton, Washington. More information about General Dynamics NASSCO is available at www.nassco.com.

General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in business aviation; ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services. General Dynamics employs more than 100,000 people worldwide and generated $38.5 billion in revenue in 2021. More information about General Dynamics is available at www.gd.com.

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SOURCE General Dynamics NASSCO

FAQ

What is the value of the new contract General Dynamics NASSCO received for T-AO ships?

The initial ship under the new contract is valued at $780 million, with the potential total contract value exceeding $6.7 billion if all eight ships are exercised.

How many T-AO ships will General Dynamics NASSCO (GD) build in total after this contract?

With this new contract, General Dynamics NASSCO will build 17 out of the Navy's 20-ship program of record for the John Lewis-class fleet replenishment oilers.

What are the specifications of the T-AO ships being built by General Dynamics NASSCO (GD)?

The T-AO ships are 742 feet long, have a full load displacement of 49,850 tons, can carry 162,000 barrels of oil and significant dry cargo, provide aviation capability, and can travel at speeds up to 20 knots.

When did General Dynamics NASSCO (GD) deliver the first T-AO ship to the U.S. Navy?

General Dynamics NASSCO delivered the first ship, USNS John Lewis (T-AO 205), to the U.S. Navy in July 2022.