The 1 Problem with the Navy’s New Columbia-Class Ballistic Missile Submarine

It does not exactly make a lot of $$$ for the people who build it. 

byDave Majumdar

While the U.S. Navy’s forthcoming Columbia-class nuclear-powered ballistic missile submarines will be a long-term boon for the nation’s two submarine builders, the vessels might squeeze the companies’ margins in the near-term. That is not entirely unexpected because there is a learning curve for the shipyards to learn how to efficiently build new ships and submarines. Eventually, the Columbia-class production could be as efficient as Virginia-class attack submarine production.

“So think about large shipbuilding programs and businesses as typically having margins in the eight percent to 10 percent range depending on the maturity of the program,” Phebe N. Novakovic, chairman and CEO of General Dynamics, told investors on July 25.

“So that’s the prism through which we should look at the Marine Group. That said, as we ramp up on Columbia, we will see some margin compression quite naturally because that will be cost plus work. And given the long duration of the shipbuilding contracts and the shipbuilding process itself for any one of these single submarines, that margin compression can obtain for a while offset, of course, by increased improvements in our Virginia class performance, which we have historically shown.”

Mike Petters, president and CEO of Huntington Ingalls, told investors that the Columbia-class has to be treated as separate program from the Virginia-class rather than a simple increase in production volume.

“I don’t think you want to just turn around and say it’s the same as Virginia and it’s just the expansion of volume. I think that would be a misread,” Petters said.

“This is a new program and I think you need to treat it as a new program.”