With the Navy requesting only one Virginia-class submarine in fiscal year 2025, it is important that the sea service also fund a second, full shipset of Virginia materials to sustain the submarine supply chain, General Dynamics executives said today.
“We have long-lead material on Virginia that is very important to the supply chain and the extent that we can ensure that we get a full second Virginia shipset so that we’re buying at two-a-year is very important for the overall health of the submarine industrial base,” CEO Phebe Novakovic told Wall Street analysts during the company’s first-quarter earnings call.
However, Novakovic said the reduced procurement quantity itself will have no near-term impact on General Dynamics Electric Boat because the company has “plenty of work in front of us.” However, the procurement cut could impact “the outer years outside of our planning horizon,” she added.
Electric Boat collaboratively builds both the Virginia and Columbia-class submarine programs with HII’s Newport News Shipbuilding. Earlier this month, HII CEO Chris Kastner said a second shipset of Virginia materials is critical for supply chain health and indicated the Navy’s budget falls about $1 billion short of what is needed.
Today, Novakovic said the Navy budget’s multibillion-dollar submarine industrial base investment, as well as a supplemental spending package containing additional industrial base aid that was signed into law today, will provide much-needed support for a struggling supply chain, though it will have little impact on General Dynamics’ business.
“For the supply chain support, it has minimal impact on us,” she said. “However, it is extremely important because the stabilization of the supply chain is critical to the resumption of full cadence on Virginia and the increased cadence on Columbia.”
Novakovic attributed delays in the Columbia-class submarine program largely to supply chain challenges like late deliveries of key components and said Electric Boat’s throughput and productivity are improving.
“We’re working with our Navy customer to see if there are additional things we can do to recover some schedule and if there are any workarounds, but this is going to be a bit of a slog for the supply chain,” she said.
A recently published Navy shipbuilding review found that the lead Columbia boat (SSBN-826) is 12-16 months behind schedule, while the Virginia submarine program, lead Constellation-class frigate (FFG-62) and Ford-class carrier Enterprise (CVN-80) are all facing delays of 18-36 months.
During the earnings call, company executives also noted growing demand for munitions and ground vehicles in their combat systems portfolio. General Dynamics was one of two companies contracted by the Army to produce medium-caliber ammunition cartridges in an award worth up to $3 billion split between the two producers.
Meanwhile, the growing demand for ground vehicles in Europe -- including a $1.3 billion contract to produce Pandur 6x6 wheeled combat vehicles for Austria and a $285 million award to deliver Abrams tanks to Romania -- is driven by heightened global instability, Novakovic said.
Anticipating further growth, General Dynamics is working on fortifying its supply chains for both munitions and combat vehicles.
“In the combat world, it’s a little bit more robust supply chain in general that we typically have not had difficulty with,” Novakovic said. “We know the suppliers that could conceivably cause issues and we’ve been working with them to ensure that they can manage this growth, but we’re pretty comfortable that we can execute the growth.”
Overall, General Dynamics reported $10.7 billion of revenue in the first quarter of 2024, an increase of 8.6% compared to the first quarter of the previous year.