COVID-19 delays Virginia-class submarines and incurs charges, says GlobalData

Following today’s release of Huntington Ingalls Q2 results;

Harry Boneham, Associate Aerospace, Defense and Security Analyst at GlobalData, a leading data and analytics company, offers his view on the company’s situation:

“The effects of the COVID-19 pandemic are starting to bleed into Huntington Ingalls’ major defense programs, specifically the Virginia-class submarine. The company has fared better than other major defense companies thus far, having gained support from the Department of Defense and the CARES Act, and its almost exclusively military oriented portfolio has spared Huntington Ingalls from the worst effects of COVID-19.

“It was announced that, due to COVID-19-related disruption and delays, a charge of $111m has been incurred in Q2 2020. CEO Mike Petters attributes this charge to the COVID-19 pandemic, arguing that original cost estimates had incorporated an assumption that there would be costing and scheduling improvements reduce boat to boat as experience increased. However, COVID-19 has made these improvements less likely to occur, and so a charge of $111m has been reflected in the quarterly earnings report. Of this, $19m is directly attributed to the COVID-19 pandemic.

“Additionally, production has been delayed, causing delivery schedules to slip. The USS Montana (SSN 794) is now scheduled to be delivered in late 2021, with float-off being delayed from mid-2020 to late-2020. The original contract completion date was May 2020. Additionally, the delivery of the USS New Jersey has been delayed from 2021 to 2022.

“Huntington Ingalls is the principal subcontractor to Electric Boat, a division of General Dynamics, building the Virginia class fast attack nuclear submarines cooperatively. Under the present arrangement, Huntington Ingalls builds the stern, habitability and machinery spaces, torpedo room, sail, and bow, while Electric Boat builds the engine room, control room, and pressure hull structure. Work on the reactor plant and the final assembly, test, outfit, and delivery of the submarines alternate between Electric Boat and Huntington Ingalls.”

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