Northrop Grumman, one of the Navy’s biggest contractors, said Wednesday that it plans to close one of its seven shipbuilding yards and may sell or spin off its entire naval business, signaling a major shift in its strategy.

The company said it will shut down its shipyard in Avondale, La., near New Orleans, and move work on amphibious vessels to its facility at Pascagoula, Miss., by 2013. Northrop said it has hired outside advisors to help it evaluate whether selling its shipbuilding line made sense for its shareholders and government customers.

“Recognizing our company’s long-term strategic priorities, we foresee little synergy between shipbuilding and our other businesses,” Northrop chief executive Wes Bush said in a statement. He said the consolidation to Northrop’s Pascagoula facility will “reduce future costs, increase efficiency and address shipbuilding overcapacity.”

Shipbuilding was once seen as core of Northrop’s business. The company has been a major supplier of destroyers, amphibious assault ships and other vessels for the Navy and Coast Guard. In 2001, it bought Newport News Shipbuilding in a $2.6 billion deal that made it one of the world’s biggest shipbuilders.

But in recent years, the Pentagon’s priorities have changed from complex and costly weapons programs to smaller, more agile technologies that can be used in modern wars against shadowy foes.

In response, Northrop has been emphasizing other business units that produce higher margins, industry analysts said. Last year, the company sold its advisory unit and withdrew its bid to build an aerial refueling tanker for the Air Force after it decided it couldn’t make enough of a profit if it won the deal.

Advertisement

Since Bush became chief executive in January, he has pushed for the company to focus on electronics, unmanned aircraft, cybersecurity and missile defense, said Phil Finnegan, a defense industry analyst at the Teal Group. Northrop has also announced plans to move its headquarters from Los Angeles to the Washington suburb of Falls Church, Va.

“You’ve had a change in management and a new CEO who is clearly interested in taking the company in a new direction,” he said. “They’re likely to exit shipbuilding, they didn’t go after the tanker deal. They’re beginning to see the U.S. defense budget stagnate, and it is now important to protect what you have.”

Analysts said Northrop has had troubles with quality and profitability in its shipbuilding and that its potential sale leaves General Dynamics, owner of Bath Iron Works in Maine, as the only other major shipbuilder in the United States.

“Northrop’s Gulf Coast shipyards should be consistent profit generators,” said Loren Thompson, a defense industry consultant. “The fact they haven’t been is a source of endless exasperation for the company’s management. They’ve run out of ideas of how to fix the profit and performance.”

Northrop said it will take a $113 million charge in the second quarter as a result of closing its Avondale facility. Northrop’s shares were up Wednesday by $1.73, at $56.99.

The Pentagon considers Northrop’s moves to be “fundamentally a Northrop business decision,” said Geoff Morrell, a Pentagon spokesman. “We don’t have a view on that other than we want to preserve competition in the marketplace,” he said.

 

Copy the Story Link

Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.