While the U.S. Navy remains on course with its current plan to build submarines, carriers, destroyers and other surface combatants, the future remains murky, says Huntington Ingalls Industries (HII) CEO Mike Petters.
Given the budget-cutting emphasis at the Pentagon and other matters more directly related to HII business, Petters declined to give Wall Street investment analysts predictions for the coming year during a Nov. 10 quarterly financial results conference call.
Asked to provide guidance for 2012, Petters said, “At this point, I’m not sure it makes a lot of sense for us to try to guide into this environment at all.”
Guidance for any of the issues, he said, “would be completely assumption driven. Pick your set of assumptions, you get a set of numbers.”
As for the defense budget and the future of shipbuilding in general, Petters says, “We have no crystal ball. We have no way of knowing exactly what the “super committee” might or might not do. What we do know, however, is that the Navy and Coast Guard have missions all over the globe. The fleet, including the ships and personnel, is already stretched to its limit in the effort to fulfill those obligations. And to maintain the fleet and its mission profile going forward, our customers are going to have to do more with fewer dollars.”
He adds, “We’ve heard the same speculation you have concerning defense budget cuts. Unfortunately in today’s deficit-reduction environment, virtually every program is being closely evaluated and its cost is under the microscope.”
In the past few months, he notes, there has been widespread public speculation regarding various naval shipbuilding programs. “But I encourage you to remember that it is just that—speculation. Until we see a final budget, we won’t know for sure the impact on our programs, if any.”
However, he says, “The discussions around the defense budget over the past several months have become significantly more thoughtful with respect to the broader implications of the cuts.
That began as “hypothetical strokes” meant to cut large programs primarily tied to dollar amounts, he says, “has now evolved into more rational discussions that include the significant tangential effects” of such cuts.
It is important to remember, he says, how from a timing standpoint the resulting decisions may or may not impact the business.
“There are three distinct time frames,” he says. “The first zero to five years are already established. These are the contracts that are in the backlog or that we are negotiating today.
The debate now is about the budget for 2013, and the results of that debate will become relevant in the next five to 10 years. Beyond all of that, what is really being debated today is the question of what kind of Navy we will have in 10 to 50 years.”