By Dana Hedgpeth
Washington Post Staff Writer
Monday, June 22, 2009
When Nicholas D. Chabraja, a former Chicago trial lawyer, took over running General Dynamics 12 years ago, the giant defense contractor had $4 billion in sales, 29,000 employees and pretty simple businesses -- one made tanks, another made nuclear submarines.
Since then, he's grown the Falls Church company -- mainly through acquisitions -- to having $29.3 billion in sales last year and 92,900 employees in a variety of businesses, whether it is making Navy ships and armored vehicles or selling upscale business jets and performing top-secret information technology services for the Pentagon. And unlike some of his competitors, Chabraja has stood out to analysts for consistently meeting -- or beating -- Wall Street's expectations.
At the end of this month, Chabraja's reign will end. He is stepping down as chief executive and handing the day-to-day duties to Jay L. Johnson, 63, the former chief executive of Dominion Virginia Power. It is a change that analysts say will be a big shift for the company. Chabraja has kept himself at the strategic level, monitoring operations from a distance and getting involved in business units only when he detected a performance problem. He has preferred to talk directly to Wall Street analysts, unlike other chief executives who put top aides out front to handle the details.
"Nick plays a bigger role than normal," said Cai von Rumohr, an investment analyst with Cowen and Co. in Boston. "He's like the Jack Welch of the defense industry. He's extraordinarily knowledgeable and very smart. It's going to be a big transition. Jay has not been as visible. He's a bit of an unknown. He has big shoes to fill."
Chabraja, 66, is the longest-serving chief executive among the top five defense contractors, which include cross-town rival Lockheed Martin, Northrop Grumman, Boeing and Raytheon. His departure comes as the defense giant, like its competitors, sees an end to the skyrocketing defense-spending budgets from the wars in Iraq and Afghanistan.
In 1993, Chabraja came to General Dynamics as senior vice president and general counsel after handling the company's legal affairs at an outside firm. When he became chairman and chief executive in 1997, the company had just gone through a major downsizing, selling off much of its aerospace business, the F-16 jet fighter business and the space division.
He used the proceeds to buy a shipyard in Bath, Maine, as well as smaller companies to expand General Dynamics' military information technology businesses, and he expanded the company's role as a major supplier of military armored vehicles. His biggest acquisition came in 1999 when he bought Gulfstream Aerospace, which makes business jets.
Chabraja is known for pushing his top executives.
"Anybody who performed well was welcome to stay, but anybody who failed to perform was shown the door," said Loren Thompson, a longtime consultant to General Dynamics. "Nick was not sentimental when it came to assessing performance."
For his part, Chabraja doesn't expect the company's performance to change under Johnson.
"I think he's going to inherit the same team that produced those [past] numbers," Chabraja said in an interview at his office. "The same guys are going to make the submarines and the tanks who did it for me. He's plenty adaptable and he'll do fine."
Chabraja will remain chairman at General Dynamics until May 2010. He said at a recent conference that he plans to spend "six to 10 days a month" at the office.
"Nick has built an outstanding company. He selects good leaders and holds them accountable," said Robert J. Stevens, chief executive of Lockheed Martin. "He's a good strategist. . . . He's held in high regard for his ability to focus on financial performance."
Johnson was picked last spring by the company's board for his leadership skills, according to Lester Crown, who recently stepped down from the General Dynamics board. Johnson has sat on the board since 2003. He joined Dominion's parent company in 2000 and prior to that spent 32 years as a naval officer, serving as an admiral and chief of naval operations from 1996 to 2000.
At a recent investor conference he praised Chabraja, saying that what he had "done with General Dynamics over the last decade-plus is quite remarkable in terms of the ability to generate cash, allocate and deploy capital better than anyone."
Chabraja, he said, has "put that discipline into the DNA" of General Dynamics. "Everybody gets it," he said.
Johnson will have challenges. Some customers for the company's Gulfstream jets are trying to get workouts on their orders, and demand is down. And the company has two lucrative military contracts to make ground vehicles that are ending.
Still, in his last conference with Wall Street analysts at the end of May, Chabraja gave a mostly upbeat outlook for the company. He said the company has more than $70 billion in backlog orders for its aircraft, combat vehicles, ships and other services.
Analysts said that although the 2010 Pentagon budget is being scaled back, General Dynamics isn't being hit too badly. Defense Secretary Robert M. Gates supported almost all of the company's ship-building programs, the armored vehicles it makes, and he wants to put money into cybersecurity -- an area where General Dynamics is well positioned to win contracts.
"Jay will inherit a very clear formula of how to succeed in the defense sector," said Thompson, the defense industry consultant. "It's hard to see how he'll do better than Nick. He'll certainly stick with the path Nick has laid out."