Northrop May Shut Louisiana Shipyard With 5,000 Jobs

By Gopal Ratnam
(c) 2010 Bloomberg News
Tuesday, July 13, 2010; 12:00 AM

July 13 (Bloomberg) -- Northrop Grumman Corp. Chief Executive Officer Wes Bush may be giving up on one of the two U.S. Navy shipyards whose vessels were cited for defects and delays.

Governor Bobby Jindal of Louisiana said yesterday that Northrop has told the state that the yard in Avondale near New Orleans risks being shut because it lacks orders beyond 2012, putting about 5,000 employees out of work. Louisiana is in talks with possible buyers and tenants, Jindal said in a statement.

Closing Avondale may help Bush boost shipbuilding profits margins that are less than half of those at General Dynamics Corp. Earnings have been damped by $431 million in charges since 2008 for delays, poor-quality work and damage from Hurricane Katrina at Avondale and a yard in Pascagoula, Mississippi.

"It would be a good thing for Northrop if they can extricate themselves without negative financial impact," Peter Klein, senior portfolio manager at Cleveland-based Fifth Third Asset Management, said in a phone interview. His firm owns about 160,000 shares, or less than 1 percent of Northrop's stock, according to Bloomberg data.

Randy Belote, a spokesman for Los Angeles-based Northrop, said the Navy's long-term shipbuilding plan "requires a smaller industrial base" while declining to comment on any conversations between Jindal and the third-largest U.S. defense contractor.

Northrop acquired the shipbuilding business of Litton Industries Inc. in 2000, adding the Avondale and Pascagoula yards. In 2001, it bought Newport News Shipbuilding Inc. to expand into nuclear-powered aircraft carriers and submarines, and topped General Dynamics as the biggest Navy shipbuilder.

Bush, 49, who became CEO on Jan. 1, has focused on improving the Gulf Coast yards. Northrop's operating margin for its ship division was 4.8 percent last year compared with 10.1 percent for General Dynamics. Shipbuilding sales in 2009 were $6.21 billion, or 17 percent of Northrop's $33.8 billion total.

The Louisiana and Mississippi yards make transports and amphibious assault ships that take Marines into battle and DDG- 51 Arleigh Burke-class destroyers, whose production alternates between Northrop and General Dynamics. Consolidating output of those vessels in one Gulf Coast yard would help Northrop match capacity to the Navy's future purchases.

Avondale's future already was in question after the Navy told lawmakers in February that it was canceling the planned purchases in 2012 and 2014 of two amphibious command ships due to have been built at the yard.

Once Avondale finishes building its transport ships from the LPD-17 class in 2012, any potential work on future vessels from the 11-ship class will be done in the Ingalls yard in Pascagoula, Jindal said in an e-mailed statement, citing comments from Northrop to the state.

The governor said he and U.S. lawmakers from Louisiana will appeal to the Navy and the "federal government not to turn its back on New Orleans and Avondale." Spokesman Frank Collins said Jindal, a Republican, wasn't available to elaborate.

Discussions about other users for the yard are being held in case Northrop exits, because the company "does not intend to keep Avondale open for the long term in the absence of a viable Navy shipbuilding program there," Jindal said in the statement.

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