THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, August 18, 1995 TAG: 9508180397
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Medium: 92 lines
Newport News Shipbuilding could face stiffer competition to build Navy warships and submarines as a result of General Dynamics Corp.'s planned purchase of Bath Iron Works.
General Dynamics, the parent of sub-builder Electric Boat, announced Thursday that it has agreed to buy Bath Iron Works for $300 million.
Maine-based Bath Iron Works is one of two builders of destroyers for the Navy. Both Newport News Shipbuilding and Electric Boat build Navy subs.
``They're trying to basically position themselves to neutralize Newport News,'' said James R. McCaul, president of IMA Associates, a ship-building consulting firm in Washington.
``General Dynamics will now build subs and surface ships just like Newport News,'' McCaul said. ``The only thing they can't do is build aircraft carriers.''
That could change, McCaul said. A Navy group studying options for future carriers has been looking at the viability of smaller, conventional-powered designs.
The addition of Bath Iron Works gives General Dynamics a more-diversified shipbuilding and repair base. As competition heats up for the few remaining Navy shipbuilding projects, such as the next generation of attack subs and a new amphibious warship, the Falls Church-based defense firm will be better positioned to compete for a slice of the work.
The acquisition also will give General Dynamics powerful new allies in Congress as it scraps for Navy projects. Bath supporter and Maine Sen. William Cohen is chairman of the seapower subcommittee of the Senate Armed Services Committee.
A Newport News spokesman declined to comment on the combination.
Newport News Shipbuilding has used its diversified industrial base as leverage to have more work sent its way. The company has told Congress and the Navy that it could build and repair anything in the fleet.
General Dynamics, on the other hand, only builds and repairs submarines at Electric Boat in Groton, Conn.
The issue came up in the debate over which of the yards should build the next generation of attack submarines. The Navy had wanted to give all sub-building work to Electric Boat, while giving aircraft carriers to Newport News.
Newport News Shipbuilding argued that it should at least be given an opportunity to compete for the new sub, the first of which will be started in 1998.
``Now General Dynamics can claim a wider base of industrial activity they can offer the Navy,'' McCaul said.
Bath Iron Works, Maine's largest employer, builds destroyers and repairs other surface ships at facilities in the coastal cities of Bath and Portland. Bath has struggled with defense cutbacks in recent years, slashing its payroll by 3,000 to 8,300.
But the shipyard's $2 billion backlog includes 11 destroyers to be delivered by 2000, and Navy plans call for the purchase of 25 more destroyers before 2010. That work would likely be split by Bath and the other destroyer builder, Litton Systems Inc. subsidiary Ingalls Shipbuilding of Pascagoula, Miss.
Still, Navy demand for shipbuilding has been sharply reduced, McCaul said.
Given General Dynamics's deep pockets, Bath may be able to get back into commercial shipbuilding. Bath Chief Executive Duane ``Buzz'' Fitzgerald has said it would take an investment of $100 million or more to upgrade the Bath yard to become competitive in commercial shipbuilding.
General Dynamics Chairman and Chief Executive James Mellor said his company brings Bath a commitment to defense and ``the financial strength to invest in and modernize their facility.''
The purchase has been approved by the boards of both General Dynamics and Bath, which was owned primarily by Prudential Insurance Co. and the buyout firm Gibbons Goodwin & van Amerongen.
At the Pentagon, a Navy spokesman said the service would review the acquisition plan, but suggested approval is likely. ``The Navy's primary interest is to maintain a healthy industrial base that can continue to build the best ships at a fair price,'' the spokesman said.
Federal regulations require the Defense Department to sign off on mergers of defense contractors. ILLUSTRATION: Graphic
Color photos
GENERAL DYNAMICS
BATH IRON WORKS
NEWPORT NEWS SHIPBUILDING
[For complete graphic, please see microfilm]
by CNB