THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, August 27, 1995 TAG: 9508270047
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: STAFF AND WIRE REPORTS
DATELINE: WASHINGTON LENGTH: Medium: 87 lines
While lobbying Congress this year to preserve competition in the submarine construction industry, top executives of Newport News Shipbuilding were putting together a plan to buy their only competitor.
The plan collapsed, The Washington Post reported Saturday, because the Pentagon declined to provide up to $100 million in aid sought by the Peninsula shipyard to complete the purchase of Electric Boat of Groton, Conn.
Newport News and Electric Boat are bitter competitors and have battled throughout the year for the right to build the Navy's next generation of nuclear attack submarines. A compromise forged in May by Sen. John W. Warner, a Virginia Republican, will give both yards a slice of the business into the next century. Congressional approval of that arrangement is expected in September.
The Post said Newport News Shipbuilding never told Electric Boat's corporate parent, General Dynamics Inc., of its interest in acquiring the Groton yard. But the two had held unsuccessful merger talks in the past.
A knowledgeable government official who did not want to be identified said one reason the Pentagon declined Newport News' request for help was that it could have been hard to explain in this political season.
``Newport News wanted the government to finance one company's acquisition of another,'' he said. ``This would have been about as interventionist an industrial policy as you could have,'' he added, and might have been opposed by congressional Republicans who question such activism.
Another source suggested the Navy and the Pentagon would have had difficulty explaining their support for the purchase - and for creating a monopoly in the sub industry - after they had spent months urging lawmakers to preserve both yards and keep competition alive.
The Pentagon studied the Newport News proposal because it generally favors defense firm consolidations; the merged companies often are more efficient and competitive, and save the government money.
Newport News already has a monopoly on the Navy's aircraft carrier business. The yard currently has contracts for three flattops.
The Navy acknowledged in the spring that Newport News could build the new attack submarine, now scheduled to begin production in 1998, for less than Electric Boat. But it disputed Newport News' claims that the savings would have reached $10 billion and said some extra expense was justified by the need to retain both yards.
``All we were asking for was that the Navy share some of the savings it was going to receive,'' a Newport News official told the Post. ``We were flabbergasted they didn't jump at this.''
The Post said that under the Newport News proposal, the shipyard would have closed the Electric Boat operations in Connecticut, moving several thousand employees to the Peninsula and leaving 3,000 employees at an Electric Boat facility in Rhode Island.
Government and industry officials told the Post that Newport News was asking that the Pentagon grant it financial help in numerous ways - by allowing Newport News to use generous accounting arrangements in the way it wrote off assets and by speeding up Navy payments for work done by the two firms. The bottom line is that Newport News was asking for an upfront injection of Pentagon cash - what a government official called ``a loan.''
The Pentagon has agreed to such an upfront payment to encourage a merger only once before - last year, when it paid $30 million to the then-Martin Marietta Corp. (now Lockheed Martin Corp.) in its $208 million acquisition of General Dynamics' rocket division. Critics say that and other Defense Department payments are examples of cronyism between the Pentagon and its contractors.
The Post said it's unclear how much the Pentagon would have given Newport News. A Newport News executive said, ``It was in the tens of millions, not the hundreds of millions.'' But a government official said it could have amounted to about 60 percent of Electric Boat's purchase price. Industry officials said Electric Boat's price tag could have been as much as $500 million - but say that figure is inflated by Electric Boat's government-granted franchise in subs.
For now however, it appears a merger is out of the question.
General Dynamics announced this month that it will buy Bath Iron Works, a shipyard in Maine, for $300 million.
It's unlikely Newport News would have any interest in Bath, industry officials said. ILLUSTRATION: FILE COLOR PHOTO
The Pentagon wouldn't give Newport News Shipbuilding, shown here, up
to $100 million to purchase its only competitor.
by CNB