Military contractor General Dynamics (GD) has secured a $1 billion contract modification so it can procure difficult-to-source components for the US Navy’s Virginia-class Block VI submarines.
Announced this week the contract modification allows for GD’s Electric Boat business (GDEB) to purchase long lead time materials for the submarines, among the newest class of nuclear vessels. Materials may include engines, turbines, advanced electronics, control systems, sonar technologies, and electric drive systems among others.
General Dynamics Electric Boat is the prime contractor and lead design yard for the Virginia class and constructs them in Virgina with Newport News Shipbuilding, a division of Huntington Ingalls Industries (HII).
“This contract modification drives continuation of the crucial demand signal that the submarine industrial base needs to invest in the capacity and materials required to increase production volume,” said Mark Rayha, president of General Dynamics Electric Boat. “Consistent funding for the supply base is essential to achieve the high-rate production the Navy requires of the entire submarine enterprise.”
Securing key materials early is seen as essential to lower costs and ensuring there are no delays to programs such as the Block VI.
In August last year General Dynamics won $1.3 billion in funding to procure long lead-time materials for the first of the Block VI submarines, preceding an anticipated multi-year agreement.
In October the Navy handed GD with two contract modifications worth $1.28 billion to keep submarine suppliers operating while contract negotiations for 17 planned submarines continued.
The Virginia-class Block VI is the latest iteration of the Navy’s nuclear-powered cruise missile fast attack submarines. These will feature the Virginia Payload Module, which adds significant missile capacity compared to past iterations.
The Navy has been procuring Virginia class nuclear-powered attack submarines since 1998, and a total of 40 have been procured so far, each costing about $4.5 billion. However, there is a growing backlog of boats procured but not yet built, with the Navy hoping for 51 Virginia class subs in the fleet by the early 2030s.
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On Wall Street, GD has a Moderate Buy rating on GD stock, based on six Buys, ten Holds and no Sells. The average GD price target of $291.21 implies nearly 9% upside to current levels.
