Navy supports Northrop Grumman shipbuilding spin-off

The Department of the Navy announced today that it is now in a position to support Northrop Grumman Corporation’s (NGC) spin-off of its shipbuilding business. The Navy finds Huntington Ingalls Industries Inc. (HII) responsible for award of amphibious transport dock ship LPD 26 and guided missile destroyer DDG 113, both contracts currently under negotiation with NGC.

“NGC has cooperated with the Navy in working through the complex issues related to its potential spin-off of its shipbuilding business to HII,” said Sean Stackley, assistant secretary of the Navy for research, development and acquisition. “Our support of the spin-off is based on a critical review of HII’s proposed capital structure, current contract financials, required capital investment and proprietary forward-looking projections. Ultimately, with appropriate adjustments made by NGC as a result of the Navy’s findings and captured within an agreement between NGC and the Navy, we have been able to resolve our concerns about the risk involved to this important segment of our shipbuilding industrial base.”

The Navy’s concern with HII’s credit rating, driven by its initial debt, has been offset by NGC’s agreement to relieve HII of first quarter 2011 debts, to provide a starting cash balance of $300 million, and not to recoup retentions, performance incentives, and economic price adjustment payments that the Navy might owe under current shipbuilding contracts with Northrop Grumman Ship Building from HII.

“The Navy evaluated the extent of considerations made by NGC as appropriately addressing the risk of this spin to Navy shipbuilding” said Stackley, “The Navy regards HII as a responsible contractor and is proceeding to finalize the negotiations with the intent to award the contracts for construction of LPD 26 and DDG 113 to HII.”

March 17, 2011