In a speech at the WEST 2024 conference in San Diego, California, US Navy industry suppliers were on the receiving end of a bold rebuke from the Secretary of the Navy, Carlos del Toro.
Stunted by poor delivery times and insufficient capacity, the US naval industrial base must face up to greater demands amid the shaky strategic situation the US Government now finds itself in on the world stage.
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These enduring problems, del Toro observed, prevent the US from playing out what he calls its policy of ‘Maritime Statecraft,’ whereby the US uses sea power to deter and prevail without fighting.
Del Toro put forward this proposal in September last year in response to China building up its naval fleet at a rapid pace, which he pointed out is set to reach 400 naval warships by 2030 compared to the current US force structure target of 355.
The crux of the problem, he stated yesterday, is industry’s fixation on its profits as opposed to the dire state of naval infrastructure:
“Overall, many of you are making record profits—as evidenced by your quarterly financial statements—and while I am happy for you, you can’t be asking for the American taxpayer to make greater public investments while you continue to goose your stock prices through stock buybacks.
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By GlobalData“[You are] deferring promised capital investments, and other accounting manoeuvres that—to some—seem to prioritise stock prices that drive executive compensation rather than making the needed, fundamental investments in the industrial base at a time when our nation needs us to be all ahead flank.”
Record-breaking profits
Although del Toro did not name any companies outright, financial statements across the span of US naval suppliers indicate a positive 2023, in both their fourth quarter (Q4) and end-of-2023 statements.
Publishing its Q3 report on 2 November, HII revealed net earnings of $148m or $3.70 diluted earnings per share, and a Q3 free cash flow of $293m at a time when the leading intelligence consultancy, GlobalData, noted that sentiment for the defence sector as a whole had dipped.
At the end of January, the company announced that its Board of Directors had authorised an increase in the company’s share repurchase programme from $3.2bn to $3.8bn.
At the start of February 2024, HII went on to predict even greater success for mid- to long-term revenue growth of more than 4%, after reporting record revenues of $11.5bn in 2023.
Other successful companies include Lockheed Martin, a company with considerable interest in the naval sector, that saw higher net sales of approximately $60m for tactical and strike missile programmes due to the production ramp up of Long-Range Anti-Ship Missiles.
Naval Technology is in the process of seeking confirmation from Lockheed Martin on any share buybacks in 2023.
Likewise, General Dynamics (GD) recently announced a significant contract award – worth a maximum potential value of $840m – for the maintenance and modernisation of two US Navy Arleigh Burke class destroyers (DDG 51).
In addition, another GD contract with maximum potential value of $420m provided the company with work for ongoing lead yard services for the Navy’s DDG 51 programme and $265m for various munitions and ordnance.
As of 31 December 2023, the company stated that “4.7m shares remained authorised by our board of directors for repurchase.”
Pledge to tackle “poor performance and misconduct”
Del Toro went further in his criticism of industry when he announced that he would empower the Office of the General Counsel “to ensure that we will leverage all legal means at our disposal to ensure that the American people are getting what they paid for.”
“The Department of the Navy is holding companies accountable for poor performance and misconduct.”
US Secretary of the Navy, Carlos del Toro.
Regarding industry’s inability to deliver on time, the Secretary of the Navy added:
“I… want you to know that the Department of the Navy is holding companies accountable for poor performance and misconduct—and now I’ve directed a deep dive into holding individuals accountable for chronic poor performance or misconduct as well. Not just to hold personnel responsible for their own actions, but to deter those who even consider taking similar actions.
“We must endeavour to ensure that contracts with the Navy are delivered on time and on budget—the global strategic situation demands it.”
Naval Technology has approached companies mentioned in the piece for reaction to Del Toro’s comments.
This article has been amended to reflect updated information on 21 February 2024.
