Friday, May 11, 2001

Senate Majority Leader Trent Lott entered the fight yesterday over control of the only American producer of big-deck aircraft carriers, urging in a letter to the Pentagon approval of a takeover bid from his home-state shipbuilder.
It is shaping up as a war between the states: Virginia vs. Mississippi.
“I believe the proposed Northrop Grumman-Newport News Shipbuilding merger is in the best interest of the nation, the Department of Defense and the Navy,” Mr. Lott said yesterday in a letter to Defense Secretary Donald H. Rumsfeld.
In supporting Northrops unsolicited $2.1 billion offer this week to purchase Newport News, Mr. Lott took sides in a fierce competition between Grumman and General Dynamics Corp. of Falls Church, which also covets the Virginia manufacturer.
The Mississippi Republican fears lost jobs from his states No. 1 employer, Ingalls Shipbuilding, if General Dynamics gains a larger share of all Navy ship contracts. Virginia, on the other hand, could gain workers at Newport News if General Dynamics wins, says an ex-Navy officer.
General Dynamics owns Bath Iron Works in Maine, producer of surface combatants; Electric Boat in Connecticut, builder of nuclear-powered attack submarines; and National Steel and Shipbuilding Co. in San Diego, an auxiliary ship producer. Acquisition of Newport News, also a submarine builder, would make General Dynamics the countrys sole manufacturer of nuclear-driven warships and proprietor of four of the Navys six principal shipyards.
Northrop Grumman, for years builder of advanced jet warplanes, this year bought two shipyards from Litton Industries: Ingalls Shipbuilding in Pascagoula, Miss., where amphibious assault ships and surface combatants are assembled, and Avondale Industries in Avondale, La., near New Orleans, a maker of Navy auxiliary and assault vessels.
Senate Armed Services Committee Chairman John W. Warner, Virginia Republican, has endorsed the General Dynamics deal, announced last month, to buy Newport News which is his home states single largest employer. The Navy, to which Mr. Warner has close ties, privately supported the merger as an efficient way to cut costs.
Then Northrop came along this week with its bid to purchase Newport News, prompting Mr. Warner also to write to Mr. Rumsfeld. He requested a meeting “as soon as possible” to discuss how the two offers will affect Newport News, which already has accepted General Dynamics merger proposal.
At stake for the winning corporate suitor is a larger share of a Navy ship construction budget of $8 billion to $11 billion annually. The number is expected to grow this decade as the sea service modernizes an aging, 310-ship fleet.
Mr. Lott, who wields considerable influence over the Pentagons yearly $296 billion budget, warned Mr. Rumsfeld that a General Dynamics-Newport News marriage would result in non-competitive pricing. A copy of his letter was obtained by The Washington Times.
Mr. Lott quotes a study by the Congressional Research Service that says General Dynamics-Newport News would receive 70 percent of available shipbuilding revenues, 80 percent of design and engineering staff and 95 percent of all research and development funding.
“Significant imbalance that would exist as a result of the General Dynamics-Newport News merger would result in the loss to the government of any competition and the ability to compare prices, quality and innovation in the shipbuilding industrial base,” Mr. Lott wrote.
General Dynamics disagrees, saying consolidating nuclear work with one company will save $2 billion over 10 years — money the Navy needs for other weapon systems.
“Were disappointed that Northrop Grumman has chosen to interfere in a proposed transaction agreed upon by the respective boards of directors of General Dynamics and Newport News Shipbuilding,” General Dynamics executives said. “The combination of General Dynamics and Newport News is the only combination that can provide synergies necessary to achieve significant merger-related savings.”
Yet the merger may result in shipyards being closed. A retired Navy officer and shipbuilding specialist said in an interview that General Dynamics cannot generate $2 billion in savings without closing Bath or Electric Boat and shifting work to Newport News.
“Newport News is a huge shipyard and theyre under capacity,” the ex-officer said. “Thats why Virginia is salivating. They see more jobs.”
General Dynamics says it has no plans to close any yards.
The Navys shipbuilding allocation traditionally has been driven as much by politics as prices as the sea service sought to keep senators happy in each of the six main ship-producing states — Maine, Virginia, Mississippi, California, Connecticut and Louisiana.
Senators watch over the yards — and the jobs created — as prized possessions and make sure each years appropriations bills distribute money to each one.
Newport News is about to begin building the last of the 97,000-ton Nimitz class carriers before the Navy embarks on a new, more futuristic design dubbed the CVNX.
A new issue in the Northrop-General Dynamics battle emerged yesterday. President Bushs nominee for Navy secretary is Gordon England, until recently a top executive at General Dynamics.
At his confirmation hearing before Mr. Warners committee, senators pressed Mr. England to say whether he would recuse himself from decisions such as the Newport News merger deal that could benefit his old employer.
Mr. England declined to give a blanket assurance, saying, “Areas where I have no conflict of interest I would not expect to recuse myself.”
Sen. Carl Levin, Michigan Democrat, said his answer was not good enough.
“We need to work with you to exactly define your role in those decisions affecting General Dynamics before in my view your nomination is approved by the full Senate,” Mr. Levin said.
Mr. Rumsfeld is now overseeing a far-reaching Pentagon strategy review during which the Navy is fighting off suggestions it dump large-deck carriers in favor of smaller, stealthier flattops.
Pentagon sources say that, to date, no Pentagon study group has recommended such a radical change.

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