Huntington Wins $2.6B Contract

Zacks

Huntington Ingalls Industries (HII) gets a Navy contract to perform refueling and complex overhaul, or RCOH operation, on a 25-year-old nuclear-powered Nimitz-class aircraft carrier − USS Abraham Lincoln. The price of the contract is valued at $2.6 billion and includes costs of the work as well as incentive fees.

Per the agreement, Huntington Ingalls is entitled to refuel the ship's reactors and modernize over 2,300 compartments, 600 tanks along with various systems. It is also responsible for the improvement of the flight deck, catapults, combat systems and the island.  The primary objective of this maintenance work is to keep this ship ready for effective service for another 25 years.

The Navy has already moved the carrier from a naval station in Norfolk, Va. to Huntington Ingalls’ Newport News Shipbuilding (:NNS) division, Va., on Mar 28. The company has already initiated RCOH work there that will likely be complete by Nov 2016 and the ship is expected to return to the fleet in 2017.

Lincoln was initially planned to land at NNS on Feb 14. The six-week delay was mainly due to uncertainties surrounding the defense budget and funding of the operations. Now, following the recent signing of the legislation by the president, the Navy and Huntington Ingalls’ shipyard received the go-ahead for Lincoln’s RCOH work.

An RCOH operation generally takes three years to complete and till date only five U.S. aircraft carriers have undergone this procedure. After the work, the Abraham Lincoln ship will become the first aircraft carrier to obtain alterations for the new F-35 fighter jet built by Lockheed Martin (LMT).

The largest military shipbuilder in the U.S., Huntington Ingalls is the prime industrial employer in Va. The company’s Newport News Shipbuilding is the nation's only builder of aircraft carriers and one of two submarine builders. Recently, Huntington Ingalls’ NNS unit received a contract extension worth $407.4 million for engineering, planning, and long-lead time material procurement for the aircraft carrier John F. Kennedy (CVN 79).

Huntington Ingalls, originally an affiliate of Northrop Grumman (NOC), was spun off in Mar 2011. It operates major shipyards in La., Miss. and Va.

Huntington Ingalls presently retains a short-term Zacks Rank #3 (Hold). We presently prefer The Boeing Company (BA) with a Zacks Rank #2 (Buy).

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