Navy Reversal Turns Partners Into Competitors

(MoneyWatch)  The U.S. Navy had originally intended to buy the Littoral Combat Ship (LCS), a new small warship, from two builders, Lockheed Martin (LMT) and General Dynamics (GD). The two different designs would meet the same requirements; the idea was that splitting the order would allow the Navy could take delivery faster. Things didn't work out that way.

Both companies ran into significant delays and cost overruns with their first ships, a sign that the estimates were incorrect. The Navy cancelled part of the deal because it couldn't work out a deal with the companies to cover the costs.

As part of the Obama Administration's review of defense spending, last fall the Navy came up with a revised acquisition strategy for the LCS program. The new plan was to have a competition where one builder would win a contract to build ten ships between 2010 and 2014. Further competitions would be held for later lots; all told, the Navy intends to buy 55 of the versatile platforms.

On March 4th, GD and its partner, Austal USA, in whose yard the LCS-2 was built, announced that they were ending their joint venture for the LCS program. The parting was reportedly amicable but it sets the stage for Austal USA to bid for the next batch of ships.

Austal is an Australian company known for building ferries. It has a yard in Mobile, AL where the GD-designed ship was completed. GD has its own shipyard in Maine that makes destroyers and cruisers; it could certainly take on the LCS.

The bottom line: The former partners are likely to be rivals.

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