WASHINGTON (Reuters) - Huntington Ingalls Industries Inc (HII.N) beat out General Dynamics Corp (GD.N) for a larger share of a $6.1 billion U.S. Navy order for nine new DDG 51 destroyers, scoring a $3.33 billion deal for five ships that carries a 14 percent profit.
The Defense Department and the Navy announced the 10-year contract with Huntington Ingalls, and a separate $2.84 billion deal with General Dynamics for four new warships, after the close of business on Monday.
General Dynamics also got an option for an additional ship, which would bring the value of the company’s contract to $3.53 billion, if exercised, the Defense Department said.
The Navy said it planned to buy the 10th ship as part of its spending plan for fiscal years 2013 through 2017, but needed to resolve funding shortfalls resulting from mandatory across-the-board spending cuts before signing that deal.
The Navy said the competition generated estimated savings of $1.5 billion, while allowing the companies and their suppliers to plan more efficiently for future work.
The two companies are the only makers of the Navy’s DDG 51 destroyers.
The Navy has used a competitive strategy to buy DDG 51 destroyers since 1996 that gives the winning bidder a higher profit margin on the ships.
In this case, Huntington Ingalls would earn a profit of 14 percent on the contract, said Navy spokesman Chris Johnson. He had no immediate details on the profit to be earned by General Dynamics, which won the upper hand in the previous competition.
The Navy said Huntington Ingalls’ contract included options for engineering change proposals and other items that would bring the value of the contract to $3.38 billion, if exercised.
Huntington Ingalls said the contract would allow it to build ships more efficiently by buying bulk material and moving the skilled workforce from ship to ship.
Huntington Ingalls, which was spun off by Northrop Grumman Corp (NOC.N) in 2011, has built 28 DDG 51 destroyers for the Navy to date, and has two more under construction. It will build the new ships at its shipyard in Pascagoula, Mississippi, which was damaged by Hurricane Katrina in 2005.
Reporting by Andrea Shalal-Esa; Editing by Bernard Orr, Steve Orlofsky and Phil Berlowitz