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Deal Could Be Worth $3.16B for NASSCO

General Dynamics NASSCO received an order for six oilers — auxiliary ships that rendezvous with U.S. Navy combat ships at sea and refuel them — that could be worth in excess of $3.1 billion.

The Navy awarded a $640.2 million contract to design and build the first ship in the John Lewis class, and make preparations for five future ships, on June 30.

Congress must approve funding for the

ships in yearly defense bills, and the Navy must exercise certain contract options for the deal to reach the expected $3.16 billion ceiling.

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Funding for the first ship was approved with the 2016 defense bill. NASSCO said that it will begin work on the project immediately.

Economic ‘Boost’

Fred Harris

“This is significant for San Diego,” said Kelly Cunningham, economist for the National University System, who called the deal “a true boost to the economy.”

“The defense industry can be countercyclical” and can soften the impact from a slowing economy, Cunningham said.

Jobs created under the contract are “the kind of jobs you want,” the economist said. They are jobs that bring in new dollars from the federal government, and jobs that bring spending power. Shipyard positions tend to be high-paying union jobs, Cunningham said.

The deal means continued employment for the shipyard’s workforce. NASSCO had 3,705 local full-time employees as of July 2015, according to the Book of Lists.

In the short term, NASSCO expects to hire engineers and naval architects, spokesman Dennis DuBard said.

Cunningham estimated that San Diego’s shipbuilding and repair industry had $1.75 billion in sales in 2015, up from $1.35 billion in 2013. Total shipbuilding and repair jobs grew from 5,600 in 2013 to 7,300 in 2015.

First Oiler Expected in 2020

NASSCO expects to deliver the first oiler in 2020 and the last one in 2025.

The Navy could easily decide it needs more than six oilers. In the spring, the service said it might need 17 of them. Published reports said the value of the order could increase to $8 billion, making it the largest order in shipyard history.

By itself, the order for six oilers is not the largest deal NASSCO has received. The yard built 14 dry cargo and ammunition ships for the Navy between 2001 and 2012. In 2009, the deal was estimated at $5.2 billion.

More recently, NASSCO built three Expeditionary Sea Base ships for $1.3 billion, and it’s building a fourth for about $500 million. A fifth is planned. Ships in the series were originally known as the Mobile Landing Platform and Afloat Forward Staging Base.

The fourth Expeditionary Sea Base ship, the future USNS Hershel Williams, is currently under construction at the yard, and NASSCO recently received a contract to buy long-lead materials for a fifth ESB.

NASSCO, based in Barrio Logan, also repairs Navy ships and builds commercial tankers.

As part of the June 30 deal, NASSCO will also design the Navy’s new amphibious ship, called the LX(R).

“We are pleased to be building the next generation of oilers and participating in the future design efforts of the LX(R), two very important ship programs for the fleet,” Fred Harris, president of General Dynamics NASSCO and Bath Iron Works, said in a prepared statement.

General Dynamics stock trades on the New York Stock Exchange as GD.

A Pentagon announcement from June 30 said the contract includes line items for five follow-on ships, as well as options for special studies, engineering and industrial services, provisioned items orders, LX(R) contract design support, cost reduction and implementation, other direct costs and special incentives.

Fifty-nine percent of the work will be done in San Diego and 1 percent in Chula Vista. Some 4 percent will be conducted in Mexicali, Baja California, Mexico.

The Naval Sea Systems Command of Washington, D.C. awarded the contract.

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