San Diego Business Journal

The U.S. Navy has charted a spending course that could bring plenty of opportunity to San Diego County’s defense contractors. Opportunities in 2016 and beyond include fleet replenishment oiler ships, unmanned surveillance aircraft and unmanned jets that can work from aircraft carriers.

With such work in hand, San Diego County businesses can continue to employ thousands of workers, including skilled welders, aerospace engineers and software writers.

Navy and Marine Corps spending accounts for $148 billion of the $495.6 billion Department of Defense budget proposal for fiscal 2015, which the Pentagon submitted to Capitol Hill on March 4. The Navy plan calls for $38.4 billion to procure ships, aircraft, weapons, ammunition and other needs in 2015. San Diego businesses, however, might want to skip ahead a year to the more lucrative parts.

A five-year shipbuilding plan — which is part of the 2015 budget proposal — calls for the Navy to buy three fleet replenishment oilers: one each in 2016, 2018 and 2019. General Dynamics Nassco is expected to bid on the work.

Nassco declined comment on the oiler work. Likely competitors are two Mississippi businesses — the Ingalls Shipbuilding unit of Huntington Ingalls Industries and VT Halter Marine — and perhaps other shipyards, said a representative of the Shipbuilders Council of America in Washington, D.C.

Last year, the Navy announced plans to buy up to 17 oilers, which refuel other Navy ships at sea. In July, Nassco and the other two big yards received $1.7 million deals to draw up preliminary designs, a process that was expected to take six to 10 months.

The oiler “is going to be a great piece of work for any shipyard that wins it,” said Joe Carnevale, senior defense adviser for the shipbuilders council. The Navy needs a large number of them, and the project is “not overly complex,” said Carnevale, a retired U.S. Navy rear admiral.

The 2015 shipbuilding plan shows the Navy buying a mobile landing platform ship in 2017. Work would presumably go to Nassco, which is building the first three of those ships for $1.3 billion — or $433 million apiece. The new ship would be modified with a deck suitable for landing certain aircraft, making it an afloat forward staging base.

Nassco declined to talk about future projects.

“It would not be appropriate for us to comment on the president’s budget proposal since this is just the first step in a lengthy process,” a spokeswoman said. “We can’t speculate about how that process might conclude.”

Drones on Deck

Research and development on a carrier-launched unmanned jet aircraft will continue under the 2015 spending plan, which calls for putting $403 million toward the effort in 2015. The R&D effort would make the new aircraft operational by 2021, according to budget documents. The project is expected to cost billions of dollars.

The Navy calls the drone Uclass, short for unmanned carrier launched airborne surveillance and strike. General Atomics Aeronautical Systems Inc. of Poway, Boeing Co. (NYSE: BA), Lockheed Martin Corp. (NYSE: LMT) and Northrop Grumman Corp. (NYSE: NOC) are expected to enter the competition to build the aircraft.

Separately, the Navy plans to buy the ocean-surveillance version of Northrop Grumman’s unmanned Global Hawk aircraft. The aircraft, called Triton, operates from runways on shore, but it has a very long range thanks to its ability to stay in the air for 24 hours. Northrop Grumman centers its Triton program in Rancho Bernardo with its other unmanned aircraft work.

The new budget plan calls for the Navy to buy four Triton aircraft every year beginning in 2016, for a total of 16 aircraft in the five-year window. Research and development for the Triton would rise from $375 million in 2014 to $498 million in the 2015 plan.

Northrop Grumman offered no comment on the long-term spending proposal.

Money for Maintenance

The 2015 budget proposal also includes money for ship and aircraft maintenance. San Diego is an important hub for both.

Hearings have begun in Congress and “the next several months are going to be very telling,” said Derry Pence, president of the Port of San Diego Ship Repair Association. There is talk of “laying up” 11 Ticonderoga-class cruisers — putting them on the sidelines and delaying modernization work in an effort to make the cruiser class last longer, he said. A second issue in the ship repair world is whether the Navy will support fewer than the current 11 aircraft carriers in 2015.

A budget compromise in Congress blunted the effect of sequestration — an across-the-board program of budget cuts — during 2014 and 2015. Pence, a retired Navy captain, said there is a “dark cloud” over 2016, when sequestration returns. He said the cuts would affect Navy readiness and the industrial base.

The base budget calls for the Navy to spend $5.3 billion on ship depot maintenance in all ports during 2015, up from $4.1 billion during 2014. Overseas war funding, which is separate from the base budget, pumped up the ship maintenance budget 65 percent to $6.8 billion in the current fiscal year. It’s not yet clear how overseas war funding might increase the ship repair budget in 2015.

The proposed 2015 budget for Navy aircraft depot maintenance and logistics stands at $1.3 billion, unchanged from the 2014 base amount. Overseas war funding increased 2014 numbers 15 percent to $1.5 billion.

Naval Air Station North Island is home to the Fleet Readiness Center Southwest, which overhauls fighter jets and helicopters. The depot is also a workplace for private business. As of last year, 550 of the center’s 3,700 employees worked directly for private contractors.