Botching welds on 12 missile tubes for the Columbia-class submarine earlier this year proved a costly mistake for BWX Technologies, which on Wednesday said the problems with its welding program in Indiana were more complicated than first thought.
On a conference call with investors, BWXT said its Nuclear Operations Group took a $40 million revenue hit in the third quarter because of the missile tube rework the company embarked on after discovering, and self-reporting, balky welds on 12 Common Missile Compartment tubes during the second quarter.
BWX Technologies is building missile tubes for Columbia prime General Dynamics Electric Boat under three subcontracts awarded in 2014, 2016, and 2017. The company discovered suspect welds on tubes produced under all three contracts, a BWXT spokesperson said by email Thursday. Company leadership danced around the exact nature of the mistake, saying the welds were “complex and challenging” and sometimes 100 inches long.
The company’s 2017 Block II Common Missile Compartment tube assembly subcontract alone is worth about $75 million and calls for BWXT to produce 26 tubes by 2021.
BWXT is under contract for about half the Common Missile Compartment tubes General Dynamics has ordered, according to the BWXT. Last year, the company projected it would eventually capture about 60-percent of the overall tube business. The Navy plans 12 Columbia-class subs, which will carry 16 missiles each, making for a hypothetical total of 192 missile tubes.
To BWXT President and CEO Rex Geveden, eating the cost of the third-quarter tube rework is the price of admission for pursuing follow-on work with General Dynamics. On Wednesday, Geveden said General Dynamics will award another multiyear tube contract in the first quarter of 2019, and that BWXT still wants the business.
BWXT is now “certain that the issue [with the 12 tubes] is restricted to particular types of welds on this product line only,” Geveden said Wednesday. “The problem is fully characterized, and its required remediations are understood.”
But the problem was also more extensive than Geveden thought as recently as early August, when he stood by the company’s welding techniques during a second-quarter call with investors. At that time, Geveden said the mistakes with the 12 tubes could have been caught and fixed with more rigorous post-weld inspections.
“I don’t view it as a welding quality issue, I view it as an inspection technique issue,” Geveden said on the second-quarter call.
On Wednesday’s call, however, Geveden reversed course, saying that “our weld techniques were not adequate,” and that as a result, “we have changed both the qualification standards in that and intensive training standards for that.”
Also on Wednesday, during an industry conference held near the Pentagon in Arlington, Va., the president of General Dynamics Electric Boat said the prime was keeping a closer eye on BWXT in the wake of the welding mistakes.
BWXT makes Common Missile Compartment tubes at its factory in Mount Vernon, Ind. Each tube weighs about 50 tons. The company shipped seven balky tubes to General Dynamics over the summer, none of which were integrated with a submarine.
General Dynamics is working on the Columbia design under a roughly $5 billion prime contract awarded last year by Naval Sea Systems Command. The company plans to build the 12 Columbia-class boats in Groton, Conn., beginning in 2021. The vessels will carry 16 Trident II-D5 missiles tipped with W76 nuclear warheads provided by the Department of Energy, compared with the 24 Tridents carried on each Ohio-class sub.
Common Missile Compartment tubes are also slated for use on the United Kingdom’s Dreadnought-class ballistic missile submarines.
For BWXT’s bread-and-butter Nuclear Operations Group, which includes the company’s naval reactors and missile tube business, 2018 third-quarter operating income fell off by about a third year-over-year to around $45 million. Segment revenue was about $320 million in the quarter, down 1.5 percent or so from 2017.
At the roughly 500-employee Nuclear Services Group segment, which includes other Department of Energy and National Nuclear Security Administration business, quarterly operating income was $6.5 million: a rocket-fueled spike from roughly $800,000 a year ago. The company did not explain the staggering increase. Segment revenue rose about 3 percent in the quarter to roughly $28 million.
Meanwhile, BWXT seems to be interested in more work at DOE’s Savannah River Site, including National Nuclear Security Administration tritium-extraction work. That business will become available next year, when the Department of Energy plans to solicit bids for a new management and operations contract at the Aiken, S.C. site. Geveden categorized that solicitation as a “significant” opportunity on the latest earnings call. Incumbent Savannah River Nuclear Solutions is on the job through July 31, 2019.
