Newport News Shipbuilding Inc.

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Newport News Shipbuilding Inc.

4101 Washington Avenue
Newport News, Virginia 23607
U.S.A.
Telephone: (757) 380-2000
Toll Free: (800) 753-8790
Fax: (757) 380-4713
Web site: http://www.nns.com

Public Company
Incorporated: 1886 as Chesapeake Dry Dock & Construction Co.
Employees: 17,300
Sales: $1.86 billion (1999)
Stock Exchanges: New York
Ticker Symbol: NNS
NAIC: 336611 Ship Building and Repairing

Newport News Shipbuilding Inc. is the largest non-government-owned shipyard in the United States and the only one in the United States capable of building and servicing a full range of nuclear-powered and conventional ships for both defense and commercial service. The largest employer in Virginia, the company has expanded nationwide, building, over its more than 100-year history, more than 700 vessels, including many that have taken part in the great historical events of 20th century American history, from the days of President Theodore Roosevelt’s Great White Fleet to the battles of World War II and on into the nuclear age.

19th-century Origins

Newport News Shipbuilding was founded in 1886 at one of the most favorable shipping locations in the United States. The yard owes its existence to Collis P. Huntington, one of the business partners who founded the Central Pacific Railroad and drove it eastward through the Sierras to form the nation’s first transcontinental rail line. After his successes in California, Huntington returned east and was instrumental in building the Chesapeake & Ohio Railroad from Richmond to the town named for him in West Virginia. Then he turned his sights to develop Newport News as the carrier’s eastern terminus. He was president of the Old Dominion Land Co. which laid out lots to start the development of the town. Coal and grain facilities were built and Huntington then sought to found a drydock there.

Commenting on the yard’s location, Huntington later noted that “It was my original intention to start a shipyard plant in the best location in the world, and I succeeded in my purpose. It is right at the gateway of the sea. There is never any ice in the winter, and it is never so cold but you can hammer metal out of doors.”

The drydock was opened April 29, 1889, and the maritime press hailed it as the “wonder of the age.” The first shipbuilding job was a reconstruction project, but the contract for Hull No. 1, the tug Dorothy, was signed in 1890. After many years of service that tug would eventually return to the yard in 1974 and be dedicated as a permanent exhibit in 1976.

According to the official history, William Tazewell’s Newport News Shipbuilding: The First Century, Huntington protested to the Secretary of the Navy in 1890 about competition from the Norfolk Navy Yard, a harbinger of many such disputes over government versus private shipbuilding in the future. Newport’s first successful bids for construction of naval vessels, three gunboats, followed in 1893. The navy was pleased with the work and the yard was awarded more contracts for battleship construction. In this period the yard was also doing considerable commercial work, including the construction of cargo ships, passenger vessels, bay and river steamers, and tugs. In 1899, contracts for new vessels exceeded $10.5 million and 4,500 men were employed at the yard. Dry Dock No. 2 opened in 1901, the first of several expansions that continued into the 1990s.

Newport News was a company town in all respects, and Huntington personally underwrote financial losses in the early days. Huntington was said to be one of the largest, if not the largest, landholders in the country, and ran his vast interests from his New York office until his death in 1900. Ownership of the Newport News company then passed to Collis’s son Archer Milton Huntington, a scholar, poet, and philanthropist with little interest in the shipyard.

Thus, after Huntington’s death, the man most instrumental in guiding the shipyard was Homer L. Ferguson, a former navy officer and student of naval architecture and marine engineering, who came on board at the yard in 1905 and was made assistant superintendent of hull construction. Ferguson would become president of the company in 1915, serving in that capacity until 1946, when he was named chairman of the board. During his tenure at Newport News, he successfully steered the company through a long period that included two wars and the Great Depression.

In 1907 President Roosevelt dispatched the Great White Fleet on a round-the-world voyage to demonstrate U.S. sea power. Seven of the fleet’s 16 battleships had been built at Newport News. The shipyard was also soon to demonstrate its adaptability; when all-big-gun ships became the standard for naval warfare, the company built six of these “dreadnought” ships, most of which saw service as late as World War II. The yard’s adaptability was recognized frequently in later years. It built its first five submarines in 1905, and in 1934 the navy turned to the yard for the first aircraft carrier designed for such service. Most construction, however, continued to be for merchant shipping, among which were barges used in construction of the Panama Canal.

There were boom conditions at the yard during World War I, when the company built 25 destroyers and the last battleship launched until World War II. Moreover, Newport News reconditioned the liner Leviathan for use as a troopship. After wartime projects were completed, there was a period in which no more naval work and few commercial contracts were available. The company took whatever work it could find and diverged into other manufacturing.

The disarmament treaties of the 1920s resulted in scrapping a number of warships, but the gathering war clouds of World War II saw a revival of shipbuilding. According to a Fortune magazine article of 1936, although 49 U.S. shipyards had been closed since 1920, Newport News became stronger due to “the ablest management in the business” under Ferguson.

In addition to its shipbuilding in this period, the company repaired locomotives; built an aqueduct, a bridge, and an office building; manufactured traffic lights, transmission towers, and 9,000 freight cars; and produced a variety of other equipment. Perhaps the most spectacular of all non-shipbuilding work was the fabrication of the largest turbines in the world for the Dnieprostroi Dam in the Soviet Union. After World War II, the company entered the atomic energy field, fabricating assemblies for nuclear reactors.

In 1940, Archer Huntington sold the shipyard to a syndicate of underwriters. Rumors of a sale had been circulating for years, and once the company was again thriving after the Great Depression, Archer regarded the time as right for a sale. The book value of the plant and property was reported at $17.79 million and its replacement value was around $29 million. The group of investors reportedly purchased Newport News for $18 million and the company went public, trading shares on the New York stock exchange.

Also during this time, the navy ordered seven carriers and four cruisers from Newport News, the beginning of a string of orders as a world war again seemed imminent. Newport News set up a subsidiary, North Carolina Shipbuilding Co. in Wilmington, North Carolina, to help handle the crush of wartime business. Vessels built there included 126 “Liberty” cargo ships before it was closed at the end of the war. Employment at Newport News rose to a high of 31,000 in 1943, with more than 50,000 at the Wilmington subsidiary.

However, the exultation felt by management and employees at the close of the war they helped win was tempered by uncertainty of the future. In the lean days that followed, the yard performed ship conversions and repair work. But with the development of jet aircraft, existing carriers were inadequate and the navy began planning supercarriers. After the outbreak of the Korean War the yard was awarded a contract for the first of several new supercarriers, the Forrestal.

Post-World War II Growth

A memorable day in the yard’s history came on February 8, 1950, when the keel assembly for the United States, the largest passenger ship ever built in the nation, was laid. Launched in the summer of 1951, it was the world’s fastest passenger ship and the first built at the yard in ten years. Also, in the fall of 1950, the yard fabricated the last turbines for the Grand Coulee Dam in the state of Washington.

In 1951 William E. Blewett, Jr., became the shipyard’s eighth president. A forceful leader, Blewett decided to shift the company’s focus into the field of nuclear power, a move praised more than 30 years later by another company president, Edward J. Campbell, as “easily the most significant of the last 45 years.” By 1956, the company’s Atomic Power Division had more than 200 employees, and a new subsidiary, the Eastern Idaho Construction Co., was formed to set up a reactor test station near Arco, Idaho. Engineers worked there with the navy’s Bureau of Ships, planning for atomic-powered supercarriers. The age of the supertankers had also arrived, and on August 7, 1958, the largest tanker yet built in the United States, the Sansinena, was launched at the yard.

Company Perspectives:

Newport News Shipbuilding is one of the top ten defense companies and the premier shipbuilder in the United States. We design, build, and maintain the most sophisticated ships in the world—nuclear-powered aircraft carriers and submarines. Our goals for the future are simple: To strengthen and grow our leadership position in our core defense businesses, to effectively manage technology insertion and systems integration, to become the life cycle manager for our products and to deliver superior value and performance to our shareholders and customers.

The advent of nuclear power brought numerous changes to Newport News, with new sections devoted to quality inspection, health physics, controlled material handling, and lead shielding. Since its earliest days the yard had an active apprenticeship program, and now it added classes and lectures about the new science of atomic propulsion.

In 1959 the yard launched its first nuclear powered submarine, the Shark, the first submarine built by Newport News in more than 50 years. The Enterprise, the world’s first nuclear-powered carrier, was launched on September 24, 1960. The Robert E. Lee, christened December 18, 1959, was the first of 14 Polaris-class subs built at the yard. A new subsidiary, Newport News Industrial Corp., was set up to engage in specialized work on land-based nuclear power plants.

The 1960s brought several challenges to Newport News. The Equal Employment Opportunity Commission charged in 1966 that the company was discriminating against its African-American employees. Although the company denied the charge, it entered into an agreement to accelerate promotions of African Americans and also began hiring greater numbers of women for jobs previously held only by men.

Tenneco Era of Ownership Begins in 1968

Moreover, by the fall of 1967, Newport News faced serious financial problems, as aerospace giants were moving into shipbuilding, leaving Newport News dangerously undercapitalized to compete. The yard reported a loss of nearly $3.5 million in the first half of 1968, a decisive factor in merger negotiations that the company began pursuing. In September 1968, Tenneco Inc., of Houston, Texas, acquired Newport News for approximately $123 million.

In the course of restructuring Newport News, Tenneco encountered strong opposition from organized labor and the Occupational Health and Safety Administration (OSHA). Eventually, the employees gained representation by the United Steelworkers Union. OSHA levied a fine of $766,190 on the shipyard, citing 617 cases of deficient medical care, unsafe working conditions, and excessive noise. It was reportedly the largest fine OSHA had ever imposed on any company.

In the wake of such problems, Wall Street analysts advised Tenneco to sell Newport News, warning that the division would require costly modernization and reorganization. But Tenneco officials recognized the shipyard’s potential, especially after plans for a 600-ship navy were announced in 1981. Indeed, the navy depended on the yard for all kinds of ships; it was chosen as the lead yard in designing the Los Angeles class of attack subs, launched on April 6, 1974. Moreover, the company continued to overhaul and refuel Polaris subs on a regular schedule and converted several into improved Poseidon missile systems. Conversion and repairs remained a staple and the company’s manufacturing operations were steady. In fact, the business backlog at Newport News had reached $1.4 billion by the end of 1971, and employment had risen to 27,500 by 1972.

However, while revenues rose year to year, profits failed to keep pace, as the company was faced with a profit squeeze due largely to the costs of plant expansions and labor. Indeed, the building of more modern ships, particularly the nuclear-powered vessels, proved a necessarily time-consuming process, as designs were changed mid-construction, and workers often found themselves idle while their co-workers completed other aspects of construction.

Also a major dispute between the yard and the U.S. Navy developed over the costs of building nuclear ships. The navy’s Admiral Rickover continuously disputed costs, accusing Newport News of being unable to do its job properly. Newport News, in turn, accused the navy of being unable to properly finance its fleet. This dispute reached a climax in 1975, when the shipyard temporarily halted work on a cruiser. The yard threatened to get out of the business, but its claims against the navy were finally settled out of court when Deputy Defense Secretary William P. Clements, Jr., realizing that the situation had gotten out of hand, sought negotiations. A settlement was reached, and the relationship between the shipbuilder and the navy was mended.

During this time, with the navy representing a 93 percent share of the company’s operating revenues, Newport News decided to attract more commercial business. The company constructed the new North Yard, where the liquefied natural gas carrier El Paso Southern was launched in 1977, followed by other supertankers. While the company enjoyed record revenues in 1975 through 1977, the commercial market for oil tankers declined dramatically in the face of a worldwide oil crisis, and eventually Newport News’s revenues declined similarly.

During this time, a new Newport News president, Edward J. Campbell, was named, and he promptly set about turning the company around. Faced with declining profits, outmoded facilities, pending lawsuits, and even a substantial strike by ship designers and production workers, Campbell had his work cut out for him. Lawsuits and strikes were eventually settled, and Campbell focused on a program for improving conditions at the yards.

Key Dates:

1886:: Newport News is founded by Collis P. Huntington.
1893:: Company is awarded its first U.S. Navy contract.
1951:: New president, William Blewett, Jr., steers company into nuclear power.
1968:: Tenneco Inc. acquires Newport News.
1982:: Newport News is awarded $3.1 billion U.S. Navy contract.
1994:: Company reenters commercial market.
1996:: Spinoff from Tenneco is completed.
1999:: Further pursuit of commercial work is abandoned.

His efforts paid off; for the first time, company revenues topped the billion dollar mark in 1981 and profits rose to $82 million. In 1983 the company posted record sales and income for the fourth straight year, with profits of $150 million and employment at 29,000. At the end of 1982, the navy awarded Newport News a $3.1 billion contract for the fifth and sixth Nimitz-class carriers, reportedly the biggest contract ever awarded a shipbuilder, and guaranteeing work into the 1990s. Moreover, an improved modular construction method was developed, employing computer technology that cut man hours and eliminated errors. In fact, the Tenneco annual report for 1984 reported that “Improvements in earnings over the last five years are a direct result of innovative engineering concepts in modular construction and incentive-based contracts with the U.S. Navy.”

1990s: A Decade of Change

Newport News reentered the commercial cargo ship market in a big way in October 1994 when it signed a $150 million tanker contract with Eletson Corp., a major Greek shipping company. Newport News said the contract was the first commercial construction contract from an international ship owner won by an American yard since 1957. “After almost 40 years of eating the dust of low-cost Korean, Japanese and West German yards, U.S. shipbuilders are suddenly back in world markets with a bang,” a Forbes magazine reporter noted, adding that “work rule changes, greatly improved modular construction techniques, and a remorseless attack on overhead costs have helped builders like Newport News, long dependent on big navy contracts for their living, to capitalize on … wage differentials.”

Other commercial construction contracts brought so much business that Newport News abandoned a bid to build tankers for a Canadian consortium, citing time and space constraints. At the end of 1994, the company had work under contract extending into 2002. Moreover, a letter of intent between Newport News and the United Arab Emirates was signed in December 1994 to establish a new shipbuilding and repair company in Abu Dhabi. The shipyard was to be an equity investor and manage the Abu Dhabi Ship Building Co., which would construct and repair military and commercial vessels. During this time, W.R. (Pat) Phillips was named chairman and chief executive officer of the shipyard and William P. Fricks was promoted to executive vice-president and chief operating officer.

Navy work still comprised the majority of the yard’s business in 1994, when the company was awarded a $3 billion contract to build the Nimitz-class aircraft carrier Ronald Reagan. The christening of the last Los Angeles-class vessel Cheyenne came in April 1995. Due to cutbacks in the defense budget, however, the yard entered into a bitter contest with the Electric Boat Division of General Dynamics Corporation, of Groton, Connecticut, for the contract to design and build the navy’s new attack submarines.

Tenneco approved a $68 million World-Class Shipbuilding Project in December 1994, to upgrade the yard’s steel fabrication facilities, a step the company expected would dramatically reduce costs for future ship construction. Newport News also began a $29 million project to extend the yard’s largest drydock, allowing for simultaneous construction of carriers and large commercial ships.

Still, operating income for 1994 was $200 million, compared with $225 million in 1993, and revenues also decreased slightly from $1.9 billion to $1.8 billion. While the New York Times reported that several analysts were predicting that Tenneco would divest itself of Newport News, Tenneco Chairman and CEO Dana G. Mead maintained that the corporation had no such plans. In its 1994 annual report, company officials stated that the shipyard would continue to pursue additional U.S. Navy contracts in its core business of new ship construction, refueling and overhaul, and nuclear engineering. However, they said the yard also would continue working to diversify through commercial shipbuilding and foreign military sales, and by “increasing sales of technological expertise.”

After 46 years of service at Newport News, company Chairman William R. Phillips retired in October 1995, which paved the way for the promotion of William P. Fricks. Fricks assumed command at a pivotal juncture in Newport News’s history. The January 1994 decision to pursue commercial work represented a difficult transition for a company that exclusively relied on U.S. Navy contracts. Fricks inherited the daunting task of achieving the company’s stated goal of reducing its reliance on Navy work to 60 percent of revenues by 2000. His job was made that much more difficult by the uncertain relationship between Newport News and its parent company, Tenneco. Speculation concerning Tenneco’s divestiture of Newport News continued as the transition in leadership was underway. In January 1996, the rumors became closer to fact when Tenneco confirmed that it might spinoff Newport News as part of its sweeping restructuring program aimed at shedding non-core businesses. Eventually, Tenneco chose to take such a course when it announced its merger with El Paso Energy Corp. In December 1996, Tenneco shareholders approved the merger and the spin off of Tenneco’s automotive parts and packaging businesses and its Newport News subsidiary as separate companies. Once again, Newport News operated as an independent company.

As Newport News embarked on a new era, it also reopened a chapter of its earlier history in commercial work. In September 1997, the company christened the American Progress, the first commercial ship built by Newport News in nearly two decades and the first U.S.-built double-hull oil tanker constructed according to the standards mandated by the U.S. Pollution Act of 1990. Triggered by the 1989 Exxon Valdez oil spill, the law stipulated that all ships carrying petroleum products in U.S. coastal waters be double-hull vessels by 2015, which gave birth to Newport News’s “Double Eagle” program. The American Progress was the first of nine tankers scheduled to be built by Newport News, but the foray into the commercial sector soon faltered. The Double Eagle program suffered from higher than anticipated costs and anemic demand for newer, higher-profit-margin tankers. By 1998, the company had decided to stop pursuing commercial shipbuilding contracts, a failed diversification punctuated by the somber June 1999 christening of the tanker Brenton Reef, the last of the six tankers the company built for commercial customers. “Somebody asked me,” Fricks remarked in a June 18, 1999 interview with Knight-Ridder/Tribune Business News, “‘Would you do it over?’ and I said ‘No.’”

The discouraging exit from the Double Eagle program was just one of the difficult events Fricks had to contend with in 1999. Newport News was the target of two hostile takeovers in 1999, one from Litton Industries Inc. and another from General Dynamics Corporation, both of which Fricks was able to fend off. The company also had to withstand a four-month strike by more than 9,000 of its steel workers that commenced in April 1999, which coincided with the loss of an acquisition target, Avondale Industries Inc., to rival suitor Litton Industries.

Despite the setbacks that marred the latter half of the 1990s, Newport News entered the 21st century with optimism, focused on its core defense products, aircraft carriers and submarines. In 2000, construction of the aircraft carrier USS Ronald Reagan was nearly complete, with the christening ceremony scheduled for March 2001. Hopes were buoyed also by the shipyard’s return to building submarines, namely four Virginia-class submarines. Construction of the first two submarines, SSN 774 and SSN 775, was underway as the company entered the new century. Construction of SSN 776 and SSN 777 was scheduled to begin in 2001.