General Dynamics To Invest $1 Billion In Production Facilities Upgrades With Focus on Subs

General Dynamics Corp. plans to invest $1 billion in 2019 in upgrading and retooling its manufacturing operations company-wide, with a focus on its growing submarine construction business.

A plurality of this year’s capital expenditures – the reinvestment in manufacturing operations, commonly referred to as CapEx – will focus on making improvements to General Dynamics Electric Boat, the maker of the Virginia-class attack submarines and the new Columbia-class ballistic-missile submarines.

“We are poised to support our Navy customers and increase the size of the fleet,” Phebe Novakovic, the chief executive of General Dynamics, said during a conference call with analysts today to discuss the company’s 2018 financial results and detail financial expectations for 2019.

Submarine builder Electric Boat is on pace to build two Virginia-class Block IV submarines a year while preparing to start building the first Block V submarines. At the same time, Electric Boat is preparing for construction of the first Columbia-class submarine to begin in early 2020.

“CapEx will be 3 percent of sales in 2019 mostly because of the Columbia-class construction,” Jason Aiken, the chief financial officer of General Dynamics, said during the call.

In 2018, General Dynamics reported sales of $36.2 billion, and the company predicts sales to increase in 2019.

General Dynamics capital investments will remain at a similar level for the next two to three years, Aiken said. After 2022, once Columbia-production is ramped up, the level of capital spending is expected to taper off, he added.

Overall, the company’s Marine Systems division, which includes the Electric Boat, Bath Iron Works and NASSCO shipyards, recorded robust sales growth during the year, and Novakovic said the sales growth is expected to continue in 2019. The Pentagon and Capitol Hill are sending signals that Novakovic said she takes to mean, “we’ll see nice defense spending for our programs.”

General Dynamics predicts the Marine Systems division will post 2019 sales of $9 billion, a 6-percent increase over sales in 2018.

The Marine Systems group has a backlog of 11 Arleigh Burke-class guided-missile destroyers; started construction on the future USNS John Lewis (T-AO-205), a first-in-class oiler for the Navy; and continued building Expeditionary Sea Base ships.

“They have done nicely with slow, steady growth, but the real growth driver is Electric Boat,” Novakovic said.