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NASSCO gets $3 billion to build six Navy ships

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The Navy will award General Dynamics-NASSCO about $3 billion to build six oiler ships in what could evolve into one of the largest contracts in the company’s history.

Thursday’s announcement represents the first of the 17 oilers that the Navy needs to replace aging fuel ships. The entire project is expected to cost about $8 billion. NASSCO will try to win all of the work, and build the 700-foot vessels at its shipyard in Barrio Logan.

The new contract also represents the largest group order that NASSCO has gotten from the Navy since the early 2000s, when it started building 14 dry cargo ships at a cost of $6.2 billion.

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The contract comes as NASSCO rushes to head off an expected drop in business in an industry that’s famous for its boom-and-bust cycles.

NASSCO was operating at capacity last year when it was in the midst of building 10 commercial tankers and container ships. But at least half of that work is now finished, and NASSCO doesn’t have any fresh commercial work on the books. The company also says it needs two years to design the new oiler ships, which will slow production at a yard that currently has about 3,600 workers.

NASSCO will deliver a record six ships this year, a figure that will fall to one in 2017.

“This kind of thing happened when we got to the end of building the (dry cargo ships) for the Navy,” said Kevin Graney, vice president and general manager of NASSCO.

Graney said it will be several weeks before NASSCO figures out how the pressures the company is facing will affect employment at the last major shipbuilder on the West Coast.

The long-term picture appears to be promising, at least as it pertains to Navy shipbuilding. NASSCO specializes in constructing large logistics and support ships like the new oiler.

“Oilers and support ships are essential for the U.S. Navy, which is dedicated to being able to project power anywhere in the world,” said Eric Wertheim, a defense analyst at the U.S. Naval Institute in Annapolis, Maryland. “And NASSCO is very important to maintaining that capacity.

“A lot of the glory goes to surface combatants like aircraft carriers and destroyers and cruisers. But the support ships enable the pointed-end of the spear to do its job.”

NASSCO has tried to diversify, but the Navy still largely views the company as a builder of support ships.

NASSCO made proposals to build the new oilers as well as an amphibious assault ship, or “mini” aircraft carrier. Huntington Ingalls Industries did the same thing, even though it specializes in combatants.

In the end, the Navy awarded the oilers to NASSCO and the $3.1 billion assault ship to HII.

Graney said NASSCO will continue its efforts to diversify. The company is currently chasing new commercial tanker and container ship work, as well as a contract to build ice breakers for the Coast Guard. NASSCO also will compete for a share of LX(R) vessels -- a new generation of Navy dock landing ships.

NASSCO also is expected to benefit from the Navy’s plans to increase the number of ships based in San Diego. There are currently 59 ships homeported here. The figure will rise to 70 within five years as the Navy shifts more hulls to the West Coast. NASSCO and two other local shipyards do most of the repairwork on these vessels.

Defense