Shares of General Dynamics Corporation (NYSE:GD) rose 1.2% on Tuesday following a report that the Pentagon had approved a proposed contract for the company to build nine next-generation attack submarines.
According to the report, Undersecretary for Acquisition Michael Duffey certified that the proposed fixed-price agreement for nine Block VI Virginia-class submarines satisfied applicable legal standards. The certification was conveyed in a letter sent to the House Armed Services Committee on June 29, the report said.
The letter did not state a contract value. For context within the program, the Navy's earlier award to General Dynamics for nine Block V Virginia-class submarines was valued at $22.5 billion. Duffey indicated the multi-year agreement for Block VI submarines would yield roughly $2.4 billion in savings.
The Defense Department is advancing the contract award despite acknowledged schedule difficulties with General Dynamics' prior order for nine Block V submarines. In May, the House Armed Services Committee observed that construction of Block V boats is falling short of the required delivery pace of more than two submarines per year.
Also in May, the Navy granted General Dynamics a $2.6 billion contract to cover parts and pre-construction work tied to the forthcoming Block VI award.
The broader Virginia-class submarine program has seen cost overruns and delays, the report noted, while the submarines themselves are designed to furnish strategic capabilities for the U.S. military.
Context and implications
The certification by the Undersecretary for Acquisition represents a formal step allowing the Pentagon to proceed with the fixed-price contract process for Block VI submarines. While the reported projected savings could affect program budgeting, the decision comes against a backdrop of performance shortfalls on the Block V production schedule and prior program cost and timing issues.
Market reaction to the certification was modestly positive for General Dynamics' shares, as investors priced the news into the stock. The Navy's prior $22.5 billion Block V award and the separate $2.6 billion May contract for parts and pre-construction work remain relevant reference points for assessing near-term program activity.