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#Well, <UNK>, we are going to talk about this at some length on Tuesday.
Let's just say that I still think there are a lot of capability in our Business and there are customers out there that need it.
And so, to trying to find the right business arrangement that allows that kind of access to happen, is something that we believe needs to happen.
And so, like I said, we will talk on Tuesday a lot about who we think those customers are, and how we plan to kind of think our way through that.
But, yes, I still think it's important for this Business to not be so focused in on one single customer and one single approach.
Because frankly, there are a lot of people out there who do a lot great things, and that we can learn from.
And we do a lot of great things that they can learn from us, and so that's what's going to I think, ultimately create more value in this Business.
Well, I think the ---+ if you take a look at this business over the next 5 or 10 years, the single most important issue in front of the industry, not just us, but the industry, is how is the Navy to pay for the Ohio replacement program.
If that money, if the money for that program is going to be paid out of the traditional shipbuilding account, at the traditional levels, then a lot of other programs are going to be affected.
On the other hand, if there is way for that program to be funded, either outside of the shipbuilding account or above the shipbuilding account, then you have a chance for the industry to remain healthy in support of all of these programs that the Navy needs.
And so, when I step back ---+ there is probably a lot of things.
We've done some technology investment in undersea warfare.
We bought a undersea systems group that brought some technology to us, and we're interested in those kinds of things.
And you can stack all those programs up, but at the macro level, the most important issue facing the industry today is, how is that Ohio replacement program going to be funded.
It has to be done.
Its a national priority.
I am a little biased, I was a boomer sailor myself, when I was back in the Navy, but it is something that the nation is going to do.
And so, the question is now, how do you do that, and still do all of the other things that we need to be able to get done.
Good morning.
Right.
Well, what we did on this chart, is we assume that FAS and CAS move equally.
So we probably should have footnoted that on there.
So when you think about it, when the discount rate goes up, your expense goes down.
So well, that's the nuance here.
We just assumed that FAS and CAS move equally.
Yes, that's a really good question.
It's sometimes disconcerting to see the challenge for the businesses that are so capital intensive, to be in a second tier of margin relative to some of the other programs in the Business.
But when I step back, and think about why that is, I think that there is probably two things that don't get a whole lot of attention.
One is, a lot of those businesses that are at higher margin, they have actually done some of the same things that we do.
They are in serial production of their product, they just have lots of products.
And so, even in shipbuilding, where we are able to get into serial production in our programs, we are able to drive our margins, and drive our investment plans to perform very well.
The challenge that this Company has is that, a significant part of our Business is not really ---+ doesn't really allow for serial production.
I mean, serial production in aircraft carriers is ---+ yes, I mean we optimize that, if we can be build them three or four years apart, but that's not the way they are being bought right now.
And so, that create risk in the program that doesn't exist if you are producing hundred planes or an assembly-line kind of operation.
So that's one part of it.
But the other side of it is, that the capital investment that we make in our Business has a much longer life I think, than the capital investment that gets made in some of those other businesses.
These great companies that build these high-performance platforms for the Department, they are inserting technology in their assembly lines, and into the product, and they are making that investment, and they are getting that return because they have multiple products, they are getting that return pretty fast.
For us, we are make a pretty substantial capital investment in our business that's going to play out over the next 25 years.
So there is a pace to this business that's a little bit different.
And as a result, I think that our customer is able to go, and say, here is where I want to go over the next 30 years.
30-year plans change sort of the risk profile of the industry.
And so, I think all of those things, sort of conspire together to create a situation where the healthiest part of our business ---+ the healthiest business for us is in the 9% to 10% range.
We are certainly going to have quarters where we are above that, and we're going to have quarters where we are below that.
But I think that over a 30-year period, if a shipbuilding enterprise operates in the 9% to 10% range, that's a pretty good business.
(laughter) I am not saying it's impossible, that the future you will see a large pickup, or a pickup to that extent.
But Ingalls, like we said, is doing very well, all the ships are performing very well.
We have a very methodical approach to risk retirement on all our ships, both at Newport News and at Ingalls.
And this just happened to be some contract changes, completing a couple things on LHA 6 that gave us a nice little pop there.
It was a conservative assumption.
Really, when you think about this, not only is it the expense side, but it's really moves the liability side, and that's really when you want to see the discount rate go up for.
Yes, I would point out <UNK>, that overly was your word, not ours
Well, I think in the macro, that's certainly one possible future for us.
I mean, our targets are to keep both of our business in the 9% to 10% range.
The challenge that Newport News has right now is, not only do they have those three carrier deliveries, but they are all cost type work.
And so, that's a little bit ---+ just the contract types are off-balance for them, as to where they normally are.
The normal carrier construction is a price type contract, as opposed to a cost type contract.
And so, there is a little bit of imbalance in contract type at Newport News that they are going to be working through, at the same time that they are working through these three contact deliveries.
And so, that's a little bit ---+ in my experience, that's a bit unusual for them, and that's going to put some pressure on them.
We've got a great team there, and they are doing what they need to do, and we've some good targets for them.
But in the aggregate, I think it's fair ---+ you've got a good point.
If you step back and look at the entire shipbuilding business in aggregate, we certainly believe that we are going to be in that range for as far as we can see.
Right.
So certainly, when you are at this point, where we are reducing headcount at Newport News, that's going to have some effect have some volume on Newport News.
But as I've pointed out, Newport News ---+ if you step back and look at this over a 5- or 10-year period as we look at, they have in my view, they have the brightest future of any of the businesses in industry, because the demand for the products that they have out there is higher.
It's making headlines.
And so, there is a build up of the demand for the work that Newport News is doing.
And it's just we've got to get through this kind of end phase of this last cycle, the new class of ships, the inactivation, and the delay that we saw in the refueling, that we've got to work that turbulence to get to, the beginning of that future.
And so, if you go out over five years, I think Newport News is going to be in great shape.
At Ingalls, I think it's little bit different in that things are going really great there right now.
We've got four different classes of ships under construction in that shipyard.
But if you looked down the side line of each of those classes, you start to see that that follow-on programs are where all the risk is going to be.
We're at the end of the LPD program, for instance.
And so, the decision to bridge from the LPD program to the LXR program via LPD-28 is a huge decision for Ingalls, and it does create some stability going forward, assuming the LXR program can be accelerated.
And as we've talked about before, the LXR program is going to be, I think tied to what happens with the Ohio replacement program.
So these things are all intertwined.
The destroyer program at Ingalls, I think, is in reasonably good shape going forward, in terms of the outlook for destroyers.
The large tech amphibs, we are building the seven today, and we will be competing ---+ we're in a competition for the eight going forward, with the LHA 8 and the TAOX, and so that needs to get settled.
But then the question is, what happens after that.
And then the NSC, we are building six, the program of record was for eight.
There is talk of a ninth one, so that's playing out there.
There is a discussion of a icebreaker out there, that is in there.
So Ingalls, it's a little bit harder to pin down where Ingalls is going to be in 5 or 10 years, than it's to pin down Newport News, and a little bit more dynamic environment at Ingalls.
And it's ---+ a lot of their success in the future depends on how well they do the work they're doing today.
And we are very, very pleased with where we stand.
Yes, I mean, that's a good question.
I am less concerned with the mechanism for the funding.
The legislative branch has created a mechanism for the funding.
I think that the Department of Defense is thinking about whether that's the right mechanism, or if there is another way to do it, or do we just bring it back into the shipbuilding account.
I think what matters here is that you fund the design, and you fund the early lead time procurement ---+ you fund that on time.
If you ---+ we have seen ---+ excuse me ---+ we have seen over and over and over again what happens when you get yourself in a place where you need to move into production, and the design is not done, or the suppliers are not sorted out.
And so, I think what matters right now is that we keep the funding profile for the design and the early procurement, because that's going to set the stage for early success in that program.
And that's going to be ramping up over the next few years, and it's a pretty healthy requirement to keep that program on track.
You bet.
Well, I want to thank everyone again for joining us on today's call.
And I want to wrap up, by making sure that you know, that you can still sign up to come to our Investor Day, either in person or via webcast next Tuesday, starting at 8:30 Eastern standard Time.
Just go to our website, click on the Investor Relations page, follow the Investor Day link, and you can register and be part of our discussion on Tuesday morning.
We really appreciate your interest in our Company, and we look forward to seeing you.
Thanks.
