WASHINGTON – While market pressures have been discouraging companies in the defense sector from making long-term investments in favor of initiatives that can help boost their share value in the short-term, Mike Petters, chief executive of Huntington Ingalls Industries Inc., on Wednesday insisted that he was committed to taking a a longer-term view.
During an event at The Atlantic Council in Washington, Petters said that his unique position as a shipbuilder necessitated that he take a longer view, since the ships he is building will be in service for up to 70 years after delivery. He added that part of his determination to focus on the future has led his company to start investing in a range of new businesses in the energy sector.
One of the biggest was the May 2014 acquisition of Universal Pegasus, an oil and gas exploration company with 1,000 in its roster.
Petters warned that defense companies haven't always had happy experiences investing in commercial companies, but given the defense market today, it is becoming a necessity in order to both raise shareholder value in the short term, while keeping the company viable in the long run.
"My [shipbuilding] business for the last 30 years has been focused on process" he said. But "we're looking at a Pentagon that's going to move to a more competitive environment, and it's going to move to an environment where commercial standards are going to come more into play." He wants to bring the culture of the oil and gas industry into his business.
He added that when defense companies invest in the commercial sector and it doesn't go well, "it's because the defense company went in and said, 'You know, because I can build aircraft carriers I can do anything else' ... we're avoiding that." His approach is to allow the companies Huntington acquires "to continue to be successful" in their own space.
In making more commercial investments, "we will bring our shareholders along at an appropriate pace and continue to think though if there are those kinds of investments that creates value that was not there otherwise."
But his defense work is still at the top of Petters' agenda.
He rattled off a list of major potential work between now and 2020: The company has to finish work on CVN 78 USS Gerald R. Ford, and "we've got to get a contract for CVN 79, there's probably a long-lead contract in their for CVN 80, there's a refueling contract for [USS George Washington], the next block of submarines needs to be done, the amphib LPD 28 needs to happen ... and there's a competition for destroyers."
But there is always the potential to become sidetracked by focusing too much on short-term dividends for shareholders.
"You can buy back shares, raise your dividend, you can do lots of stuff that will actually affect the perceived value of your company, but they're not investments that are creating new value inside your business," he said. "That's an environment that we're all struggling with now." ■
pmcleary@defensenews.com
