Navy shipbuilder defends subsidy for post-Katrina repairs

Northrop Grumman's top shipbuilding executive on Tuesday defended asking for emergency supplemental appropriations to pay for ship repairs at the firm's Gulf Coast yards damaged by Hurricane Katrina, arguing that failure to do so would have serious repercussions for several Navy projects.

If Congress does not appropriate the money, ship production could be delayed as long as a year, potentially driving up costs by as much as $500 million, Philip Teel, president of Northrop Grumman's Ship Systems business, told reporters at a news conference. The company's three Mississippi and Louisiana yards have under construction 12 ships from five different naval classes, including the DDG 1000, formerly known as the DD(X) next-generation destroyer, and the LPD-17 amphibious transport dock ship.

The company estimates the storm caused $2.35 billion in ship and infrastructure damages at its Gulf Coast facilities. Of that, Northrop Grumman would like to tap $200 million out of up to $2.7 billion in appropriated funds for the Navy for Katrina-related damage, depending on the outcome of current House and Senate conference negotiations.

But critics say the money amounts to corporate welfare and a bailout for one of the country's top defense contractors that could ultimately reach $500 million. Teel, who took over the ship business last year, stressed that costs would not top $200 million, and may be as low as $140 million. And Teel said the money would only cover repairs to damaged ships, which the firm regards as government property.

The company also intends to reimburse the Navy if the firm receives payment on its outstanding insurance claims, Teel added. But Northrop is wrangling with its insurer over Katrina damage costs -- a process that could take two to five years.

Last week, Senate Appropriations Chairman Thad Cochran, R-Miss., successfully pushed through a provision in the Senate's version of the fiscal 2006 emergency supplemental that would tap the Navy shipbuilding funds for repairs at the three Gulf Coast facilities. Northrop is the largest manufacturing employer in Mississippi -- Cochran's home state -- and Louisiana.

But the language was vigorously opposed by fiscal conservatives, including Sen. Tom Coburn, R-Okla., who introduced an amendment to strip the provision from the bill. The amendment failed, 52-47. Meanwhile, House appropriators, the White House and the Navy have opposed any direct subsidy to Northrop Grumman.

Indeed, supplemental funding would run counter to normal acquisition and contract laws, which stipulate that contractor cost increases are not covered by the government.

That provision is "valid in normal and standard times," Teel said. But the company is "asking for an unprecedented change -- one time," he added. Teel also emphasized that the $200 million would pay for repair to government-owned ships and other equipment.

The House and Senate are beginning conference negotiations on their vastly different bills this week. The House remains opposed to the $109 billion Senate supplemental bill, which totals $14.5 billion more than the president's request and $17 billion more than the House's version.

President Bush has said he will veto the bill if it totals more than $94.5 billion.