Bath Iron Works’ new president said last year’s loss of a massive Coast Guard contract was a significant blow but efficiencies and improvements made in pursuit of the bid will better position the shipyard for future Navy work.

“We’re conscious of our need to be affordable,” said Dirk Lesko, a longtime BIW manager who took over as president on Jan. 1. “Our customer (the Navy) reminds us frequently of our need to be affordable. And no matter how well you’ve done or how much you improve, there is always more opportunity.”

Lesko succeeded Fred Harris as president of General Dynamics-owned Bath Iron Works three months after BIW lost the Coast Guard cutter ships to a smaller, leaner shipyard and potentially a year before negotiations begin on the next multi-year Navy destroyer contract.

While BIW remains one of Maine’s largest employers, with a workforce of roughly 6,000, the cutter contract would have supported more than 1,000 jobs in the shipyard. Those positions could be lost absent a major shift in Navy shipbuilding.

“So the program was a big deal,” Lesko said during a recent candid discussion with the Maine Sunday Telegram about BIW’s challenges and future options. “There aren’t all that many opportunities to build the kinds of things that we build, particularly outside of the Navy.”

Of course, the recent shake-up at the White House and in Congress could bring major changes to shipbuilders like BIW.

Both President Trump and Navy officials are talking about the need to increase the size of the Navy fleet from 274 ships to 350 or 355 ships over the next three decades. Sixteen of the 47 additional ships would be “large surface combatants,” meaning cruisers or the guided-missile destroyers built in Maine and Mississippi.

Such a building spree wouldn’t come cheaply or easily. A recent Congressional Research Service analysis put the price tag at an additional $5 billion to $5.5 billion a year – money that Congress would have to appropriate.

For his part, Lesko laughed and said it was “nice to hear” the talk of a 355-ship Navy.

Yet six weeks before Friday’s inauguration, Trump had sent shock waves through the defense contracting community by using his bully pulpit – in this case, his Twitter feed – to pressure Lockheed Martin to reduce the costs of its F-35 stealth fighter jet. Weeks later, the head of Lockheed Martin emerged from a meeting with Trump to say they were working to lower costs. The F-35 program also directly employs nearly 1,000 workers in Maine.

Dirk Lesko, the chief executive at Bath Iron Works, said that the yard has to stay vigilant about controlling costs, but he believes BIW has a good chance to capture more defense contracts to build Arleigh-Burke destroyers like the Rafael Peralta, above, seen last year. The shipyard is the fourth-largest private employer in Maine.

“It would be impossible to be in the business that we are in and not worry about that,” Lesko said when asked about political pressure to reduce previously agreed-upon costs. “But I will also tell you that, from what I see, we have an opportunity to improve. And some of that opportunity comes from … the fact that the Navy is building the DDG 51 (destroyers).”

PREPARING FOR THE UNKNOWN

BIW currently builds two types of destroyers: the Arleigh Burke-class DDG 51 guided-missile destroyers that have been the workhorses of the Navy fleet for decades, and the stealthy, Zumwalt-class DDG 1000 destroyers. Arleigh Burkes run the Navy about $1.7 billion apiece while each high-tech Zumwalt exceeds $4 billion.

The Navy commissioned the first Zumwalt in October, although the ship has also had some engineering problems not uncommon for first-of-its-class ships. Two more Zumwalts as well as four Arleigh Burke-class destroyers are at various stages of construction in Bath.

The shipyard has an annual payroll of $400 million and does $60 million worth of business with subcontractors in 12 Maine counties. Yet decision-making at the Navy during the past 15 to 20 years illustrates the challenges facing BIW and other defense contractors.

The Navy’s shift during the early-2000s from Arleigh Burke destroyers to the larger-yet-stealthier Zumwalt destroyers forced BIW to switch to a “revolutionary program” that created both opportunities and considerable uncertainty.

Rather than continuing to build a ship that had been BIW’s bread and butter for several decades, the shipyard was building a ship “from the ground up” with all new specifications, technologies and new skill sets for workers. As shipyard workers retired, they were replaced with new workers trained in how to build the Zumwalt.

But a combination of factors – including shifting global geopolitical dynamics, particularly in Asia, as well as changing weapons technology and skyrocketing costs – prompted the Navy to whittle down the planned number of Zumwalts from more than 30 to just three ships.

At the same time, the Navy revived and upgraded the Arleigh Burke or DDG 51 line, forcing yet another major shift at BIW and Ingalls Shipbuilding in Pascagoula, Mississippi.

“You won’t find anyone who is not excited that the Navy is building DDG 51s. We really love building DDG 51s in Bath,” said Lesko. “But stopping or transitioning back out of the building of Zumwalts … and taking a step into the past is not perfect. So we have spent a lot of the last three years trying to find ways that we think we did better on the DDG 1000 and fit those affordably back into DDG 51.”

The most recent Navy contract for Arleigh Burke destroyers awarded five ships each to both BIW and Ingalls Shipbuilding.

That even-split nearly didn’t happen, however, because Bath’s per-ship price was significantly higher than the bid from the Pascagoula shipyard.

BIW is also in the midst of lengthy negotiations with the Navy over an additional destroyer that BIW and Maine’s congressional delegation said is owed to Bath under a complex, decade-old “ship swap” agreement. The two sides have been haggling since May over the price tag and whether the ship will be the first of a new, upgraded version of the Arleigh Burke.

POTENTIAL FOR ICEBREAKERS

There has also been talk – led, at times, by Maine Sen. Angus King – about the need for additional Coast Guard icebreakers to better position the U.S. militarily and economically as regular shipping routes open in the melting Arctic. The Coast Guard has only one operational heavy-duty icebreaker capable of deploying to the polar regions. Russia, by comparison, has more than three dozen polar icebreakers, with more under construction.

Lesko said BIW is “carefully looking at it” but acknowledged that building icebreakers would be a “technical challenge” because their hulls and other specifications are so different from that of a Navy destroyer. BIW would likely have to make hefty investments in its shipyard, which is designed specifically for destroyers.

“But if there is a fleet of icebreakers, that is different from just a couple,” Lesko said with a laugh.

In the meantime, he and other BIW managers are gearing up for the next large, multi-ship Navy destroyer contract.

Lesko’s predecessor, Harris, won several hard-fought contract concessions from BIW’s largest union, the Local S6 chapter of the Industrial Union of Marine and Shipbuilding Workers of America, as the shipyard competed for the Coast Guard cutter contract.

The potential $10.5 billion contract went to Eastern Shipbuilding Group in Florida, a non-union company with no prior experience building military ships.

Harris announced his retirement from BIW and another General Dynamics shipyard, NASSCO, two months later.

Lesko said those negotiations “helped to position us” for the next bid, as have changes in early-stage construction that are improving their on-schedule delivery record and quality.

“I see us making progress,” Lesko said. “In the end, whether or not it’s enough progress has an awful a lot to do with what level of progress (Ingalls Shipbuilding) makes and what choice they make in terms of how they will bid for that work. But I can tell you we are not sitting still.”

He added that the shipyard’s skilled workforce, union leaders and management are all working toward the same goals. The trick, he said, is getting “everybody lined up and pulling in the same direction at the right time.”

“The culture of the shipyard is one of its greatest strengths,” he said. “I don’t think there is anybody who works there that isn’t interested in doing well or improving, and isn’t fiercely proud of what they do or what they contribute to the end product.”