TD Cowen analyst Roman Schweizer highlighted that Congress agreed to a Continuing Resolution (CR) that will fund the U.S. government through March 14, 2024, and includes $100 billion in emergency funding. Despite some opposition from the House Freedom Caucus, the bill is expected to pass. It allocates $5.7 billion in emergency funds for Virginia-class submarines and authorizes funding for the Columbia-class submarine program during the CR period. This funding is intended to cover additional non-executive labor costs through 2029.
The House and Senate reached a consensus on a complex package combining a CR and emergency funding, which includes provisions for the Navy's two critical submarine programs: the Virginia-class attack submarine and the Columbia-class ballistic missile submarine. This move is seen as favorable for the programs and their primary contractors, General Dynamics (NYSE:GD) and Huntington Ingalls (NYSE:HII).
The legislation grants the Navy $5.9 billion in CR spending authority for Advanced Procurement (AP) for the Columbia-class program and $2.9 billion for its construction. This amount surpasses what the Office of Management and Budget (OMB) had requested. OMB had sought this authority to prevent "construction and delivery delays of up to 20 months for strategic ballistic missile submarines 828 through 837."
Additionally, the bill provides $5.7 billion in new emergency spending for the Virginia Class Submarine program, which will be used for workforce wage and non-executive salary improvements across various nuclear-powered vessel programs. The Fiscal Year 2025 National Defense Authorization Act (NDAA) also allows the use of incremental funding for submarine labor. The OMB had requested these funds to ensure the procurement of two FY 2024 Virginia-class submarines, one FY 2025 Virginia-class submarine, and enhancements to the Submarine Industrial Base, including wage increases at the shipyards. Without this funding, the Department of Defense (DOD) would lack the necessary resources to sign contracts for these submarines and to support wage increases, as well as other critical aspects of the Virginia-class program during the CR period.
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