Shipbuilding, Shareholders, and National Asynchronization

priority alignment and options

Pick a time, any time, in the last dozen years that there wasn’t a clear bipartisan agreement that this nation needed a Navy to match the strategic challenge on the other side of the International Date Line.

From President Obama’s Pacific Pivot 14 years ago, to the Davidson Window, to Trump-45’s 350-ship Navy, to the Trump-47 re-focus on the Pacific. It is all right there.

Where a bit under a century ago, in the midst of a global depression, those in Congress and industry saw the same threat for their time, and in 1936, they turned into the wind so by the time war was upon them a half decade in the future, they already had a head of steam going to bring the fleet in early 1943 to win that war in under four years.

Here we are, in 1QFY2026, wondering where the sense of urgency is.

What money are we spending? Well, the Fiscal Year 2026 defense budget allocated $47.4 billion for naval shipbuilding. The total funding is a combination of two separate pieces of legislation: the regular defense budget and a separate reconciliation bill.

You would think such largesse would build a fleet, but will it? Will all that money coming from taxpayers and money borrowed in the name of children yet unborn go towards the capital improvement and human capital needed to expand the fleet?

Will it? What does recent history tell us?

Just to keep things simple, let’s look at destroyers, aircraft carriers, and submarines.

The US Navy is building DDGs at a rate of about 1.5 per year, although its goal is to procure two per year through a multi-year contract. I’ve heard recently that it is drifting towards 1.2 per year. Regardless of how much money we give them, we are told, the current production is lower than the goal due to industry challenges like skilled labor and supply chain issues.

If you assume that each DDG will last 30 years and take the higher 1.5 number, then you will never get more than 45 “large” surface combatants. If we can stretch to 35+ years, perhaps a bit more. If we drift below 1.5, no way.

What does the latest 30-year shipbuilding plan promise us?

I’m sorry…but with our accepted practice of overpromising and underdelivering, we are unlikely to effectively get to 50, much less 64, unless we make the financially unwise drive to get 30+ years out of our already ridden-hard Flight I, II, and IIA DDGs. Arleigh Burke Hull-1 is still commissioned at 34 years—so we will need to stretch service time as much as possible. Keep in mind, like an old car, your maintenance costs are significantly higher the higher the mileage, not to mention you never know when something will just wear out.

That doesn’t even bring in the usual and expected delays with the new DDG(X) that we all know will be there as a new warship class. Heck, we can’t even keep up with building a ship designed in the last decade of the Cold War, the Arleigh Burke DDG. Our new designs?

Currently, many Navy shipbuilding programs are experiencing schedule delays and cost growth. In early 2024, the Navy conducted a shipbuilding review that showed many programs were behind schedule. The review specifically highlighted the following ships, which have been delayed by varying amounts:

• The Ford class aircraft carrier CVN-80, the Enterprise, 18 to 26 months;

• The first Columbia class ballistic missile submarine, 12 to 16 months;

• The Virginia class attack submarines, 24 to 36 months; and

• The first Constellation class frigate, 36 months.

If you’re not cynical about these numbers, you’re a fool.

If you think defense companies are primarily focused on ensuring a properly resourced Navy, you don’t understand how business works. Sure, some employees think they do, but do the corporations as they are presently allowed to operate? No. If they did, you’d see the money going to that end. It isn’t.

Let’s dig into an example from industry.

(NB: These are the best numbers I can find. If you spot errors or have corrections, please put them in comments with links and I will do a rolling edit. Some of the amounts listed below are estimates as exact total amounts are not publicly available because they depend on the company’s total number of outstanding shares, which can fluctuate.

For a specific company, the total dividend paid is calculated by multiplying the per-share dividend amount by the total number of shares outstanding at the time of payment.

For a precise total, you would need to check companies’ investor relations or financial reports. At no point is any of this investment advice. I do not directly own stock in any of these companies. However, as someone with a TSP account and various ETFs in my portfolio, I do indirectly. I am not advising anyone to buy, sell, short, or cover any of these companies and I encourage everyone to do research themselves. Don’t sue me.)

The Shipbuilding Big Sisters

The top shipbuilders for the U.S. Navy are the publicly traded companies Huntington Ingalls Industries (HII), which builds aircraft carriers, submarines, and surface combatants, and General Dynamics (GD), which operates through its subsidiaries Electric Boat for submarines and Bath Iron Works for surface combatants. General Dynamics NASSCO is also a key contractor, focusing on auxiliary and support ships.

The vast majority of their gross income comes from the U.S. government.

• According to HII’s 2024 Form 10-K filing, of the company’s total revenues were $11.535 billion. Of this amount, $11.527 billion (99.9%) came from U.S. federal government contracts. The remaining $8 million (0.1%) from commercial and state/local government customers.

• According to GD’s 2024 Form 10-K filing, the company generated total revenues of $47.716 billion. Of this amount, $33.064 billion (69%) came from the U.S. government. $4.772 billion (10%) came from non-U.S. government sources, and the remaining $9.880 billion (21%) came from commercial customers.

We are picking these two because they are the two top dogs. Nothing personal here. There are great people working there doing great things, but that isn’t the point. The point here is to help explain part of the problem we are seeing growing the fleet. The problem is multi-causal, but what we will outline below is a sea-anchor on the whole program.

Incentives and disincentives—and again—follow the money.

What is the one thing we constantly hear from industry about the problem with meeting shipbuilding goals? It is people, trained shipbuilders, right?

Really? If HII and GD are in the business of national defense—and as a result directly responsible for ensuring the defense of their host nation, then you would think that there would be a priority of money going towards creating the incentives to grow the trades in shipbuilding, to make working in the shipbuilding industry more attractive to the most talented people in the workforce.

Note above I have hyperlinks to the stock pages of HII and GD. These are publicly traded companies. Never forget, they have a fiduciary duty to their shareholders.

One example of fiduciary duty is the underlying responsibility of the directors and officers of a corporation to act in the best interests of the shareholders. To become a shareholder, the holder of the share typically exchanges something of value to obtain a share of ownership in the company. Once the exchange has been completed, the directors of a corporation must operate the corporation in a way that meets the financial interests of the shareholder. Any deviation from those duties can result in legal action from the shareholders.

Could you make the argument that injecting money into training and salary to attract workers would fit this definition? Well…no.

Follow the money. Look at what the leadership teams at HII and GD are directing to meet their definition of fiduciary duty. These are their decisions, their priorities. Agree or disagree, but they impact the larger question, “Are the primary shipbuilders’ priorities fully in line with preparing the nation for war against the People’s Republic of China? If they get more money from the US government, where will it go?”

As the primary owners of the companies, who are the top shareholders that are driving corporate decisions?

HII

• Vanguard

• Fidelity

• Blackrock

• State Street

GD

• Longview Investments

• Vanguard

• Blackrock

• Newport Trust

Let’s look at buybacks and stock dividends as proxies to this quandary between what national security professionals think our nation’s top shipbuilders should be focused on and investing capital in, and what Vanguard, Blackrock, and their cohorts desire.

Companies perform stock buybacks and increase dividends as ways to return value to shareholders (fiduciary duty). Often when they have excess cash but lack productive opportunities for reinvestment, companies will do this.

That is the theory. How it is playing out in practice? Note the “productive opportunities” point above. Leadership has to, in essence, look around and say, “Hey, we have this pile of money here. If you don’t have anything better to do with it, let’s use it to boost stock price.”

In the face of the need to expand capacity, are the incentives and disincentives for HII and GD there to motivate them to lean in to get ready for the next Great Pacific War? Do they see that is a “productive activity?”

It appears not.

I’ve dug around some financial statements and have asked AI to help me dig out some figures. The note about corrections up-post applies.

Buybacks

Buybacks help inflate the price per share of a stock for existing shareholders. They increase demand (the buyback) and decrease supply (retained shares). Econ 101.

HII

Since 2023, HII has had quarterly stock buybacks totaling $247.16 million across seven reported periods. The company also increased its share repurchase authorization by $600 million in January 2024.

HII quarterly stock buybacks since 2023

• Q3 2024: $35.35 million

• Q2 2024: $64.69 million

• Q1 2024: $86.94 million

• Q4 2023: $36.74 million

• Q3 2023: $22.62 million

• Q2 2023: $7.49 million

• Q1 2023: $20.37 million

In January 2024, HII announced a $600 million increase to its share repurchase program, raising the total authorization to $3.8 billion. The company’s goal is to return free cash flow to shareholders at a time when everyone is pleading poverty for qualified workers to expand capacity.

How many more workers could be brought to, or retained in, HII alone for $247 million over the last few years, and $600 million in the future?

How do you square that circle? I can’t.

GD

GD has completed eight stock buyback programs since 2023, with quarterly buyback values listed as of March 31, 2023, and all subsequent quarters through June 30, 2025. For the full year 2023, the company repurchased $434 million in shares and authorized an additional 10 million shares for repurchase on December 4, 2024.

The GD stock price as of my writing this is $334.39 per share. GD has 269 million shares outstanding. 10 million shares represents $3.34 billion.

GD quarterly buyback data since 2023

• Q1 2023: $125.33 million

• Q2 2023: $290.13 million

• Q3 2023: $56.93 million

• Q4 2023: $149.54 thousand

• Q1 2024: $160.18 million

• Q2 2024: $36.84 million

• Q3 2024: $44.39 million

• Q4 2024: $1.33 billion

• Q1 2025: $639.10 million

• Q2 2025: $2.91 million

Dividends

Everyone knows what dividends are. Sharing profits with shareholders. Also works hand in glove with buybacks. Fewer outstanding shares eligible for dividends, then more dividends per share.

HII: 39.24 million shares outstanding with a market price as of this writing of $287.90.

From the beginning of 2023 through late October 2025, HII has paid $5.23 per share in dividends. This total is based on quarterly payments of $1.24 (Q2 and Q3 2023), $1.30 (Q4 2023, Q1, Q2, and Q3 2024), and $1.35 (Q4 2024, Q1 and Q2 2025). The total amount of dividends paid in this period varies, as it depends on the number of outstanding shares at the time of each payment.

Per share dividend payments (2023 - late October 2025)

• Q2 2023: $1.24 per share (paid May 25, 2023)

• Q3 2023: $1.24 per share (paid August 25, 2023)

• Q4 2023: $1.30 per share (paid December 8, 2023)

• Q1 2024: $1.30 per share (paid March 8, 2024)

• Q2 2024: $1.30 per share (paid June 14, 2024)

• Q3 2024: $1.30 per share (paid September 13, 2024)

• Q4 2024: $1.35 per share (paid December 13, 2024)

• Q1 2025: $1.35 per share (paid March 13, 2025)

• Q2 2025: $1.35 per share (paid June 13, 2025)

• Q3 2025: $1.35 per share (paid September 12, 2025)

GD 269 million shares outstanding with a market price as of this writing of $334.39 per share.

Since the start of 2023, General Dynamics paid out $5.30 per share in dividends and $1.4 billion in total. The per-share amount is based on four quarterly payments of $1.32 in 2023, and four quarterly payments of $1.42 in 2024.

Per share

• 2023: Four quarterly dividends of $1.32 each, totaling $5.28 per share ($1.32 x 4).

• 2024: Four quarterly dividends of $1.42 each, totaling $5.68 per share ($1.42 x 4).

People Matter

I have to be careful not to dive too deep into HII and GD’s books and I want to talk next about workers. I could spend a month on this topic alone.

As much as I’d like to pontificate on executive compensation, I’ll leave that to someone else. I am interested in what we’ve discussed here for two decades and a decade and a half on the Midrats Podcast: the people who actually build the ships.

If people are in such high demand, are we putting our money where our mouth is? Are we doing what is needed to bring people into the trades?

ZipRecruiter states that the average shipyard worker makes $24 an hour, though other sources say it is $21 an hour. Let’s assume the higher number. Depending on what state you are in, that is just a little under the average manufacturing job. That hourly rate (assuming no overtime) is pulling in roughly $51,000 per year.

With a $51,000 annual income and a good credit score, you can likely afford a house in the $150,000 to $200,000 range, depending on your debt-to-income ratio, down payment size, and local interest rates. A 20% down payment on a $150,000 house would be $30,000, and on a $200,000 house would be $40,000.

The median sales price of a single-family home in the USA is $410,800.

An HII shipyard worker is paid an average of about $26.78 per hour. However, HII hourly pay varies significantly by role, with some positions like welder earning around $22.46 per hour, while others like pipe welders can earn significantly more.

Huntington Ingalls Industries hourly pay

• Average hourly pay: $26.78

• Range: $18.79 to $37.67 per hour

• Welder (average): $22.46 per hour

• Pipe welder (average): $28 to $30 per hour

Average U.S. shipyard worker hourly pay

• Average hourly wage: $21 per hour

• Average annual salary: $43,248

GD shipyard workers are paid above the national average hourly wage for similar roles, which makes sense considering where some of their facilities are located.

• Shipfitter: The average hourly pay is approximately $30.32.

• Manufacturing Technician: The average hourly pay is approximately $23.29.

• Rigger: The average hourly pay is about $26.47.

• Welder: The average hourly pay is approximately $30.33.

• Electrician: The average hourly pay is around $23.14.

It’s important to note that pay can vary based on the specific GD subsidiary, the specific role, and location.

Let’s be generous. We are only offering 1.2X the running wage for shipbuilding…a hard, uncomfortable, and often more dangerous job compared to other manufacturing jobs, and we wonder why we can’t get young people to get in line to do the work?

What multiple would be needed to get the proper response needed to get workers? 2X, 2.5X, 3X, … 4X?

How much more could salaries be increased if the money spent on stock buybacks were instead spent on increasing wages?

At the wages they are being offered, they cannot even buy a home that is half the national average?

Well, we know shareholders are making a lot of money. All that “extra money” from the government is going to them, not attracting and rewarding workers.

What about senior management?

Leadership Priorities

I’ve always found proxy statements useful in seeing what companies have as their priorities for leadership. People matter as they are the ones who are making the decisions.

Let’s start with HII’s latest proxy statement.

Well, there you go. When it comes to the skills HII is looking for in its directors, “Shipbuilding” is tied for last with HR.

Let’s see if we find anything better in GD’s proxy statement.

Not much better. Fun word count exercise though. “Shipbuilding” is mentioned once in the proxy statement. “ESG” is mentioned three times. “Diversity” 11.

By comparison, HII’s proxy statement mentioned “Shipbuilding” 55 times, “ESG” four, and “Diversity” 3.

Future Imperfect

So, now what? Well, at first glance, I’m not sure throwing more money at the Big Sisters is going to move the needle the way we want it to without a multi-year effort to bring in new governance that has different priorities reflecting different incentives and disincentives. I don’t even know if that is possible.

HII and GD are in an industry where there is really only one buyer, the U.S. Navy. They are working in a monopsony industry with side gigs. Microeconomic theory tells us that in a monopsony, the single buyer has market power over all sellers as the only purchaser of their good or service. Does it seem that the US Navy and the government it serves is exercising any of the power it has, in theory, to shape what HII and GD are doing with the billions of taxpayer dollars they are giving? Again, I don’t know if that is possible.

Well, while they figure that out, perhaps we need to stop sending those big shipbuilders more money than they seem to be able to handle. They are not the only game in town.

Our Navy has other needs. We are woefully short of all sorts of auxiliaries, big and small—the “Unsexy but Important”. From large hospital ships, to fleet oilers and strategic sealift to keep the fight going in WESTPAC, and a whole fleet of CONSOL tankers to replace the lost capacity of Red Hills.

I’d really love an industry wargame where we ask the question, “What if we divert most of the additional money to other shipyards besides HII and GD? Clearly they don’t need additional money to support fleet growth. Eventually they will run out of stock to buy back.”

That would be fun, but backing out to the big pixels and returning to the workforce, we need a change in attitude.

We need to stop looking at the workforce as an expense for a McKinsey consultant squeezing every last penny out of it. No. We need a mindset change.

The workers are the foundation of the fleet we need to have. We need the best possible out there. Will there be a marginal increase in expense? Sure…but is cheaper better?

We need an attitude towards the workforce that the best bourbon makers have towards corn. Listen to the below about #2 Yellow Dent Corn. Get the vibe?

The Navy and the Shipbuilding industry need a combination of a Henry Kaiser and Gary Hingardner from Wood Hat Spirits.

We only take the hearts. We make our cuts tight. We get three proof gallons in a bushel. There’s five fifths in a gallon so we’re looking at 15 fifths out of a bushel of corn, and if corn is five bucks, it’s not, it’s below that today, and you get 15 bottles of whiskey, your corn cost is less than the stopper. It’s half the price of the label. The main ingredient. It’s crazy it’s so cheap. We could be spending more money on our corn and not affect their bottom line at all.

He pays more for what makes the real difference to the end product…and it isn’t all that much per product to do it right.

That is the attitude of a founder/owner who knows his mission and what is important at the end. He’s not an accountant only interested in fractional cents more per share.

In the long run, if we want to fix shipbuilding, we need to fix industry. In the short run, perhaps we should look at finding other companies in the industry who are more focused on getting things that displace water, in the water.