On Friday, December 5, 2008, Mike Petters, Corporate Vice President and President, Northrop Grumman Shipbuilding sector, addressed the Virginia Manufacturer’s Association's Virginia Industry Leadership Forum in Williamsburg, Va. Below are his remarks.

Energy and the Future of World-Class Manufacturing Investments in Virginia

I’d like to thank the Virginia Manufacturer’s Association for inviting me to speak at this conference. I think forums like this are very important as they enable business and government leaders to come together, share challenges, and explore solutions that are applicable to any of us involved in manufacturing – solutions important to the continued economic viability of our state and our individual business enterprises.

As a business leader, I often speak about what I believe are the main challenges facing the Commonwealth of Virginia in maintaining its manufacturing base. I consistently talk about the need for Virginia to focus on three areas – transportation, energy and work force development. So you probably won’t be surprised when I tell you that these are the three things I’m going to cover today with more emphasis on the last two – energy and work force development. And then I hope to have time for your questions.

First, however, I’m going to tell you a little bit about Northrop Grumman Shipbuilding.

Northrop Grumman Shipbuilding is one of the seven sectors of Northrop Grumman Corporation, the third largest defense company in the world. Of those seven business sectors, four of them have huge footprints in the state of Virginia. Shipbuilding is made up of shipyards in Newport News, Virginia; Pascagoula, Mississippi; and New Orleans, Louisiana – with nearly 40,000 employees.

Also located in Virginia are Technical Services in Herndon, Information Technology in McLean and Mission Systems in Reston. There is also a sector, Integrated Systems, located in El Segundo, California and the Electronic Systems sector is located in Baltimore.

Northrop Grumman Shipbuilding builds nuclear-powered aircraft carriers and submarines, and surface combatants and amphibious assault ships for the US Navy – as well as cutters used in Homeland Security for the US Coast Guard. We are the Navy’s largest supplier and the Navy is our biggest customer. We have annual revenues of nearly $6 billion. With 40,000 employees we have a big footprint in three states as the largest employer in both Louisiana and Mississippi and the largest manufacturer in Virginia.

And as we all well know, our current economy is in a rough patch but the news for manufacturing hasn’t been kind for quite some time. We hear all too often about the decline of the American manufacturing base. And the news stories about plant closings and job losses paint a picture that doesn’t seem to project a lot of hope about this sector of the economy. Let’s just look at the facts about manufacturing to get a sense of where we really are:

  • The manufacturing sector produces $4.5 trillion in goods, yet we are consuming fewer and fewer of our own goods as the trade imbalance reflects;
  • At the beginning of 2008 there were less than 14 million manufacturing jobs in the United States – the fewest since 1950;
  • Yet, manufacturing accounts for nearly three quarters of the nation’s industrial research and development and two-thirds of our exports; and
  • More than 8 million jobs are created through ancillary employment.

Without a doubt manufacturing counts for a lot in America’s economy and in the economy of Virginia. Speaking for Northrop Grumman Shipbuilding alone, our economic activity has contributed greatly to the regions it serves – and it’s a result of many strong partnerships with our states. In Louisiana, our direct payroll contributes more than $240 million annually to the economy and indirect employment adds another $200 million. In Mississippi, our direct payroll contributes $450 million annually to the economy and indirect employment adds another $216 million. For Virginia, the direct payroll was just under $1.1 billion and the indirect number adds another $518 million.

But manufacturing in America and in Virginia could become an endangered species because regulatory and tax policies that create artificial barriers coupled with a lack of investment by government in helping to educate a manufacturing workforce are resulting in us falling behind. This is my transition to the discussion about workforce, transportation and energy.

As the largest manufacturer in Virginia, work force development – having the right people at the right time with the right skills – is a top priority for us. A few months ago we signed a contract to build the first ship in a new class of nuclear-powered aircraft carriers – the Gerald R. Ford class. In the next decade or so, I need to hire somewhere in the range of 15,000 employees to help build this ship and the ones to follow it. Where am I going to find these people? Will they have the right skills?

At Northrop Grumman Shipbuilding, we’re not waiting for someone to answer these questions for us. In fact, we’re strong believers in controlling our own destiny to the extent that we can. So we’ve partnered up with many organizations – public and private – to seek out solutions. A few of the many examples of where we’ve worked with communities and the state to deliver results in Virginia include:

  • A strong partnership with the local school systems, reflected clearly in the Newport News Public School’s pilot program, Career Pathways. By working with businesses and industry in the area, partnerships have been established that direct the educational efforts of the school systems to help graduates make a seamless transition into the workforce.
  • We developed a state-of-the-art manufacturing curriculum for Thomas Nelson Community College and assisted them in acquiring a National Science Foundation manufacturing excellence grant;
  • We’ve worked with multiple community colleges to help develop their curriculum so these graduates can begin working at our shipyards – and being valuable contributors – the day they graduate. For example, in Newport News, where welding is also a critical skill, Thomas Nelson Community College is offering a welding certificate to help develop the future workforce we need.
  • We participate in a corporate program called Weightless Flights of Discovery – a program where middle and high school science and math teachers experience zero gravity aboard a plane. This allows them to relate to what it’s like to be an astronaut – an experience that they hopefully pass on to their students in a way that gets them excited about pursuing a career in math or science.

There are also similar examples demonstrating what we’ve done and what we’re doing in the states of Louisiana and Mississippi. We’ve learned, through hard work and the success that follows it, that working together with the States is the best – and really the only way.

And now on to transportation.

In addition to the need for people to build Ford, we will purchase more than $3 billion of material, including that supplied by the government. This material must get to the shipyard in time. It comes by air, sea and rail but most of it comes by roads. This underlines the need for an efficient transportation system that is highly functional. It also underscores the need for business leaders to get into the fight for good transportation. And finally, it takes a tremendous amount of energy to build ships – especially the kind that weigh more than 100,000 tons and serve as a floating city, airport and home to thousands of sailors. Not surprisingly, the shipyard in Newport News is one of the top energy customers in Virginia. Last year we purchased nearly $31 million worth of electricity, natural gas and fuel with more than half of this expenditure going for electricity. I believe Virginia should generate its own power for its own citizens and export the excess. This would be good for business and a good economic development opportunity for the state, which leads me to the topic I’m going to spend the rest of my time on today and that’s the joint venture between AREVA and Northrop Grumman Shipbuilding that was announced in late October.

This joint venture – named AREVA Newport News – is a great example of how manufacturers can work with the government in ways that help both work force development initiatives and our energy challenges in a very innovative and enterprising way. In fact, AREVA Newport News also links together national economic needs, global energy requirements and national security in a way that enhances each. First, some background.

We began exploring the opportunity to enter the commercial nuclear energy market some years ago. The statistics speak for themselves. According to Dale Klein, chairman of the Nuclear Regulatory Commission, the Department of Energy estimates the US demand for electricity will increase 50 percent in the next 30 years. Another study done this year by the Energy Information Administration gives a different but still equally impressive statistic – it says that the US demand for electricity will grow 25 percent by 2030. An AREVA study projects that by 2030 world demand for electricity will double, driven largely by emerging and developing countries. They also estimate that 344 new nuclear power plants will need to be built by 2030 and the total number of nuclear power plants globally will be 635. Another source, Dennis Spurgeon, Assistant Secretary of Energy for civilian nuclear programs, has stated that he anticipates 55 countries will be operating 630 reactors by 2030. So the market for nuclear power appears to be emerging.

And US attitudes-historically skeptical on the use of nuclear power – seem to be changing.

An April 2008 NEI survey found 59 percent of Americans surveyed think the US should “definitely” build more nuclear power plants. And 63 percent favor using nuclear power for US electricity while 33 percent oppose. All of these statistics and research and much more due diligence led us to this deal with AREVA. It was a well-thought out, well-researched effort.

My experience is that shipyards can get themselves into trouble by reaching too far for new business. What has proven to work, though, is when shipbuilders can find niche markets – markets where they have skills that are unique. The partnership with AREVA is such a market. It capitalizes on what we do at Northrop Grumman Shipbuilding in Newport News. We do the hard stuff right. We build large, complex machinery and we have a nuclear shipbuilding culture. AREVA is a global leader in electricity transmission and distribution. They need a supplier to manufacture these heavy components for their reactors. We have those capabilities, a location on the James River well-suited for barging components, and most importantly, a highly-skilled workforce. Once the AREVA Newport News facility is complete, we will have the capacity to manufacture heavy components for nuclear reactors for the commercial market. Our involvement builds upon Northrop Grumman’s commitment to national security by supporting the nuclear energy resurgence, fueling domestic economic growth, and meeting the demand for American energy independence.

This venture, with the Commonwealth of Virginia’s participation – that came in the form of financial support from Governor Kaine’s opportunity fund, a grant from the Virginia Investment Partnership program, and tax incentives – also means that we continue an important and critical investment in the manufacturing workforce in Virginia – a goal I believe everyone here today shares.

It’s also a strong demonstration of Virginia investing in the businesses that are investing in work force development themselves. In summary, I’ve laid out some of the very real challenges we’re facing at Northrop Grumman Shipbuilding – challenges I feel certain are not ours alone and that many of you share. Yet I’m hopeful that I’ve also shown you that the solutions lie in working together – business with business and industry with government. Cooperative partnerships – arrangements that are mutually beneficial – are the ones that have the greatest chances of succeeding.

That doesn’t mean that they are easy – in fact, they are sometimes much harder to do. It just means that they end up being worth it. I’m confident that AREVA Newport News will be worth it.