Litton's Sad Litany

Only half a year ago, Roy Ash, president of California's Litton Industries, sounded like a man who had seen light at the end of a tunnel. Profits of the troubled conglomerate in 1972, he confidently predicted, would increase substantially over their lackluster showing of $50 million in 1971, and one reason for the gain would be Litton's $ 130 million shipyard in Pascagoula, Miss. Ash calls the ultramodern facility, opened about two years ago, "a national asset that will make U.S. shipbuilding competitive in world markets."

In the months since then, Litton's light has dimmed considerably. The company lost money during two quarters of its 1972 fiscal year, and will close the books later this month with what Ash now calls only a "small profit." The trouble stems in large part from the Pascagoula yard, which has produced a small armada of labor problems, construction delays, cost overruns--but so far very few ships.

Litton's biggest headache is a $752 million order for U.S. Navy general-purpose amphibious assault vessels called LHAS (for Landing Helicopter Assault ships). After the company fell 18 months behind in construction, the Navy slashed the order from nine ships to five. Navy brass caused some of the delay and increased costs by ordering changes in the design. As a result, under the terms of its agreement, the Navy may owe more for the five LHAS it will get than it had planned to spend for all nine. The two parties are currently renegotiating the contract.

Cost estimates are also spiraling upward on a $2.1 billion Navy order for 30 Spruance-class DD-963 destroyers, a new model to be used primarily for antisubmarine duty. Although the contract is designed to hold Litton to fixed prices, it allows for inflation and some other variables that may permit the company to collect additional sums. Some estimates put the eventual cost of each new destroyer at $100 million, v. the $90 million that the Navy deems appropriate; the question is how much of the extra cost will be paid by Litton and how much by the Navy.

Reports of Litton's troubles touched off a furor in Congress, which is growing increasingly impatient with overrun-prone defense contractors. The House Armed Services Committee recently cut next year's budget authorization for the destroyer from $610 million, as requested by the Pentagon, to $247 million. The committee expressed "concern" over costs and delays in both shipbuilding programs, with an eye toward finding remedies.

Game Plan. The Pascagoula plant is also far behind on construction of eight container ships for the Farrell and American President lines. Now scheduled for completion next fall, the first such vessel will be 21 months behind schedule and will cost about double its contract price of $21 million, making it the most expensive general cargo ship ever built. Litton will doubtless pay heavily for the overrun.

What went wrong in Pascagoula? For one thing, the plant's advanced "modular" technology, in which sections of a ship are built separately and then welded together, produced some monumental bloopers. Some of the sections simply did not fit together, forcing engineers to order expensive re-cuttings. In addition, Litton staffed the yard largely with top managers drawn from other businesses, who knew little about shipbuilding, and engineers transferred from West Coast aerospace operations, who did not adapt easily to a Southern environment; the general air of discontent spread to the blue-collar force. In Pascagoula's first year, labor turnover ran as high as 60%, double the normal rate.

Ash claims that Litton has finally worked out its management and labor problems in Pascagoula. He professes no concern about the reduced Navy orders and congressional funding cutback. "The Navy will commission other ships and we, as the most competitive shipbuilder in the country, will get other Navy business," he says. Ash further points out that about two-thirds of the conglomerate's businesses (1971 total sales: $2.5 billion) are turning in healthy profits. They include Monroe calculators, Sweda sales-recording systems, medical products and new inertial navigation systems. "We are still on the game plan we've been on for the last 15 years," says Ash.

It is doubtful that Litton's game plan included some $70 million in losses --$25 million of them in high start-up costs at Pascagoula--that the company is writing off this year. Yet Ash still exudes confidence in his theory of "free form" management. Stockholders, whose shares have plunged in price from a high of 120 1/8 in 1967 to 15 7/8 last week, will be waiting for proof.

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