Ship management company

General Dynamics shipyard boss leaves as workers get up to 39% pay rise

In a surprise move last week, Dirk Lesko, the longtime and well-regarded president of Maine’s General Dynamics Bath Ironworks Shipyard resigned, effective immediately, just as the shipyard accepted steep pay rises.

Lesko’s abrupt departure from the major shipyard on April 7 came just as Bath Ironworks and some 4,000 union members agreed to a substantial new shipyard pay deal. Departing from Lesko, the Local S/6 Industrial Union of Marine Shipbuilding Workers of America/International Association of Machinists and Aerospace Workers celebrated a general wage increase, an adjustment that raises the salaries of some ranks by nearly forty percent.

The large wage increases will likely increase the costs the Navy must pay to procure new destroyers and other large surface combatants.

The salary increase is apparently focused on attracting and retaining new employees, employees who stay at the shipyard long enough to receive training before being attracted to other high-paying opportunities. While all of the union’s 10 pay levels and specialties have seen their wages increase in the new wage agreement, junior “Tier 1” workers will see their hourly wage increase from $16.94 per hour (the pay rate of August 2021 detailed in the convention 2020) at $23.50. Given that the shipyard was only halfway through a hard-fought three-year contract, this mid-contract salary adjustment is a major concession for General Dynamics and could well serve as a potential sign of pressures. significant inflationary pressures across the business.

The Bath Ironworks shipyard, located in Maine, is one of only two yards that build large surface combat vessels for the US Navy. While the wage increase may help attract much-needed new workers to the job site, the added costs take a toll on the viability of the job site. If a $2.4 billion destroyer takes four years to go from keel-laying to delivery, a steep wage increase could eat away at the yard’s overall profit margin (Overall, the three General Shipyards Dynamics Marine Group make a profit margin of about 8.3%although Bath Ironworks’ profit margin is likely to be lower at this time).

At present, Bath Ironworks appears to be in relatively good shape, sitting on a large contract backlog and years of additional work. But, in the long term – and if the pending contracts are essentially fixed price, tied to the labor rates detailed in the shipyard’s 2020 contract – big increases in labor rates will make much more challenging for the shipyard to meet the ambitious performance targets expected by General Dynamics Headquarters. The new offset agreement may also make the yard a harder sell for the company.

If Bath’s only rival in producing large surface combatants, a large Huntington Ingalls Industries shipyard in Mississippi, holds the line on labor costs, Bath will have a much harder time winning new government shipbuilding contracts – contracts that often only go to technically “acceptable” bidders. that offer the lowest possible cost. The yard may get new government work to ‘keep the yard open’, but the terms won’t be as favorable as they are for Bath’s lower-cost rival on the Gulf Coast.

Contract negotiations aside, Lesko’s departure, coming as he did, was a real surprise. Apart from increased payments to dockyard labour, Lesko’s six-year tenure at Bath was a successful rebuilding effort, turning the then struggling dockyard. Under Lesko, Bath recovered from the demise of the Zumwalt (DDG-1000) Class destroyer program and has found a stable footing as the Navy refocuses on acquiring a third “variant” of the Navy’s mainstream Arleigh Burke (DDG-51) Class Destroyer. To get the shipyard back on track, General Dynamics withstood a tough nine-week strike, earning the stability of a hard-won three-year contract and regular pay raises – a contract that exploded on the day of the departure from Lesko.

What happened at the shipyard?

As usual at General Dynamics, nobody talks.

For General Dynamics, this abrupt change in direction of the shipyard is unique. Lesko’s departure – if not on his own terms – may be by industry standards, but, if past reversals of General Dynamics leadership are any guide, this one was exceptionally harsh.

In 2019, General Dynamics raised industry eyebrows when it fired Electric Boat chairman Jeffery Geiger on the day he presided over a shipyard expansion ceremony. But Geiger’s ouster, orchestrated and administered by an angry and weary General Dynamics corporate office, still sent Geiger packing his bags with all the niceties of a vaguely glowing press release, best wishes and a two-week transition. Lesko’s abrupt retirement – after three decades of service – was effective immediately, heralded by a terse two-sentence announcement, followed by a flurry of “no comments” and potentially mean-spirited leaks.

While Lesko didn’t leave on his own, this shipyard boss’s abrupt exit is a real game-changer for General Dynamics’ culture, and suggests that General Dynamics headquarters are furious with him. When Fred Harris, a legendary General Dynamics shipbuilding boss, resigned in 2016, the transition took about a month and a half. Geiger’s predecessor at Electric Boat, Kevin J. Poitras, was also granted a month and a half to “retirement” in 2013. And when John P. Casey resigned in 2019, leaving his position as head of the General Dynamics Marine Systems business unit, the transition to the new general manager, the former president of jet aviationRobert E.Smith, took five months.

Lesko’s departure, coming just a day after America’s largest naval exhibit, the Sea-Air-Space Expo in Washington, DC, is a rare corporate misstep – if a new boss was “on deck”, the new shipyard manager could have been celebrated and introduced to the Navy leaders at the big conference.

With no confirmation from Lesko or General Dynamics, theories abound as to why Lesko left. Some suggest a change of naval management personnel sparked the management change, while others with close ties to General Dynamics management suggest that Lesko violated company policy.

Union communications suggest the Bath Ironworks management team may have been under some pressurepotentially getting on their skis agreeing to labor increases before all other stakeholders in General Dynamics management agreed to the new fee structure. Negotiations at the site were long and, at the beginning of the spring, they were intense. According to a Union calendar, the shipyard union expressed concern about low shipyard pay rates in January. In early March, the shipyard provided the union with alternative compensation and market analysis, which the union reviewed, raising “several concerns” with shipyard management “that we [the union] thought to have caused trouble. At the end of March, the shipyard provided the union with a draft “memorandum of understanding”, without, apparently, understanding how to finance it. The company then backtracked. On April 4, the union accused the shipyard to backtrack on the deal, and threatened a series of punitive actions.

In the end, General Dynamics seemed to have relented, and on April 7, the “medium-term salary adjustmentwas signed. Lesko then apparently packed up and left the court.

What now for BIW and the GD Marine Systems group?

In addition to the cost risks detailed above, Lesko’s departure reduces overall resilience within General Dynamics Marine Systems Group—a three-shipyard branch of the multifaceted national security conglomerate General Dynamics.

As shipyard presidents come and go, the loss of such an experienced in-house shipyard executive increases risk within General Dynamics’ broader shipbuilding portfolio. The last two leaders of the large Connecticut-based submarine-building shipyard General Dynamics Electric Boat came from the company’s surface shipbuilders in Maine and San Diego. The unexplained disappearance of a veteran thirty-year-old shipbuilder like Lesko also poses a significant competitive risk to the company’s long-term ambitions in shipbuilding – and if Lesko leaves before he is pushed, he could emerge later. as a leader at Fincantieri Marine Groupe or another shipyard, hungry, armed with insider knowledge and eager to beat his former employer at his own game.

In the final analysis, Lesko is a big loss for General Dynamics. In the “tough, well-made” world of shipbuilding, seasoned shipyard executives are “built, not made” over decades. They certainly do not arise overnight.

The questions abound. What are the overall implications for US shipbuilding? If anything goes wrong at the General Dynamics Electric Boat Shipyard over the next few years, who in the thin shoal of exceptional talent at the General Dynamics Shipyard will be ready to step in and attract the growing revenue streams of the company—Virginia and Colombia Class-class submarine programs — back on track? Or, is the company instead turning to its increasingly dominant luxury jet subsidiary Gulfstream for manufacturing and management expertise? And, finally, what will this big pay rise mean for other early-career workers in other parts of the sprawling General Dynamics universe?

General Dynamics has the opportunity to discuss these issues when announcing its first quarter financial results on April 27. We’ll see what they say.