Posted on September 25, 2024
The Navy tapped a Connecticut private equity group with a background in tax break investments to fund construction of a major submarine supplier yard in Mobile, Ala., in a public-private partnership, the sea service announced late Friday.
The new facility, dubbed Mobile Naval Yard, could grow to host up to 3,000 workers who will build modules for the Virginia- and Columbia-class submarine programs as part of a new public-private partnership, executive director of the program executive officer for submarines Matt Sermon told reporters on Friday.
“The Navy and its [submarine industrial base] partners are swiftly recapitalizing a maritime industrial base that has dwindled to about a third of its former capacity over the last three decades,” Sermon said.
“Once again Mobile and the Gulf Coast region will answer the call to support critical national security needs.”
On Friday, the new private equity-backed United Submarine Alliance Qualified Opportunity Fund purchased 355 acres of land on Pinto Island on the Mobile River. Part of the plot is the current home of Alabama Shipyard, a maintenance yard that mostly repairs Military Sea Lift Command and commercial vessels.
Neither the Navy nor the fund managers disclosed the purchase price of the parcel on Pinto Island, just south of Austal USA’s outfitting piers and its future submarine module facility.
Alabama Shipyard accounts for about 25 percent of the parcel and will remain on the property as a tenant, Sermon told reporters.
The purchase was partly funded through a $152 million Navy contract awarded to Austal USA, a limited partner in the fund. The service awarded the contract on Friday for ”continued expansion of Submarine Industrial Base (SIB) capability and capacity,” reads the announcement. The money was part of a Fiscal Year 2024 National Sea-Based Deterrent funds, according to the announcement.
The USA fund is managed by Connecticut-based CapZone Impact Investments LLC., an investment group started in 2018 to invest in federal opportunity zones, according to the group’s website.
Created in 2017, opportunity zones are census tracts the federal government identified as economically distressed, according to the IRS.
“This incentive’s purpose is to spur economic development and job creation in distressed communities by providing tax benefits to investors,” reads a description from the IRS.
Under IRS rules, capital gains income invested into an opportunity zone can have their tax burden reduced as an incentive for investors to put money into underdeveloped areas.
CapZone CEO Al Puchala told USNI News on Sunday that Mobile Naval Yard will serve as a maritime industrial park with tenants developing parcels funded by opportunity zone investment.
“We bought all the assets of the Alabama shipyard at the asset level… The assets include the land. They included the property on the land, and they also now create a platform for tenants to be able to use our infrastructure layer,” he said.
“We are in it for the long term, minimum, 10 years, not just to get the opportunity zone tax break, but we expect this to be in the hands for decades in the military ecosystem.”
While the Navy is providing funds through the Austal USA investment, the management of the facility and development will be managed by the fund, Puchala said.
“What we’re doing strategically now is building on that site to the priorities the Navy has in motion. Which are these modules for the submarine, both Columbia and Virginia classes,” he said.
Austal USA “may also play a role as a strategic partner at the operational level.”
On Friday, Sermon said the Navy’s goal will be to increase the production rate of current submarine modules to about four million hours annually.
PEO Subs has made submarine module outsourcing a key component of its strategy to expand U.S. submarine production. The idea is to pull out less critical work from General Dynamics Electric Boat’s yard in Connecticut and HII’s Newport News Shipbuilding in Virginia to free up capacity in the two nuclear yards.
For example, Austal USA has hosted EB workers to build modules in its yard just north of the Pinto Island site. Less successfully, W International in South Carolina has struggled with producing outsourced modules for the two yards.
Overall, in order for the Navy to meet its commitment to submarine construction it needs to build 2.3 Virginia-class submarines and one Columbia-class a year. Currently, the Navy builds about 1.3 Virginias a year and has seen delays in delivery in the Columbia program.
