Good morning, everyone, and welcome to the Huntington Ingalls Industries 2020 Investor Day. I'm Dwayne Blake, Corporate Vice President of Investor Relations, and we thank you for taking the time to join us on this day. For the folks that are on the webcast, we also appreciate you joining us. And for those attending in person, just a couple of housekeeping items. In the event of an emergency, we will exit through the doors on my right, on your left, go down the stairs, make our way, make a right as you come out the doors, work your way over to the church at the corner of 51st and Park. So that's where we will muster as a group. So just want to make sure we took care of that. Safe harbor. Throughout the day, forward-looking information and non-GAAP measures may be disclosed or discussed.
As always, this information is subject to risk and uncertainties as outlined here and also detailed in our SEC filings. In addition, reconciliations to the non-GAAP measures are included in the appendix to the presentation that'll be posted on the website. This is the agenda for the day. So you'll hear from Mike Petters, our President and CEO, followed by Mitch Waldman, who runs our Washington office, and our segment presidents, Jennifer Boykin at Newport News, Brian Cuccias from Ingalls, and Andy Green from Technical Solutions. Short break, and then Chris Kastner, our CFO, will come back, and then we'll lead into closing remarks and Q&A. After each of the segment presidents, we'll have a brief Q&A session, so about five minutes. So I'll be moderating that along with Davin Lincoln. We'll be having mics.
I'll ask that when you please state your name and make sure that we wait till the microphone so the folks on the webcast get the benefit of hearing your question. The other thing I'd like to point out is for attendees here in the room, following the Q&A session at the end of the day, we have lunch set up in the Kennedy Room, which is out the doors all the way at the end of the hall. And finally, if you hadn't had a chance to visit our technology displays, we have kiosks at the back of the room. We also have what's called a mixed reality room that demonstrates a bit of ship training, bridge training, navigation training, and that's set up. You actually will put your headphones on and experience like you're on board a ship. So it's actually pretty nice.
So if you get a chance to do that either during the break or during lunch, to take advantage of that. So with that, now it's my pleasure to introduce our President and Chief Executive Officer, Mike Petters. Mike.
Okay. Thanks, Dwayne, and thanks to all of you for making the trip in this morning to spend some time with us. We look forward to having a chance to share with you the excitement of what we do, the romance of our business, as we call it. And we hope you'll walk out of here today with a better sense of who we are and what we are about. I was growing up in a church. I heard that the good sermon is you tell folks what you're going to say, then you say it, and then at the end, you come back and tell them what you told them. So we're going to start with this is what we're going to tell you today.
The first point is that with our backlog and with the contracting activity that we've gone through, that we've talked about in our earnings calls and our releases, we have now established a foundation for shipbuilding success for most of the next decade. That is a place that the company we've always had a far horizon, but the horizon today is further than it has ever been, and I think we have contracts now that run out into the 30s for the final delivery, so that is a horizon that's pretty far out there, and it gives us a chance to go and execute against. The second point we want to make, and we'll probably spend a lot of time on this, is there's been a lot of activity in the last 30 days or so regarding our portfolio in Technical Solutions.
All that activity came to fruition in the last 30 days, but it really represents about the last 18 to 24 months' worth of work of going through all of the seeds that we have planted and then picking those areas that we want to be in. And we're going to talk some more about the areas we want to be in and why we want to be in them. But we now have Technical Solutions focused on those things that we think are going to make the most sense for us. They're going to drive growth in the business, and they're going to drive returns in the business, and we're very, very excited about that.
Finally, we still have the financial flexibility to do the things that we need to do for this business, whether it's invest in our facilities, return cash to shareholders, or invest in those capabilities that we need that our customers need. We can do all of that, and we are poised to move ahead in a very successful way over the next several years. With that having been, this is what we're going to tell you over the next 3.5 hours. What I want to do is start with a video of what we do. I hope you get a sense of what goes on in our company every day, and you can understand why I actually hate my office.
If I get to go out and spend time with the folks in the business doing the stuff that they do, it's very exciting for me to sit down with people in the business and actually realize that I'm actually meeting with the planet's experts on what they do, and that is just an incredibly exciting thing for me to do and love to do it. This is our company at a glance. We are still the primary shipbuilder for the U.S. Navy. We are at the top of their order of battle and the top of their warships. That's who we are. We build the carriers. We're involved in a partnership with General Dynamics on the submarines. We are in competition on the destroyers. We're the sole source provider for the amphibs.
That is all. The top of that is the top of the list for what the Navy needs in its missions today and for the future. But what we've also done is we've now become a key provider of other services to the government, including unmanned systems, Defense and Federal Solutions, the Nuclear & Environmental Services, and of course, supporting the fleet wherever it is. That is changing our business here in a very positive way. We're excited about where that's going. And what we've been doing is we've been focusing on improving our growth profile, improving the returns in the business, and managing the risk in the business. And so you'll probably hear that theme going on as well today.
So these are the customers that we have, and you can maybe make the argument that a while back when we first started down this path, we probably only had a couple of these logos on the board. But today, we're in shipbuilding, fleet sustainment, unmanned maritime. We'll talk a lot more about that one today. I'll talk about it a little bit, and then Andy Green will talk about it some more. Work we're doing now in the Defense and Federal Solutions and the Nuclear & Environmental Services, and we continue to expand our customer base. Now, we regularly do these investors' conferences once every five years or so. And when we first did one, we came out and we made some commitments to the shareholders and said, "These are the things that we're going to do." And by 2015, we had done that.
We had another one in 2015, and we laid out our commitments for 2020 and the path to 2020, if you will. And these were the things that we said we were going to go do. We were going to make investments in our shipyards. We were going to optimize and expand our portfolio through M&A, and we were going to return substantially all of our free cash back to the shareholders. At this point, we have distributed approximately 100% of free cash. And we are at the back end of a nearly $2 billion capital investment program in our shipyards. And so these are commitments that we made and commitments that we kept. But we find ourselves today in a really interesting place because we have now a historically high backlog. We've talked for a long time about the history of Navy shipbuilding has been run thick and thin.
It kind of runs in the $14 billion-$16 billion SCN account range. About three years ago, after we started making the capital investment in the business, the government came forward and said, "We need to expand shipbuilding because we're falling behind." They took the budget up to, I'd say, the low 20s, probably $23 billion-$24 billion. What that did for us and what that did for the Navy is it created an opportunity to go get a lot of work under contract and make that work as predictable and as efficient as we possibly can. Now, you don't just go to contract. It takes a couple of years to do that. The two-carrier contract that we signed in last January, I believe it was, that was really a nearly two-year effort between the government and the company to work our way through that.
What's the value proposition, and then how do we get that to a place where it makes sense? Similarly, the submarine contracts that we get, they take a while to work our way through and make sure that we've got all of that sorted out. But it all showed up in 2019. And so we're now in a place where we have a $45 billion backlog, and that creates a stability for the business that is unprecedented for us. And what we owe is the confidence that we're going to execute that backlog as effectively and as efficiently as possible. And the way we do that, we talked a little bit about this last fall. I talked to you a little bit about how we have major parts of our organization execute very well, and there are pockets of the organization that sometimes don't execute as well as they should.
We've formalized this now, and we've formalized that into an operating system. And you'll hear Brian and Jennifer talk a little bit more about the operating system. But basically, shipbuilding, at some level, shipbuilding, I'd like to say it's an easy thing. You just need to have the right person in the right place at the right time with the right material and the right drawing. And so you pull that off, and it's a piece of work. It's a piece of easy work. If you go back and you lay out all the things that can go wrong towards getting the right person there or the right drawing or the right material, you can convince yourself that it's impossible. It's not impossible. We do it every day. It's routine for us.
But we wanted to formalize the way we do that so that every part of our organization has the benefit of the folks who have figured out how to do that better than anybody else on the planet. And that's focused on people, processes, tools, and our supply chains. And we're going to talk a lot more about that in the follow-on briefs. But our commitment to you is that we have the HII Operating System in place, stood up, and running today effectively to execute on that backlog. Now, we've had not only the benefit of larger shipbuilding budgets over the last three years. We've also had what I think is probably the most coherent structure around the defense strategy that I've seen in my career. I guess it was about two years ago when the National Defense Strategy came out.
The National Defense Strategy came out, or the National Security Strategy came out as sort of the overarching view of where the country needed to go. And then underneath that were a whole series of other strategies that came out. And all of those were very well coordinated by the administration. So one document fed to another, and it gave us really keen insight into where the government needed to go from a national security standpoint. And that really shaped our thinking in terms of, "Well, if that's where they need to go for us to execute the security strategy, then this is where we think the industry needs to go." And you've seen it. And we know there's going to be shipbuilding to the tune of a $45 billion backlog right now.
We could draw a really interesting path from our initial investment in Proteus down in Panama City, which was basically a non-material investment in technology, through a path to where we're executing and manufacturing Boeing's UUV, the Echo Voyager. We're executing that with them in partnership with them to support the XLUUV program, and then how that translates into our recent acquisition of Hydroid, and in a very short time, we now find ourselves in the place of having the full range of portfolio to support our customers in the unmanned undersea space, and we're very, very excited about that. When we acquired Camber to support the work we were doing in AMSEC, really Navy work we were doing in AMSEC, Camber came along with it, some work in the Intelligence Community and in the cyber community.
And so as we started working with those customers, we started to understand where their capabilities were. And we've been able to, with the addition of Fulcrum and G2, being able to enhance that life cycle in a way to create a very solid business for us. And we think that that's going to be a business that's going to give us growth. And we've always felt like there was an opportunity to create a relationship with the Department of Energy that would allow them to reach into our capability to create workforce in the nuclear and environmental space, particularly at Newport News Shipbuilding. In the last few years, we've actually been successful in finally breaking that down and figuring out how to translate that into value. I think I've mentioned before, in the first 30 years of my career, we had one teaming success in that space.
In the last couple of years, we've had three more, including a prime contract at Los Alamos. And so we've broken the code on that. And now we expect that with the opportunities coming in the Department of Energy, that we expect that to be a key area for us going forward. Now, if we think about where the business can go and how do we think about our investments, we think about investments in terms of capabilities and our customers and what we think we can provide and what we think that they need. We believe we have the full range of capabilities and customer access for shipbuilding and fleet sustainment. We have all of the access we need in the unmanned systems and in the Nuclear & Environmental Services.
There might be some discrete technology gaps or capability gaps that we'll continue to look at to see whether that makes any sense for us in terms of do we pick that up or do we grow it organically. But in the Defense and Federal Solutions system, we see not only do we have some discrete gaps with customers, we probably have more gaps in terms of capabilities. And so we're going to continue to look in that space to see if there are capabilities that we need to add to our portfolio that will help us support those customers and continue to enhance our growth and return profile. So that's really going to be the focus for us going forward. We felt, coming off of the security strategy and the defense strategy, we felt that it was critical that we establish a position in the unmanned space.
Clearly, we had a strong shipbuilding position, but this is the technology and the capability that we have watched change the way that people think about aviation. We think that it's probably not going to happen as fast in the unmanned space because the physics are different and the engineering is different. But we think this is going to have a pretty dramatic impact on the way the Navy thinks about how it operates its platforms going forward. And so if you look at, I mentioned the full range of capabilities from the small UUVs to the extra-large UUVs, between us and Hydroid, we now believe we've got every piece of that touched so that we can support what our customer requirements are. And you can see that across the whole life cycle, it's not just about platforms.
It's also about the support of those platforms and the full life cycle of what we need to do, whether it's design and development, operations and maintenance, or system integration. We're now in all of those spaces, and we're very excited about that. And we'll talk a little bit, Andy's going to talk a little bit more about that. So let's talk about what our focus is. We have a backlog foundation in shipbuilding that we're executing on that gives us operational stability, strategic optionality, and financial flexibility. What that does for us is that creates a stable foundation for the rest of the business. And in the rest of the business, we're going to be able to create higher levels of growth, better returns. And we're going to do that given the portfolio things that we've been able to do.
We've got to do that with a better risk profile than maybe we've had over the last several years. So driving growth, managing risk, and generating strong returns is really what we're all about here and going forward. The foundation on the backlog allows us to do that. All of that is driven towards overall value creation. So why would you invest in us? Well, we have unparalleled and unmatched visibility. We've never had this much visibility, and we don't think anybody else has it today. That gives us a very consistent and predictable growth profile in the foundation and core of our business. We have aligned our division with where we think our capabilities are best suited to support where the customer's needs are.
We have created and formalized the operating system for the entire company that's going to give us sustainable performance and execution, which leads to sustainable free cash flow generation. And we have a capital structure that's going to allow us the options to go and create those connections that we need either for customers or capabilities on a path going forward. I wouldn't trade places with anybody else in the industry right now. This is an exciting time to be part of this company, given the way that we have now focused the business on those things that are going to most importantly address the customers and their needs that are out there. So I'm going to turn this over. I'm going to be back up at the end with Chris, where we can play Stump the Chump for a little while.
But I'm going to turn this over here to Mitch Waldman and let Mitch kind of walk you through the DC environment. The budget just went to the Hill, and so there's lots of print out there on the budget right now. But I want you to listen to what Mitch has to say. He's been through this a few times. He has a great way of telling all of us to just breathe. And so we all do that, and then we walk our way through the path. So Mitch Waldman from our Washington office.
Well, he gave my brief. Just breathe. Any questions? All right. Greetings from Washington. I just like this picture. All is tranquil. Nothing going on there. I don't have a video. Y'all have seen enough video of Washington in the past couple of weeks, so no video from me.
Let me just tell you who I am and who, probably more importantly, my team is. I've been in DC about 40 years. Hard to believe. A good chunk of that as a senior executive with the Executive Branch, then on the Hill with the Senate Majority Leader, and for the past almost a decade, really, with industry. So I bring you that perspective. And again, more importantly, I'm honored to lead a terrific team in Washington of professionals, very senior folks, many of whom have commanded ships, forces, fleets, served on the Hill, served in some of our business units. They just bring a wealth of expertise. So I'm going to channel their view as well and talk about that.
So I have this picture of Washington for a purpose because you think of the Washington guy, you say, "Oh, you're the lobbyist." Well, that's just a portion of what we do. We actually work in the ecosystem of Washington, and Washington, notwithstanding the churn sometimes you see from a national security perspective, it actually works quite well, and that's a good thing for our nation, and so we work with the Executive Branch. We work with the Executive Office of the President. We work with the Pentagon. We work with the Department of Energy, Department of Homeland Security, the combatant commanders. We work with all those folks, and we work with them and other folks as well to shape requirements, acquisition strategies, investment schedules, the environment in which business is done. That's the general mission, so the Executive Branch makes sense. We don't do business development.
We work thematically to do those things, as I said. We work with the Legislative Branch, and that's more traditional. That is the lobbying piece. And those are members of Congress and committees of jurisdiction. We do it for ourselves in the states where we have a large footprint. But we also work with our 5,000 suppliers to help them advocate on behalf of what they do and put the construct of what they do into a bigger construct of this business. So they may be a supplier for a component, but we raise it up and help them tell a story of being a supplier of a component for just a major capability for our nation. The third piece, and this is something that's not really unique to us, but important. We shape policy. What does that have to do with anything?
Well, I'll tell you that a bad piece of tax policy can have as much impact on the business as a bad contract. And so we look at future policy. So we work through industry and trade associations to shape policy in general. And then we work with think tanks, academic institutions to shape kind of the future view of national security. And last but not least, we work with the Office of Naval Research and academic institutions and warfare centers to look at the future of technology. So that's the ecosystem of Washington. And that's the perspective I want to share with you today and give you an overarching view of kind of this government speak and translate it for you into industry speak. Okay. So training on this. And there we go. So Mike talked about the National Security Strategy, 2017. I think that came out.
Mike said National Defense Strategy. Everything flowed from there, and this is just an example list of some of the investment plans and guidance coming out of Executive Branch leadership across agencies. We digest all of this stuff, but it all flows in an alignment that I haven't seen really anytime in my 40 years in Washington, flowing from the National Security Strategy in major themes, and so the issue, the question in Washington is, do you have a budget-driven strategy or a strategy-driven budget, and I'm here to tell you that the intent of this is to have a strategy-driven budget, and I'll talk about that a few slides later. Within a constraint, right? There's always a constraint of that budget request and what the top line is, but by and large, there's alignment to have a strategy-driven budget, so I'm going to talk about the National Security Strategy.
And again, I'll give you the CliffsNotes version of this. So four pillars, 68 pages. So Mitch Waldman's view, kind of distilling that down for you. Four themes: protect the American people and the homeland, protect American prosperity, preserve peace through strength, very Reaganesque. I'm going to dwell on that. And then advance American influence. And so under the pillar of preserving peace through strength, we kind of see ourselves there, although we do have outreach into other areas, obviously, as well. Some of our customers are in the Homeland Security domain. Coast Guard is actually under Homeland Security, not defense. But I'm going to talk about these. And these words are carefully chosen.
And again, I'm going to translate government speak of all of these major themes: modernize and grow a resilient force, field a ready and trained force, modernize a safe and effective strategic nuclear triad, sustain a healthy industrial base. I'm going to drill down and hopefully tie that to you like I do for the corporation as we develop our strategy, as we develop business plans, as we develop capture plans. We all base it in what our customer wants and needs from a national security perspective, flowing on down to how that translates into actual programs. So here's my roadmap for you, if you will. I'm going to start on the requirement side. Then I'm going to talk about budget. And then I'm going to leave you in a few slides with kind of a view from the Hill and my view, which is actually shared over breakfast.
My view is actually pretty bullish on the process moving forward very rapidly on the Hill this year, and so I'll give you a perspective of that. All right, so I could probably do the entire brief off this one slide. Modernize and grow a resilient global force with the objective on the bottom of having a more agile, more lethal, more networked force, and so as you think about modernization, and I'll walk you through some of the pictures and some of the themes, modernization goes to capability, right? It goes to, are we meeting the threat? Are we overmatching the threat? Do you have modern systems and capability in your systems and platforms? And I'll talk about that, as I said, in terms of force structure, growing the force.
Growing the force to this 355 number, it's a combination of what you have today versus where you're going to go in the future. But it is a combined view of growing it in a way for people and technology and capabilities to modernize Navy and modernize forces, as I said, that overmatches the threat. Resiliency. Mike and I were at a conference earlier this week. The former Chairman of the Joint Chiefs spoke there. But then I was at a conference the week before where the Chief of Naval Operations spoke. They both said the same thing. They said, "If you're thinking about this force in the view of what it was 10 years ago, it's a different force and a different threat." Resiliency is all domain, right? All domain means if you have a naval force, it's linked.
I have kind of the lightning bolt diagram in there. It's a linked force where you have everything from the seabed to space linked through resilient networks and sensors and things talking to each other. And it's very much an integrated force that includes cyber and all of these elements that we bring as a nation to the fight or to the peace, right? There's a deterrent aspect here. Let's talk a bit about the 355. That number has been in the press a lot recently. 355, we've watched the number bounce around the past couple of decades, right? 306, 308, 310, 375, 355. My view is the number is important. Always good to have a number. In fact, as you'll see a little bit later, this number has been inculcated in law as the policy of our nation when practicable.
But it gives you a force around which discussion can occur. And so 355 by 2030, an evolving mix. I had some questions over breakfast. What does that mean, evolving mix? My view is the Navy has been evolving, gosh, forever, right? From sail to steam, to steam to other sources of propulsion, to nuclear propulsion. That doesn't scare me at all. And in fact, as Mike says, it's an exciting time. It's an exciting time to work with our customer and shape with them kind of what the future force is going to be, right? This evolving mix for us, whether it's ship types or capability or infrastructure or cyber, whatever it happens to be, we're part of that dialogue with them. So that's a good place to be with these themes. And you've heard the Navy and defense leadership talk about this. Undersea dominance.
I've used the word sustain, maintain undersea dominance, right? So submarine force structure, it's attack submarines, it's ballistic missile submarines, it's the transition from Ohio-class to Columbia-class. It's UUVs and the integration of unmanned, minimally manned autonomous capability, the whole range from small to large. I can envision a time where we'll have UUVs carry UUVs, maybe carried by a mother ship, right, and so all of this is evolving, but you're going to see, I think, going forward, my view is we saw a knee in the curve for aircraft UAVs a decade, decade and a half ago. My view is the future for UUVs is kind of the next one to mature. We're watching them mature. We're participating in that. Very exciting opportunity to be in that market and to help grow. The enhanced lethality piece, which is where kind of the pictures come in.
So I could have plastered this page with everything, every platform, every system we do. I kind of did a little picking and choosing as owner of the slide. So that's Ford with aircraft on the deck, right? So that aircraft carrier is the first new carrier we've designed in 50 years. Kind of looks like a carrier, right? It's got a flat deck. It's got airplanes on it. But these ships are capable, flexible platforms. And Ford is a generational change of capability in terms of enhanced lethality, in terms of how it fights, where it fights, how long it can fight, the power that it brings. The Warner, John Warner, Virginia-class submarine next to it. Again, generational change in technology in terms of what it brings to the fight. The UUV, I know the scale looks different. That's a Proteus.
You saw the model out here, perhaps in the hallway. UUVs were in that domain, integrated into the force. The DDG at the bottom, we're excited about participating in the next generation destroyer force, the DDG Flight III and the capability that brings. We're bringing enhanced lethality to the fleet today through these systems. And we're bringing it also through the networks and sensors. I have a view of, again, UAVs, Predator, Predator derivatives. We have a Gray Eagle and Shadow, a tactical UAV. But Huntington Ingalls, more today than ever, is bringing together an all-domain capability for our customers. And those customer lists, like Mike showed, right? The little logos, much larger today than it was before, Air Force, Army, the intelligence community, a whole range of customers that broaden the level of our participation in supporting the needs of the customer and the nation.
Like I said, I could give the whole brief on this one slide. Field a ready and trained force. Again, let me kind of pick this apart. And I used the word already, the ready and trained force to overmatch the threat, right? It's not just focusing on defensive capability, but it's offensive capability. Overmatching the threat is state-of-the-art capability to meet everything that you're reading about in the press, right? All the next generation things that are available to our peer competitors around the globe. We're not just going to meet that threat. We're going to overmatch that threat and deliver decisive force. Mike says and I say, often if you're a sailor on a ship, you go into a port, you look around, it's like, "I'm really glad I'm on this ship. I'm really glad I have that capability.
I'd rather serve here because of what that capability brings." So let me talk about fielding briefly. Fielding means getting the products out. It means getting them into the hands of the customers and the war fighters. And so fielding a force can be challenging. We push through on building and delivering new systems and new capabilities. But we also are involved in the repair side of the world as well. I have the USS Ramage DDG that was repaired by Ingalls. But also below that, the aircraft carrier USS George Washington is in dry dock. Kind of hard to make out because it's so big. But we do some of the most complex repair as well.
I'd argue that the refueling complex overhaul of carriers is the most complex thing of any program that we have because you're kind of redoing the entire house down to the wiring and the plumbing when you're living in it. And oh, by the way, it has nuclear propulsion as well. So it is a remarkable program, does remarkably well. But the challenge is getting these things out on time. We're very good at that. We work with the Navy and the Congress on this. There's a big focus, and you've heard about it, on ship and depot maintenance. We are part of that dialogue. And the math of it's kind of simple. It's like, do you know the work that needs to be done? Do you budget properly? Do you understand the risk? Can you deal with emergent growth?
We're working with the Navy to address that and get all these things out. I just wanted to highlight those examples of important work that we're doing that's satisfying that. Let me drill down a bit though on the rest of this page because this is where the calculus has changed a bit. Maybe it's kind of back to the future. In World War II, Admiral Nimitz worked a lot with the Naval War College and did exercises and war games. The word from, if you read the history, we didn't have any surprises other than the kamikaze in World War II because a lot of that had been gained and experimented. We're kind of going back there. Again, we're going back there in an all-domain environment. Experimentation, we're part of that. Our UUVs are part of the experimentation rubric.
We're participating in fleet games and exercises. So I purposefully included a little table there with the little ships on it because that still happens, right? That's right out of a John Wayne movie. But that still happens. You move the little ships around, little flags on the table. But let me give you a perspective. That picture at the bottom is a photo op. That's not a war game or an exercise. They do that because it makes a nice picture. The war game and the exercise and the capability can be global. Think about that, right? It's not just ships in the water or submarines below the surface, but it could be that synthetic aircraft, right, that you see someone flying off to the left as part of a war game.
It could be that integrated table at the bottom that's moving around real ships or synthetic ships in an exercise and a game to test things out. So the environment to do this, synthetic training, fleet exercises. And when I say fleet, it's not just Navy, right? These are joint force exercises, multi-domain, multi-service. And so probably the next iteration of this slide, I single out Navy, Marine Corps, Air Force. I could very well put in other elements of force structure as well. It's an all-domain integrated game, and we're just honored to be part of that and help the Navy and the nation and all the other services with that next generation perspective of war fighting. You want to try it before you have to do it, right? We train to fight, and we fight the way we train.
And it's so important to have and understand, just like Nimitz did, understand all the iterations of what we may face going forward. All right. There we go. Okay. I wanted to include this, not just because it's part of national security strategy, but there's been so much focus on this. The 2018 National Defense Strategy talked a lot about this, talked about investment for modernizing safe and effective strategic nuclear triad. Again, down the bottom, tagline, high complexity, strategic importance. This is a deterrent. Again, I spoke over breakfast. A deterrent is a deterrent with the hopes of you never have to use it. But if you need it, it better be ready and capable and, again, overmatch what may be required. Columbia is an important, I would say, highly important element of this triad. It is 70% of the accountable capability of the strategic deterrent.
So think about that. So you think about the triad in general and the investment. So it is the number one priority of the Defense Department. That came out as one of the underpinnings of the budget this year. We've invested to build Columbia and submarines at rate. We're ready to do that, support Virginia production, support Columbia production. So from an industrial base standpoint, we are moving forward. And Jennifer will talk a bit more about this. But Columbia is an important program. It's an exciting program. It brings together next generation technology. But it's a big investment for our country. And that's a challenge that we and the industrial base are up to the task for.
The bottom part is, I think, about the triad as the tip of the spear, but there's a whole orchestra below that, right, in terms of the infrastructure, the DOE enterprise, the complex of labs, Los Alamos, other places like that. Those are the people and the assessment and the materials and the work that they do is so highly important. We're there as well. Our posture in the triad, frankly, has increased. Again, whether it's people and technology, great learning and synergy between the work we do at Newport News and nuclear-trained folks and the work that we are doing at DOE. There's modernization of the complex. There's environmental remediation, acceleration of that work. Lots of good work.
And as you saw, and you'll see in a minute here with regard to the budget, growing investment, frankly, in modernization of the DOE complex. Last but not least, sustain a healthy defense industrial base. When I worked for Secretary England as the deputy for ships, he used to say, "Mitch, build it and they will come." And I respectfully said, "I'm not sure they're here anymore." We've lost such a large portion of the industrial base from 1979 to today. Number of shipyards used to be 15 in 1979. It's arguable that it's five major yards today and two tier two yards. Lots of work to do. And again, there's a level of consolidation that's occurred. The supplier base has come down as well. Lots of work to do.
But we're kind of at an interesting point where the industrial base has to support and deliver a new and repair old to move forward. That's really why the White House said, "Hey, we need to take a look at the industrial base at large and find out where we are." It is the enabler of national security capability. If you read a book called Freedom's Forge, it talks about how the country geared up in World War II. We're in a very different place today in terms of manufacturing and capability. As I tell college students, we build the most complex, largest machines on the planet. It's exciting work. Come join the team. But it is in a different place today. It's in a good place, and we can support everything that's required. But we've had some challenges. Sequestration was a challenge.
Good news is sequestration for defense national security is over because of the Bipartisan Budget Act that supported a budget number for non-defense and defense discretionary spending in 2020 and 2021, so sequestration is over. This report says sequestration did a lot of damage, and I'm here to tell you from a DC perspective, ultimately, the hit, in my view, the history of sequestration will be it cost money and efficiency and didn't save money. It cost money and efficiency, and we saw that in our business as well, so the good news is it's done, hopefully at this point, with large efforts to carry or buy kind of the flywheel for the shipbuilding industrial base, other work that flowed down into multi-year contracts and larger procurements. The supply base can make the investments to grow going forward. I already mentioned the decline in manufacturing capacity. National issue.
But I'll talk about the real issue here in a second. Complexity of government processes. Government business is hard. Not for the faint of heart. And I grew up in it. And all well-intentioned folks. But the contract that Mike has in his office for one of the very first ships that we built is two pages long. And it's sitting up on his window. And the reality is it's a very complex business, highly regulated business, a lot more than two pages in a contract today. And so our challenge is to move forward with our customer and figure out the best and fastest way to get the contract, really commend the leaders in the Pentagon that are trying to do this. We saw it with the MRAPs. You may remember that. 20,000-ish MRAPs bought very quickly.
We saw it with the design and construction of the SSGNs, converted ballistic missile submarine. So there's a way to do this. The challenge is to make the system work as opposed to going around the system. We're just honored to work with leaders in the Pentagon to do alpha contracting, to do things very quickly, to get ships under contract in a very quick and rapid way, and to have open and free dialogue to make that happen. Sustainment of U.S. capability. That's kind of the crux of this report, isn't it? What's core? So this report, again, long report, 146 pages. Again, these are the themes out of it. But sustainment of that capability is core. You need this as a national security enabler. But finally, and I wanted to get to this point, this is all about people. This is all about people, right?
So when you talk about healthy industrial base, you can actually build the facilities. But if you don't have the people in the facilities, if you don't grow the STEM capability, if you don't grow the trades, if you don't grow the people that are innovative, all you have is a great facility. And so we focus as a workforce development company on this. Department of Education focuses on this. DoD focuses on this. We invest more than $110 million a year in workforce development, education, and training. And again, I won't steal the thunder of Jennifer and Andy and Apprentice Schools, academic partnerships with colleges and universities, STEM investments, not just with college folks or trade schools, but elementary and middle and high schools, right? It's a long-game investment.
Because again, you can build the facilities, but I guess maybe, like I said to Secretary England, you can build it, but build it and they will come. You have to have the people to do it. We're investing in the people. So that's the government speak translated into programs and priorities. I hope that helps you frame kind of the underpinnings of what I say to the leadership and the company with regard to this is our business. This is the strategy and foundation upon which we move forward and make the investments that we do. So I wanted you all to hear that because that frames everything we do in Washington. It's informed, again, through engagement with the Executive Branch, the Legislative Branch, the policy folks in Washington, and then the technology piece, and culminates in a view that, again, supports the business and our path forward.
All right. So I'm going to translate from there into the budget. Okay. So President's Budget Request. I guess when I was in the Pentagon, you are where you sit, right? So when you're in the Pentagon, you work really hard to develop the budget. You have a constrained box you're in, and it's really good work. You have people that know what they're doing. They have priorities, and there's interface with the White House and Office of Management and Budget. And in the end, you have a budget request that does its best to balance priorities against the dollars that you have. So a lot of folks asked me last night and this morning, "What do you think about the budget request?" I said, "Budget request is a great document.
It's the underlying document upon which a dialogue happens with the Congress. And I'll talk a bit more about that in a minute. But let me kind of dissect this for you. So shipbuilding. We kind of played with this chart a while, and I went back to 2010 and kind of looked at numbers. But you forget where you started. 2015, there were seven ships in the budget. 2020, there were 14 ships in the budget, right? 2021, there's seven or arguably eight ships in the budget. One of them is an LPD that was actually appropriated and authorized in 2020 that kind of shows up in 2021. But all that is kind of moot. The point is shipbuilding is supported in the budget, right?
The trend is up, and the challenge, as Mike and I have said publicly, is the balance of things that the Congress needs to consider with the Executive Branch is how is Columbia going to be paid for? Again, strategic priority. I guess I'm bullish on this. So the takeaway for shipbuilding is it's a solid budget. Whether it's $20 billion or $24 billion, all of this will work. The point is ships are under contract. Multi-year procurements are in place. There's a path forward. We look forward, again, as we always do, to working with the Executive Branch and the Congress to advise on the most efficient and effective way to build these ships in a repeatable way. Series production, right? It's as close as you can get to a production line in ships as opposed to having every ship be one of a kind.
I'm bullish on this trend. 2020 is better than 2015. 2024 is what we were at for the past couple of years. And again, we look forward to working with the Congress on an outcome going forward. Ship maintenance. As the Navy strives to reach the 355 number, it is a mixture of what you have today, increased lethality, fielded today, integration of hypersonics and directed energy, and all those things going forward. The Navy leadership has said you're going to see $30 billion over the next three years, essentially. So I assume that's. I don't know if that starts in 2020 or 2021, but essentially $10 billion-$11 billion a year. A lot of investment in ship depot maintenance. I remember there are two pieces to it, public shipyards and private shipyards.
So all that is in this pod, but there is a level of synergy and collaboration across those domains. So that's a good level of investment. Unmanned. This is a remarkable trend. If you went back to 2010, it's like a single digit, right, for unmanned. And unmanned here, it's not the air breathing. It's not aircraft. It's UUVs and USVs. And so look at the trend. I've talked about this for a number of years. The Force Structure Assessment has talked about it. There is an Integrated Naval Force Structure Assessment going on. I didn't mention that on the previous slide. But as we look towards that, that's not just the Navy view on force structure. It's an integrated plan that's based on validated joint warfighting scenarios. And through that, you're seeing some of these investments change.
Again, evolving force, which is an opportunity for us, and it's something that we're embracing. So unmanned is a big piece of this. Great growing market. C4I, we joked, is it C5I? Is it C6I, right? We seem to be adding C's over time. So the budget roll-up, I included this number because this is actually what the budget documentation rolls up in an aggregated line. Significant number, right? You look at ship depot maintenance and C4I. I would argue that under cyber, which is not in this C4I roll-up, there's probably another $10 billion at least that's aggregated across the agency. So again, if you want to understand trends in budget, C4I, command and control, computers, those types of things. And then the I piece, right? Intelligence, but there's also SR, surveillance and reconnaissance. Significant market, growing market. Again, all domain.
If you have one takeaway for me today, think about what I'm saying in all domain. It's Navy, naval, but it's all domain across services and other agencies in the government. Homeland Security, I'll just touch upon that briefly. Big requirement in the Coast Guard for modernization of the force. So this is Offshore Patrol Cutters and their Polar Security Cutter, their icebreaker. National Security Cutter is in here somewhere. You may recall that National Security Cutter replaces 12 High Endurance Cutters. There was long lead included in last year's bill for a 12th National Security Cutter. We'll kind of see where that falls this year. They're amazing ships. I'll point you to YouTube and a video of a National Security Cutter intercepting one of these drug submarines and folks banging on the submarine to show you what our Coast Guardsmen do to protect these maritime borders.
And then last but not least, look at the ramp-up in investment for NNSA. That's the DOE enterprise. Now, that money is actually the NNSA and DOE Environmental Management. It's all under the DoD budget. And so DOE has non-DoD investment and DoD investment. So this is all DoD kind of investment. So that's the nuclear security complex. And again, Environmental Management. Environmental Management always comes in at like the five to six level. There's strong support in the budget process. That's why you kind of see between 2020 and 2021, a little bit different number, but it's been about five and a half to six consistently over time. So we embrace this. Great starting point, great dollar, great work, frankly, by the Executive Branch to put together a very difficult budget. I'm going to leave you on this slide.
Let me just wrap up kind of by walking through and foot-stomping some of the things I said before. The Bipartisan Budget Act ended sequestration. That is a good news story. We have a path forward on 2021. Again, question I got last night and this morning of, "What do you think's going to happen?" Right? There's a camp that says nothing's going to happen, right? Washington shut down. I'm not in that camp. I am really bullish on the 2021 cycle getting done. Let me tell you why. Two years ago, we had a lot of budget debate. We had investment in the wall. We didn't have a bipartisan budget agreement that addressed that. But lo and behold, at that time, we had a CR, continuing resolution that carried us forward.
But then ultimately in 2021, and 2019 actually, 2019, 2020, and then 2021, we had a path forward on the wall, right? We had a path forward through the top-line budget. So those numbers are fixed for 2020 and 2021. It was 738 last year. It's 741 this year. Those numbers are fixed. And so the Congress has a roadmap of now, remember, we did all 12 appropriations bills at the end of last year. I am really bullish on the Congress doing its work. And in fact, what we are seeing is the Congress and the committees of jurisdiction for national security in other areas already doing their work. So I think you're going to see not just work get done. You're going to see work get done quickly, right? Committees will do their marks. Some things may even make it to the floor.
But I think there's a growing level of energy for the Congress to do its work because it's good work on behalf of the nation. And national security is largely a bipartisan thing. It just is. Last year, all 12 appropriations bills, as I said, got done. Year before, they actually got done on time within the fiscal year. And so I think we're going to see it happen again. So force structure. So it is interesting. You've seen it play out in some of the press. President's Budget comes over. You see some members say, "We'll work with the budget." Others say it's inadequate. I mean, nothing different than what you've heard over time. But let me tell you, there is a special relationship between the Congress and the Navy. There just is, right? It's in our Constitution. I had to laugh.
It's not a civics lesson, right? Some of the members have actually said this, right? Constitutional requirement to provide and maintain a Navy. You see it in law, right? 10 U.S.C. 5062. That is, this nation shall have no fewer than 11 aircraft carriers in statute. SHIPS Act in 2018. It's the policy of this nation that we shall have a force structure of 355 ships as soon as practicable in statute, right? So this isn't advisory. This is in law. And then last one, just introduced by Senator Wicker, SHIPS implementation. Kind of a follow-on of the SHIPS Act of, "Okay, 355, policy of the nation. Here's how we, the Congress, think the ship force structure should be developed." So again, a lot of dialogue, but a high level of interest with regard to integrated naval force structure in the Congress. So again, I'm giving you an observation.
Not going to tell you how it's going to work out. I wouldn't be presumptuous and predict that. But there's a strong level of interest, and you're seeing it play out already. Strong level of interest in general for the industrial base. It is a constituent thing, right? But it's bigger than that. And again, I'll put my Congress hat on for a minute here. These are folks that have been here a long time in the Congress, many of them serving many terms, and their staff, many folks have been there a long, long time. There's a long history of understanding what today's plan is, what yesterday's plan was, what tomorrow's plan will be, and how does that sustain and support the industrial base of the nation.
So you're seeing things flow out of the Congress, a lot of language, frankly, and some in statute of block procurements, multi-year procurements, flow down of supplier development funds, as I said in the next line here, specific investment to sustain the industrial base because there's growing concern that our industrial base needs stability, needs a vision, needs focus so that we can build the products and capability that our nation needs, but also that we can attract and retain the workforce. Again, most important point, attract and retain the workforce to make all this work. And then last but not least, Acquisition Reform. We've been doing Acquisition Reform. Congress has, the nation has, the Executive Branch has for decades. There's always a better way to do business, right? There's a better way for us to do business, better way, always ways to improve.
So this will be a continuing focus area of the Congress trying to help and provide the authorities to the Executive Branch to do business better. And we partner with the Congress in giving an industry perspective of those initiatives and then obviously working very closely with the Executive Branch to make them happen. So hopefully with that, I've woven together the requirements, right? Government speak and industry speak, kind of a view of the budget, and then rolling finally up giving you a view of what's going to happen in Washington. And I'm just honored to serve there. Thank you. And next. All right, Jennifer. Okay.
All right. Well, good morning. I'm Jennifer Boykin. I'm the President of the Newport News Shipbuilding sector of Huntington Ingalls Industries.
I can tell you that we are very fortunate to have Mitch and his team in Washington to do all that fighting for us. I'm excited to tell you about what we do after Mitch's work is done, and that's execute and build these great ships. I've been at Newport News for 33 years. I actually started within months of the last two-ship carrier buy. I've had the opportunity to work in a number of different divisions across the business, including time as a construction manager when we built the John C. Stennis and the Harry S. Truman. I've had the opportunity to work for a number of great leaders. I can tell you that the knowledge and the passion that the people have in our business and what they bring to work every day is just kind of awe-inspiring.
So I'm excited to talk about that. I'm excited to tell you about the opportunity that we have as we execute on this historic $35 billion backlog at Newport News. We are extremely well-positioned to create value for the corporation. And we're well-positioned because of the investments we've made that I'm going to talk to you about in our facilities, in technology, and in our people. So a little bit about Newport News at a glance. Our business is made up of aircraft carrier new construction, submarine new construction, the aircraft carrier refueling business line, and then services, which really includes fleet support for both carriers and submarines, as well as engineering programs. We have a very proud workforce. We just celebrated. The business just celebrated 134 years. We have constituents, supply-based personnel across almost all 50 states.
They and our workforce both recognize what the stability of this backlog really means to us. I feel very fortunate to be able to talk to both current and future employees about coming to work with years and years of steady work and what that means in terms of opportunities for them and what it means in terms of opportunities for our supplier businesses. I want to just take a minute and share a video that really talks about what we do at Newport News. This is a really cool business to be the leader of. Very excited about that. You've heard a lot about the backlog. The signing last year of Virginia-class Block V contract on top of the two-ship buy earlier in the year is really what brought us over this line to this $35 billion backlog.
That just creates, again, so much opportunity for us as we really focus on the execution of that work and the opportunity that that creates. We've seen good growth rate over the last four years. That was really driven primarily by our aircraft carrier new construction work, as well as our in-yard submarine fleet support work. We expect that growth to continue at a moderate pace going forward. And then, relative to income and margin from 2016 to 2018, that decline is really driven by the mix of the programs that we had in the yard at the time. And what I mean by that is at the beginning of a program, when the work and the risk is ahead of us, we're conservative in our booking.
As we execute on that program and we reach milestones that support the system growth or the volume of work, we'll retire the risk that's associated with those milestones, so we feel confident about where the programs are now looking forward, and we expect to see more normalized margins going forward. Again, this backlog and the visibility of the revenue gives us a great opportunity to create value, and the team is excited to execute on the programs that we have in place and really make sure that we create that value, so our focus on execution, Mike mentioned this, the execution operating system. Over the last few years, as we went from building just Virginia-class submarine on the submarine side and we established our submarine fleet support business and set up our Columbia program office, we've been able to make sure that we spread our submarine construction talent.
The first bullet you saw in Mike's execution operating system list was getting the right leader in the right place at the right time. We've been doing that over the last few years. Our focus on execution operating system is really making sure we have the fundamentals, making sure we understand how to manage the risk for all these programs, and really make sure that we manage and retire the risk as we go. Our execution focus is equally on how we're investing in the future and how we're taking advantage of the investments that we've made relative to facilities and technology and our people. Relative to aircraft carriers, Ford is, you heard Mitch talk about it, this is a generational change in the capability of an aircraft carrier. It's the first that's been designed in 50 years.
It was designed in a 3D Product Model, which really sets us up to leverage that technology and change how we build carriers. So we think about Ford in terms of designing it differently. We've designed it so that we can be more efficient as we build it. There's 22 or so new technologies on the Ford, and that includes 2.5x the power generation. So when you think about what the Navy needs to do in the future, as Mitch mentioned, it's really designed to add and to bring in capabilities that are being developed now and haven't even been thought of yet. It is a 50-year asset. In terms of how we're building it, so because it was modeled in a 3D Product Model, it really gives us the opportunity to change the way we build CVN 79 from CVN 78.
So if you think about just the modules that we build, and we've been able to put more pre-outfitting. We've been able to build larger units, more complete as we build CVN 79. So that's really what's enabled our cost reduction as we go forward, fewer man-hours because we're leveraging the technology that we've invested in. And then CVN 80, CVN 81, the next opportunity that we worked through with the Navy is the two-ship buy, which gives us opportunity from a material procurement standpoint, buying two ship sets of material, doing the engineering products once, first, twice. So the two-ship buy gives us an opportunity, again, to leverage what we've invested in and to make sure that we continue to work with the industrial base, the supply base for material savings. The investments we've made for the Ford-class are really in putting more work under cover.
This yard has literally transformed since I started here about 30 years ago. The vast majority of our workforce now works under cover. They work inside facilities, which enables them to work more safely, but also it's much more efficient. In fact, the unit outfitting halls, which is one of the significant investments we've made for Ford-class, which enables us to build units under cover. In the first six months that those were in service, we saw 20 days that would have been lost due to weather that we were able to be productive indoors. Mitch mentioned the aircraft carrier refueling and overhaul complex. RAND Corporation has identified this as one of the most complex engineering and industrial projects anywhere. I'll tell you that the RCOH is much more than that.
Literally about 1/3 of the complete modernization and maintenance that's performed on an aircraft carrier is completed in this overhaul. So we've completed five of the 10 Nimitz-class overhauls. The George Washington, which is in now, is the sixth Nimitz-class being refueled. After we refuel the carriers, it goes back for the next 25 years of service, and then they come in for inactivation. So we've inactivated the Enterprise, which is the first nuclear aircraft carrier, and we'll start the first of the Nimitz-class here in the next few years. Newport News is the only shipyard that really has the facilities and the workforce trained to do refuelings and inactivations. So the balance of these, while not under contract, will come to Newport News.
And the investments we've made here are really because in the single part of the yard, we do both the refuelings and the inactivation. So we've invested in crane and in facility capability to make sure that as we get into the inactivations of the Nimitz-class, while we're still refueling, we have the capability of doing both. Let me just talk about what that means. So this is just a sample chart. This is the CVN 81 USS, or will be the USS Doris Miller. So it's under contract now. We will build over the next few years until she delivers in 2027. So we will finish building the Doris Miller. She'll serve for 25 years and then come back to Newport News. Some future president at Newport News will put the refueling under contract. She'll serve for the next 25 years.
And then a future president after that will put the inactivation under contract. But that's 50 years of life that we know we have that work. And when you look at that stacked up, this picture, which is an eye chart on purpose, really tells you at the top are the carrier new construction work. That middle part of that chart is the heel to toe, back to back refuelings of all the carriers from the Washington, which is in the yard now, through the time that the Doris Miller will be refueled. And then that bottom set of charts is all of the inactivations, starting with Nimitz all the way out through the Doris Miller. So we have this long-term view of what we're going to do just with aircraft carriers because we build them, we refuel them, and we inactivate them. That goes out to 2087.
That long-term view, that stability makes a huge difference because, as Mitch mentioned, this is very much a people business. So as we're trying to attract new talent, we're trying to retain talent. We literally are a workforce development and leadership development pipeline. It creates an opportunity for people who want to and are drawn to do this work to actually see that there's long-term stability and opportunities to grow and develop. And really, I know of no other business that has this type of view. Let me talk about submarines for a minute. Virginia-class, you've heard mentioned before, 18 boats delivered, 19 under contract. We are teamed with General Dynamics Electric Boat on the Virginia-class program. So we build all the bows, we build all the sterns, and we build all the sails. And then we alternate deliveries with Electric Boat.
It's roughly a 50/50 work split program. They build everything that's blue or sort of the middle of the boat. We build what's green. And then as we alternate, we assemble the modules and deliver. Columbia-class, which again, you heard about, Mitch talked about, Columbia-class is about 2.5x the size of a Virginia-class. There are 12 boats in that class. Electric Boat is the prime. They will deliver all of the boats. They'll assemble and deliver all the boats. But again, in order for us to support this program and really meet this national security defense, we get to do that while we build the parts that we are very familiar with. We will build, again, the bows, the sterns, and the sails for Columbia-class. And we'll ship all those modules to Electric Boat. They will assemble and they will deliver.
Mitch talked about sort of the future and as the Navy and Department of Defense are thinking about what's the warfare of the future. The other part of the submarine program that we're active in and we work with the Navy closely on is really thinking about what the concept design is. What is the future? What is the next fast attack submarine? And that's a part of the business that we want to make sure we keep our foot in. We've got a very, very strong engineering workforce that leads this work. And it's to make sure that, again, as the Navy figures out what's the future needs for the fleet, we're prepared to continue to be a partner with the Navy. And then from a facilities investment relative to submarines, we have invested in state-of-the-art automation and capacity.
And our investment on the submarine side is really to make sure that we're focused on how to build the components that we build, the cone-shaped components of bows, sterns, and sails more efficiently. And those have been the first one of the units, the first one of the automated units is in service. And the workforce is excited about it. It's undercover. It's very cutting-edge technology. And we're seeing the efficiencies that we expected to see for that investment in submarines. So I mentioned our execution focus is relative to what we're doing today as well as how we set up for the future. We have invested a significant amount in our facilities. We've invested about $1 billion in our facility. And again, it brings not just capacity, but capability.
That capacity and that capability are key to the programs that we're executing today as well as in the future. We made that investment because we knew the Navy was heading towards this generational buildup. To be able to see the yard transform, to know that the workforce is working in these facilities under cover and being able to bring innovation and ideas and leverage technology in ways we didn't know is really, I think, a key to attracting and keeping this talent. The other investment we've made in the facility is really relative to our transformation to digital shipbuilding. We are leading the Navy in the transformation to digital shipbuilding for both aircraft carriers and submarines, and in fact, helping the Navy as they think about their digital transformation process. We've got connectivity across the yard.
It's exciting to be able to lead the business at a time when we are transitioning from building ships with paper drawings, which is what we've done for the first 130 years, to the time when this workforce is going to be building these ships using tablets with capabilities like embedded training videos. Imagine YouTube videos where you can understand and see what you're going to do ahead of the time you do it. In fact, I was talking with one of our very experienced foremen who is happy to share that he was not excited about this idea of transitioning to digital. He grew up learning how to build ships from drawings, and that's how he was taught, and that's how he's been teaching his crew.
And I saw him the other day, and he shared with me that what he realized from this once he was dragged into the world of digital is that he's able to teach his workforce what they need to do, what's important in a way that is, first of all, much faster for them to learn, but secondly, much less frustrating for him to teach. So it is we have a bimodal workforce, and this capability is bringing people together to do that. Our decision to build CVN 80 drawingless is really a decision to de-risk Columbia. The Columbia program, the Navy made a decision that the Columbia program would be digital from inception. They decided that at the very beginning. We will build and transition our business processes. We'll transition our workforce training. We'll transition our execution toolset, our business toolset on CVN 80 ahead of Columbia.
So getting the yard digital, making sure that we have the workforce that's ready, both the seasoned shipbuilders and the new shipbuilders, making sure that we have them ready to do this is critical to the success of Columbia. And that is happening across the yard today. So that technology really, again, it started with Ford-class from a design standpoint. We're rolling out how we actually do the build, the complex project management build of ships, leveraging that technology. And then ultimately, the product that we give to the mechanic on the deck plate being digital instead of paper. And that's enabled by a tremendous amount of other capabilities, data analytics going into those capabilities, and even the laser scanning and reality capture.
As we started this journey, we really thought about the fact that digital shipbuilding would only be applicable for the ships that were designed in a 3D Product Model. But through the innovation of this workforce who finds opportunities to leverage the tools much more than we could imagine, we're actually bringing the ships that were designed before, the Nimitz-class, by using laser scanning, creating basically the same 3D Product Model, and then leveraging the investments for those programs. So again, this is an investment in the facilities. It's an investment in the technology. But ultimately, as Mitch said, it really is about the workforce. This workforce, we've hired to 25,000+. That's where our workforce stands today, making us the largest industrial employer in the state of Virginia. That workforce has new and experienced people. We have about 1,000 shipbuilders that we consider master shipbuilders.
They have 40 or more consecutive years of service. We have almost 4,000 veterans in our workforce. We have hundreds and hundreds, if not thousands, of second, third, fourth, and even fifth generation shipbuilders. The workforce comes with a capability. They're digital natives. Thousands are digital natives. They come with a capability, an understanding of how to leverage the digital toolset, be innovative, challenge us to think about different ways to bring efficiency, to bring cost reduction, to bring process improvement to bear. That's what's happening today. We're making sure that our workforce pipeline, because we are a workforce development company, we're making sure that our investment in people is enabling that. We're doing that through training, ongoing training with the current workforce. We're doing that with the future leaders. Mitch mentioned the Apprentice School.
Apprentice School was 100 years old in 2019 last year. We're doing that as we attract talent that's coming in, the professional white-collar talent that's coming in. They're seeing capability. There's a sense when we go to these hiring conferences, there's a sense that this shipbuilding is kind of dirty, old, and not very high tech. And what they're able to see is that that's not the business that we're in today. And as Mitch mentioned, it is a people business. So getting into the high schools, getting into the middle schools, and really getting into the elementary schools to make sure that we're building those basic skills that people will need as they come into the workforce is critical. I do consider us really sort of having a world-class workforce development pipeline and workforce development program. So again, a historic backlog.
We are well positioned to execute because of the investments we've made in people, in technology, and in our facilities. We are focused on making sure that we manage, we understand the risk, and we manage the risk. That is really core to our execution operating system. We're focused on getting the right leader in the right place at the right time. We're focused on leveraging best practices, whether they're across our programs or across the programs at Ingalls, to make sure that we really understand how to look for, how to manage risk. We're sharing best practices across both yards and across all programs, and we're investing in our people, in our technologies, and in our facilities. We're well positioned because of those investments. We're focused on execution, and we're going to create long-term value for the corporation.
So I appreciate the opportunity to talk about Newport News Shipbuilding, and I will turn it over to Dwayne for questions.
Okay. All right, so we've got about a five-minute Q&A session here for Jennifer. Davin's got a mic here in the back, so if you raise your hand, we'll recognize you. Please state your name and then your question.
Morning, Jennifer.
Morning.
I was wondering at a high level, a couple of questions. One, if you could just characterize any differences between your yard and EB, how we should think about if there's an edge at either one or what you specialize in other than sterns and sails and so forth. And then a little bit more specific to that, how integrated are your digital tools on Columbia with EB? Do they have to be jointly developed?
Yeah, good question. Let me answer the first one. Well, first of all, the EB really has two yards. One is in Groton and one is at Quonset Point, Rhode Island. They're facilitized for submarine construction and submarine maintenance only. So just the magnitude of the yards is significantly different because they don't have. I mean, we're 550 acres on 2.5 mi of waterfront. We are facilitized to build large structural units to support aircraft carrier new construction. We are facilitized in the middle of the yard to do all the refuelings and the inactivations. We're facilitized with carrier test piers. We have much larger manufacturing capability. So they're really apples and oranges. However, relative to submarine construction, we're both investing. Electric Boat is also investing in their plant. They're investing for Columbia-class.
They're investing too because Electric Boat will assemble, will do the final assembly and the delivery of every Columbia-class submarine. So they're investing really to make sure that they have that capability. So relative to submarines, we're both investing and I think we're both too capable yards. For Columbia on the digital, so Electric Boat is the design yard. We both use the same design tool, and we've had to work very closely to make sure that really as the design feeds their factory, the way that we put the data together to feed their factory, we've had to work together to make sure as that data comes to Newport News to feed our factory for the parts of the boat that we build, that that is effective and efficient. So there are differences.
There are differences in their business processes and tools than ours, but quite honestly, there's no way we would be successful unless we work very closely on that design and the flow of the digital information.
Doug Harned, Bernstein. Mike's talked a lot about when you think of average margins for shipbuilding, kind of in the 9%-10% range where sometimes you'll have production ships that'll be higher margin development ships, lower margin, that kind of a blend. But when you think about aircraft carriers, it's such a unique business. And they take a long time. They're complex. How do you think about going from a cost-plus boat on CVN 78 to CVN 79 to CVN 80 to CVN 81 and retiring the risk, improving the margins? How do you think about when you get to the point that you can really deliver sort of a higher margin production ship?
I'll answer that. Kind of regardless of the contract type, the way I think about the risk on an aircraft carrier program is really at the beginning of the program when all of the volume and the system work, the test is ahead of us. We are conservative. We book conservatively. And as we go through the execution of that and we hit milestones that are aligned with either the system build-out, system test, or that are aligned with the volume, when we hit those milestones, we'll retire the risk. And really, that's the approach we take to risk management regardless of the contract type. From CVN 78 to CVN 79, I mean, clearly there are things that we executed and we learned on CVN 78 as a first-in-class that we rolled into CVN 79, both in terms of how we build the ship and how we test the ship.
So we've got more visibility about what's ahead us on CVN 79 because it's not the first of the class. And then really relative to CVN 80, it's the same approach. I mean, we're thinking about what are those milestones and what risk is associated with that. CVN 80, it's still in producing the technical information, etc. But I think about it in terms of where we are in build and the risk that's associated with milestones that are ahead of us, execution to those milestones, and then the retirement of risk when we get to those milestones.
Yeah, just a quick one, Carter Copeland with Melius Research. Jennifer, there have been some commentary, I guess, and you mentioned this briefly in the discussion around digital, around bimodal workforce, but there's been some commentary in the past around the juniority and the staff at Newport News and your attempts to kind of get them.
The what?
Juniority. We have a lot of less well-seasoned staff, newer staff.
Okay.
And getting them up the curve to.
I need shipbuilding terms.
It's okay. I'll come up with a shipbuilding word. So you got a young workforce. You want to bring them up the curve. And I know there was a lot of efforts to that in the last couple of years. How do you benchmark and what sort of progress are you making to get where you need to be for that workforce to retire the risk that you need them to do on the next ships?
Yeah. So again, we have experienced and new workers. It's still bimodal, but we have hired 10,000 or so people in the last few years. About 1,000 of those, by the way, are engineers. And so I would characterize that as both a risk and an opportunity, quite frankly. On the production side, we have changed the way we do some of the training, and we've changed it to really based on kind of best practices, but it's more training in smaller pieces, closer to the time of work execution. So that provides both an opportunity for that new workforce to learn more immediately, closer to when they execute, but it also provides an opportunity for, again, for the experienced workforce to work with them on, I'm going to say, bite-sized learning opportunities.
Traditionally, 10 years ago or so, most of the workforce training would have been go to the schoolhouse and learn what you need to learn and then go do your work, and that's now more our model now is transitioning to more dispersed, local, on-site practice it before you do it, and I will tell you, there's no question in my mind that the technology, the investments we've made enabled that. The investments we've made accelerate that. There is learning that's taking place with the experienced workforce because if you just think about the way a foreman would train a worker, it's really look at a flat plan drawing. Look at this two-dimensional drawing and then in your mind, transition it from two-dimensional to three-dimensional and now build this part of it, and what happens today is they've got the tablet. They can manipulate it. They can look at it.
They can blow it up. They can shrink it. And they can turn it upside down if the unit is top-down. They can turn it upside down. And so I can show you what you're looking at, and I can show you the piece that you're supposed to do. And I've seen experienced workers, people who have been there 20 years, who get so much more out of the way we're doing it now. We've got plenty of early indications where a two-year employee would do the same job that a 15-year veteran had done for the last 10 boats and do it in a shorter cycle time because they can very quickly grasp the concept of what they're trying to do and how to do it. And I'll just, again, it is a fascinating time in shipbuilding.
I am really excited for this duration because of this transformation and just watching people take to that, getting an understanding on it and an excitement of what we're trying to do, and still, it's one of the very few places that you get to see the product float away at the end, and there's just nothing cooler than that, so.
This will be the last one, and if you have any other questions, save them for the end, the final Q&A session. Go ahead.
Sure. Byron Callan, Capital Alpha Partners. Jennifer, this may be an apples-to-oranges comparison, but in 1982, Tenneco for shipbuilding showed 28,000 people working in the yard. So I was a little curious about your comment about 25,000 people at Newport News. This kind of gets back to some of the earlier questions. Do you see your headcount growing with sales in the future, or are some of these investments actually going to enable you to keep headcount stable and basically get more productivity out of the same workforce?
Yeah. I will tell you, I don't want to speak too much to the Tenneco era of manning, but I will tell you that I see us growing maybe a couple thousand more over the next few years. But for the most part, we are at the manning level that we need to be. Okay.
Sound the one that your members didn't?
Me too, Mike.
I would say that the.
You guys can hear me here, but okay. What I would say is the number of ships and the amount of work that we're doing today with 25,000 people is significantly more than what we were doing in the mid to late 1980s. When I first started there, we had 31,000 people doing less work, and so from a productivity standpoint, I don't think there's a comparison at all, and I think that, quite frankly, what we're talking about here is really expansion of the product lines. You're expanding the product line into the inactivations. You're expanding the product line into the Columbia-class. Those were places that Tenneco was never in. Tenneco back in those days was just doing carriers and submarines.
So it's an interesting number, but what it speaks to is the capacity of the yard at the end is driven by how many people you can effectively employ. Where we are today is we are a much more productive facility, basically in the same footprint as we were back then, with maybe a few less people doing a whole lot more.
It was just carrier new build. It was not RCOH.
That's right. It was just new construction. So I just don't think it's. I think you have to kind of look at it that way.
Okay. I'm happy to introduce my teammate, Brian Cuccias, President of Ingalls Shipbuilding.
Well, good morning, ladies and gentlemen. I'm Brian Cuccias, the president of Ingalls, and I've been in shipbuilding over 40 years, and I've been involved in just about every aspect of the shipbuilding process, and one thing has really held true in all the areas and all the roles that I've been in is really executing on the basics. Mike talked about executing on the basics. It's really important, and it really gets down to product rate and utilization. It gets down to cost, and so we've spent a lot of time over the last several years investing to improve those basics, to improve the utilization, and really improve the rate, so I would like to start with a short video that shows some of the investments we've made in the yard.
The exciting thing is these investments are just about done because it's kind of hard to actually modernize your yard as you're building ships. So we look forward to, we can just focus on building ships. But I want to give you a perspective on what's going on in the yard right now in operation, as well as some of our platforms. And then I'll go further in the brief.
It will be a Shipyard of the Future. Okay, well, I hope that gave you a better understanding of really what's going on in the shipyard, but just to cover shipyard at a glance, you saw the four classes of ships that we're building. We currently have 13 of those hulls under construction. We're the sole provider of three of those classes: the LHA America, LPD 17 San Antonio, and the National Security Cutter, and we're one of two builders of record of the Arleigh Burke-class destroyer. Not talked as much about, but we actually have a pretty comprehensive life cycle services. I'll talk more about that later, but we have three programs that we're doing that work for: CG 47, LPD 17, and the recently awarded LCS contract. We are also the largest manufacturer in the state of Mississippi with 11,000 employees.
Mike and Jennifer both talked about the importance of backlog, and our backlog has really grown over the last four years to just under $11 billion. What backlog allows you to do is really plan your work differently, develop your resources, and engage with the industrial base that is uncommon when you have spikes and valleys in a shipbuilding demand. So it's kind of unique, but it's actually really important to get efficient. We finished the year at 9.2% margin. We've been solid over 9% margin over the past years. The earlier margin was really driven by some great serial production with very little change and some one-time events. I've seen the 9% really being solid from 2019 going out. The LHA program, it's as large a ship we build at just about 45,000 tons. It is the cornerstone of the amphibious fleet.
It's a huge role maker for the Marines' transports and lands, Marine expeditionary units. It actually can hold 22 Joint Strike Fighters. Have a long history building these ships with 14 delivered to LHA 7 and LHA 8 are in backlog. LHA 7, Tripoli, it will be delivered in the next few weeks, and LHA 8, Bougainville, actually has a well deck put back into the stern and a smaller superstructure. The LPD-class, not as big as LHA, but actually a sizable ship at 25,000 tons. It also transports Marines and equipment, supplies, expeditionary warfare missions, and really a versatile ship with humanitarian assistance and disaster relief missions across the globe. We've delivered 11 of those ships to date.
The three in backlog are actually the transition ships to the Flight II design, starting with LPD 28 that will be launched in a few weeks to LPD 30, which is the full Flight II ship. Arleigh Burke-class destroyers, defenders of the fleet, multi-mission guided missile destroyers, anti-air, anti-submarine, anti-surface warfare at 100,000 shaft horsepower. It really is the corvette of the sea. We have a rich history of building these ships. We've delivered 31 in our history. You can see three flight upgrades in the delivered ships. We have 10 of those destroyers in backlog, with DDG 125 being the first Flight III or ballistic defense platform in that series. National Security Cutters is the centerpiece of the Coast Guard fleet. It's the most advanced and sophisticated ship in the Coast Guard fleet. We've delivered eight of those, and we have three of those ships in backlog.
It's been really a great program for us. We talked about the planning yard and fleet services. You may not realize, but we've been doing the CG 47 fleet services for 35 years. The LPD platform, we've been doing that work for 15 years. But we're also still competitive, winning the LCS planning yard contract recently, and we'll do a great job for the Navy and for that program as well. So we talk about investing in the future. I started by saying it's about affordability. It's about flow. It's about rate. It's about doing the basics well. So in 2014, when we thought about what do we need to do to the shipyard, how affordable do we need to be in the future, what programs do we need to capture, where's the Navy's budgets, and how affordable do we need to be, we looked at every aspect of the shipbuilding process.
We started with the design. You realize, but not a few years ago, we were doing design on both computer and paper. Now all our designs are on the computer. That allows for a consistent and repeatable and efficient transition into the yard. When you look at for design for producibility, the cheapest pipe detail section of pipe to build on a ship is one that doesn't exist, and there is real magic in terms of when you design for producibility on how efficient you make the design. When you look at the ship in terms of product families and how they fit in the yard, you need to understand the product families and know what does your yard need to be and how does it need to service the products that will go through it.
The Shipbuilding of the Future I'll talk more about, but the people are the enablers of your equipment. How do you build the ship? What's the optimized strategy? What do you put in package units? How do you increase your product flow? Access and utilization. Can I get 10 minutes more efficiency out of the workforce by providing stairs versus them going up a wooden ladder? What about the environment? What about the rain? What about the heat? How do we increase efficiency and utilization? Because it is rate and utilization that gets you great performance. Enhanced build areas and certainly automation. So when we started the Shipyard of the Future, we knew that LHA 8 was going to be competed for a T-AO. And did we need to capture LHA line or whether you break that line in the yard and go to a commercial-based product?
The DDG program, would you win six ships or would you win four ships? LPD, would it become a Flight II or would it be a commercial alternative to meet that demand? And that was a real no-kidding discussion. Affordability was the key ingredient. And would NSC stop at eight ships or would it go to nine, ten, eleven, and maybe twelve? You know the history. We were successful in capturing all of that. It was because the Shipyard of the Future and our efficiencies enabled us to bid, capture, and execute where we are right now today. All those efficiencies we've submitted in the frigate bid, and we hope for good results on that. The large surface combatant efficiency, that's many years in the future. But it gets to affordability. Are you predictable and can you execute to be involved in any one of these programs?
This is what the shipyard looked like just a few years ago in 2015. The workflow was okay, but the workflow really wasn't optimized. We had a significant amount of work that was done outside. And last year, the heat index averaged 95 degrees Fahrenheit, and one day in September hit 128 degrees Fahrenheit. It's hard to be efficient in those environments. And it rains an average of 80 days a year for the last three years. So we had to take that into account where 10 more minutes of efficiency per worker, product flow. So the blue on this chart is what the Shipyard of the Future did. The blue was either improved facilities or new facilities. The yellow line shows the different product flow. We can launch a ship now out of two locations in the yard with a dry dock that has double the lift capacity.
So now I don't have a bottleneck constraint in terms of the flexibility of the overall facility of the platform. We have added over 1 million sq ft of covered space to our workforce. It's still hot. It will always be hot, but not quite as hot. And they won't get rained out, and they won't have to go home short without a paycheck and without productive work. All that goes into looking at the small details to be productive and efficient. And I'm very excited about where we are with the Shipyard of the Future. Here's some examples. Rolling covers. Takes them out of the elements. There's a closed bathroom, and all the foreman offices are right on site. Those roofs were clapped over on top of each other, so it gives us the same product access as we had when it was blue sky. Increased covering capacity, CSA III.
It's a very fancy term, covered slab area. It's 300,000 sq ft, five football fields long. What was in its place was planning trailers in the heart of the shipyard. In the center of the product flow of material, we had trailers. Now we have the most efficient facility in the shipyard with the cafeteria in this building, first cafeteria the yard has ever seen with a Chick-fil-A in the cafeteria. I'm pretty excited about the Chick-fil-A, actually. And then the East Bank revitalization, that's where the shipyard actually started. Gives us great flexibility. The destroyer sonar domes, very hard to build. Machinery foundations now will be built inside one of those buildings. Today it's built blue sky out in the elements. And certainly, you saw the video of the thin panel line, hybrid laser, thin panel line, better rate, flatter panels, greater efficiency.
And I've already mentioned the dry dock, double the lift capacity, and can be operated from two locations in the facility. Jennifer made a great point. Facilities are great. People are just as important. And we spend a lot of time developing our workforce. And we start before they're hired. I believe it's critically important to start developing and reaching out to the community and the workforce before they come to your door and say, "Can I have a job?" We actually start early education on K-4 Discovery Days in STEM. I'll talk more about the high schools on a following slide. But partnering with the high schools on their technical development labs, that's the first impression on our business is those vo-tech schools.
We even have a Shipbuilder Academy now in two locations where high school seniors can go to this academy, learn what it is to be a shipbuilder, look at the discipline, come to work on time, all the things that needed to be Apprentice School, 70,000 sq ft. We have about 600 students in that. We are now changing how we outreach to the community in terms of hiring days and approach the community. This is a picture of one of our hiring events. We had 1,000 people come looking for a job at Ingalls. One young woman came at 4:00 A.M., so she wasn't missed. Unskilled. We hired her. If she's coming at 4:00 A.M. waiting in line, now she's a foreman. Women in construction, there's a great opportunity for women in construction. We have just started this program.
It's about two years old. Adult education, the underemployed and the unemployed in our region, this is a great opportunity for those to go to the high schools that I'll talk more about in a minute at night and the weekends, learn the basic shipbuilding skills and change actually their future and gives us a great resource base, and they'll stay there and they'll be dedicated long-term employees. Great veterans program. So the high schools, here's the picture of what we've done on transforming some high schools. We went to three local high schools in our area, and I asked the principal, "Would you mind if we go and walk through your vocational schools and just see if we can provide some assistance?" And so it's our highly recruited high school area. It makes sense that we go in there, and they actually needed some substantial help.
The facilities weren't up to par. The equipment wasn't the equipment we used, and the curriculum wasn't what we would need them to operate by. So we asked them, "Would you let us invest in your high school? We'll put the state-of-the-art equipment. We'll put the state-of-the-art curriculum. And we'll even have shipbuilders come in from the yard and go mentor your class so they have a greater connection to the workforce." They were all in. And now this is our second year into it. It has been a great program. But in addition to just the pure technical training, we also thought it was important that we teach soft skills, how never to give up, how to persevere when life isn't fair, and how do you make the right decisions when it wasn't your fault.
How to balance a checkbook, how to handle your money, and how to work ethically, and I think with the two from both the technical training and the soft skills and the personal side, this is now we've had 11 other high schools come to us and said, "We don't need your money to modernize. We have the money, but we don't have your curriculum. We don't have your soft skills. We don't have the other skills that we need. Would you sponsor us?" We now have 14 high schools in our region that we're sponsoring on this program. That's pretty exciting. It creates a bandwidth and a depth of personnel recruitment that I think is unparalleled. And no one can touch us in terms of hiring in our region. I say all I have to say, we have phenomenal facilities. It's the best I've ever seen in my career.
The pace and attention and attitude of the workforce is the best I've ever seen. Great facilities, great equipment, and great resource development. We're ready to execute all the backlog we have today. And when we're ready to execute the backlog, we hope to capture in the future. Thank you. And Dwayne, I'll turn it over to you for questions.
Going to corner to have it.
Myles Walton, UBS. Brian, could you comment on the approach, not necessarily calling the outcome, but the future frigate program, fixed price contract right out of the gates, first of class, how you're bounding that risk that would potentially come with that program? Could you point to similar contracts historically where that's worked out well or not well?
Yes, I've thought about all of it, and I struggle on how to responsibly answer with the competition because some of that actually goes into our bidding strategy and how we've looked at it, but we have looked at since I've been in shipbuilding over 40 years. I've seen a lot of programs that didn't go so well when they started, and there's tenets and reasons why they weren't successful. All of those in terms of Mike's talked many times about our risk process, and we look at our risk process and go, "Okay, so why did these programs do well and why did they not? And where did they fall short?" and then how do we get out ahead of that so two and three years from now, hey, you know the first week of an award is just exciting.
But a year and a half, if you're not careful, you'll just say, "What did I catch?" so you have to kind of look out a year and a half, two years on where this is going. Are you really prepared? and there's a lot of predecessors that are not glamorous. That's the basic blocking and tackling of the business that's key. It's the engineering. It's the material. It's the schedule. It's the resource load. It's the talent. and I could go on with a list of many others. All of that went into how we thought about the frigate. I feel very comfortable about what we're offering. I think it's a great offering. and hopefully the Navy will think so too. but I really don't want to get into more about that.
Yeah, thanks. Brian, you mentioned 9% margin is a good margin for the next several years. But if you look at your business, I mean, you got a lot of serial production yet that you're doing. So what limits it to 9% as opposed to some of the higher margins you experienced the past few years?
I think it's partly driven by the product mix. When I said, "I feel very good about the 9%." What has changed recently is LPD 28 is transitioned to the Flight II ship. LPD 27 was not a Flight II ship. LHA 8, Bougainville, is putting a well deck in the ship with a new superstructure. And we just started the Flight III ship on the Arleigh Burke destroyer. So we understand the risk of those programs, and we put risk profiles on that. And we need to get those programs more mature before we remove the risk in that. So it's kind of really a product mix dynamic. It kind of happens across the board. Jennifer mentioned it, but it's really a product mix.
Byron Callan, Capital Alpha Partners. Brian, Mitch highlighted unmanned in his presentation just what's in the budget. How does unmanned fit into Ingalls' future? Do you have the structure, the overhead to build unmanned vessels in the yard that are smaller than the National Security Cutter? Or what can you do with your existing product line to help integrate those systems in the future?
That's a great question. I'm not sure the Navy has come through the full life cycle, how unmanned will deploy, recover, maintain, operate. We have some great platforms that could maybe serve that purpose. We can build any platform. It really kind of depends on the mix you have in the yard and if you can be affordable at that time or not. When you get to the smaller ships on some of the surface ships that are 300 ft long, that's probably not necessarily a perfect fit for us. But I don't know where it's going yet. I think it's still evolving on what unmanned surface ships will become. Unmanned undersea, I still think there may be an opportunity to discuss what that future is in terms of how they're deployed and recovered and maintained. I think there's a real need for that.
We may have a platform or two that can meet that need.
All right. This will be the last one, and we'll take a 15-minute break after this one.
Thanks so much. Rob Stallard from Vertical Research. To follow up on George's question, actually, you spent all this money investing in the plant in recent years. How much of that is going to flow through to cost savings, efficiency, and potentially margin in the future? Or has a fair chunk of this gone back to the customer on pricing?
I would say if we did not find the right affordability answer, I'm not sure we'd be building LHA 8. I'm not sure LPD Flight II would be the solution for the LSD replacement. It may have been a commercial tanker. I'm not sure NSC 9, NSC 10, and NSC 11 would be in our product line if we weren't more affordable. So there is a balance in terms of there's two competitors in the market. One is the marketplace. The other one is how much budget the Navy has to buy an asset. And you have to kind of be sensitive to both sides of those. So it's not a precise answer, but I think affordability is part of do you keep product lines going? And then do you become a solution provider for the Navy for other sets? LPD 27 was the last ship in the line. LPD 28 wasn't in the deal.
LPD 30, LPD 31, and going on in terms of being Flight II, our affordability created that product line run that didn't exist before, I believe.
Excellent. Okay. All right. So let's take about a 15-minute break. Reconvene at 10:15 A.M. And don't forget, you can check out the displays and the mixed reality setup in the other room, in the Adams Room. Okay, everyone. I hate to break up all of this rich conversation, but we need to continue on with the presentations. So if you could take your seats, and we'll begin momentarily. Okay, we want to continue our presentations. Next up is Andy Green, President of our Technical Solutions business.
Good morning, everybody. Thanks, Dwayne.
And this morning, just to give you an overview of what we're going to talk about this morning, we're going to start with a short video just showing you, giving you some examples of what Technical Solutions does, some of the things that we're doing in support of our national security mission and the things that our great people are doing, all around the world. Then we'll go into, we'll talk a little bit about the financials. We'll talk about some of the activities that we've been doing lately to shape the portfolio.
I'll give you a history of kind of how we've built this business, what this business looks like today, and how we've positioned it to capitalize on some potential growth markets going forward, and what that looks like, to you, the investor, in the long term and how it's going to be beneficial, to Huntington Ingalls. So with that, we'll go ahead and start with the video.
Three years ago, we set out on a journey to take what we've learned in over a century of naval shipbuilding and apply it to our government's most complex problems. We committed to building the Technical Solutions division responsibly and with an eye toward revenue growth and ensuring a return on your investment. Three years later, we've not only met those goals, we've built a strong foundation for future growth and value creation.
How did we get here? By growing and expanding within our core competencies. Our Nuclear & Environmental Services have grown tremendously. By leveraging our nuclear experience in the shipyard, we've gone from one to six major contracts, including managing and operating Los Alamos National Laboratory, the birthplace of atomic power. Through our partnership with Boeing, we've taken the lead in unmanned undersea systems on the surface and in space. And we support the only commercially operated unmanned airborne intelligence, surveillance, and reconnaissance platform, planning missions and analyzing the intelligence for our allies and partners. Through strategic acquisitions, we are breaking new ground in next-generation C5ISR. We are writing the nation's cybersecurity standards, supporting offensive cyber operations, and developing artificial intelligence for autonomous systems. Our scientific expertise has allowed us to gain a tremendous foothold in the rapidly growing military training and simulation market.
We are ensuring that thousands of military flight simulators accurately reflect actual flight characteristics and that our military's pilots receive the most current training in combat tactics. Technical Solutions keeps the Navy's ships afloat, training sailors and flying engineers and skilled craftsmen around the world to find and fix the Navy's toughest readiness problems. Through our partnership with KBR, we are also training Australia's next generation of shipbuilders, ensuring that one of our strongest allies can stand beside us in keeping the oceans free. We are investing in our people while maintaining a strong ethics and safety culture. We are continuously improving execution of today's work for our existing customers. We are integrating systems, sharing lessons learned across our capabilities, and moving resources where they're needed most to get the job done. Leveraging capabilities across the HII enterprise, Technical Solutions is solving the nation's most complex problems.
We are proud to grow and shape the future of national security.
So I think that you'll see a common theme, and you saw it there towards the end of the video. One of the common theme there being we're leveraging capabilities across HII to solve national security problems. You've seen that, you know, beginning with Mike's comments, with Mitch, through Jennifer and Brian's presentations. And hopefully you'll see that as we go through this overview of Technical Solutions. You'll see how we're weaving that together, a lot of those capabilities and leveraging that core DNA of HII, to create value for shareholders. So looking at Technical Solutions, just looking at a snapshot of Technical Solutions, we're about 6,000 employees. We're located in 45 states and 16 countries. We have about 20% of our folks have 10+ years of experience.
We have a little over half of our team has security clearances, and we have of the 6,000, about 1,000 of those folks are scientists and engineers. Our capabilities, which we've built over time through organically and through a number of acquisitions that I'll talk about here in just a minute, are generally grouped into four categories, and then this is sort of the way we run the business: unmanned systems, defense and federal solutions, Nuclear & Environmental Services, and Fleet Sustainment Services. We have customers that are largely concentrated in the U.S. government, mostly concentrated within the DoD, but also including some federal civilian agencies, but like you saw in the video, we also have some commercial customers and even the Australian Department of Defense, so that's our customer mix, very U.S. government focused.
We have. You can see here the contract vehicles. We have the ability to compete very successfully in this space. We're on all the major contract vehicles that it really takes to be successful in this space: the major GWACs and MACs, you know, like OASIS and SeaPort and Alliant and TSA and Eagle and so forth. We have the ability to compete very effectively as customers. Our government customers move towards those large acquisition vehicles. We have the ability to compete because we have access to those and we're on those. Looking at, if you look at this chart, this shows you the breakdown of fiscal year 2019 sales. This is, in light of the things that we've announced recently and that what Chris and Mike talked about on the earnings call, you know, this is obviously going to change pretty substantively.
Then you can see now what won't change is our exposure to the U.S. government and predominantly DoD. But what you'll see if you think about it with the comments about looking to divest UniversalPegasus, the oil and gas business, obviously that piece of the pie would change. The unmanned systems piece of the business, when you think about what Hydroid does to that, that number would be more like 11%. And even though 11% isn't a big number, that's a very fast-growing piece of the pie. So that's what that number would look like. I'm not going to give you a full-blown pro forma, but just kind of give you a flavor for what that revenue mix looks like.
Looking at the financials, again, this is year-end 2019 financials and where we ended up at the end of 2019. I feel like we ended up in a spot with a lot of momentum going into 2020. We ended up with a backlog of about $973 million. By the way, I think both Jennifer and Brian's chart, you know, showed several more years. We were only formed three years ago, so we only have three years' worth of data. That's why the discrepancy there. Over the past couple of years, we've grown backlog at an 11% CAGR, and last year had a book to bill of 1.1. We've grown revenue at about 17% CAGR over the past couple of years.
Last year, that number was a little over 32%, and on an organic basis, was a little over 12%, going from 2018 to 2019. So that's excluding the acquisitions of G2 and Fulcrum. But when you look at segment operating income and operating margin, we were growing and expanding that. That number was significantly impacted, in 2019, by a couple of key factors. The biggest thing being the impairment charge from UPI. And the other thing being the cost associated with one availability in our San Diego shipyard that you know Mike had talked about previously, and Mike and Chris had talked about previously on the call. Excluding the impact of those couple of items, EBITDA would have been a little bit above $80 million, and EBITDA margin is a little bit above 6%, and we feel like, and that does not include Hydroid.
Hydroid is accretive on an EBITDA basis. Now, Hydroid brings a lot of intangible amortization, but it is accretive on an EBITDA basis. So we go into that's why I say when we go into 2020, I feel like we go in with a lot of momentum, with a strong backlog, and a portfolio that lends itself to stronger and better margins. So walking through, I thought it'd be helpful to walk through a history of Technical Solutions and some of the acquisitions and portfolio shaping things that we've done to show you how we got to where we are today and kind of why we did what we did and to help you better understand what's in the portfolio right now. In 2011, that was the time of the spin-off from Northrop Grumman. The first acquisition we did was Stoller.
Keep in mind, just to back up a step. Back when we spun from Northrop Grumman, we already had AMSEC. That was our legacy fleet sustainment business. We already had that. We already own that business. We still have that. That's part of Technical Solutions. And we own Continental Maritime, which was the San Diego ship repair facility. We own that already at the time of the spin, and that's part of Technical Solutions. We did acquire, in early 2014, we acquired Stoller. That was designed to be to accelerate our expansion in the DOE space. We already had a contract, like Mike said in his opening remarks. We already had a contract at the Savannah River Site. Stoller was designed to help us accelerate an expansion of that business, and that has been, you know, certainly highly successful.
We've gone, you know, from one to four major contracts in that area over the past several years. UniversalPegasus. We bought UniversalPegasus in 2014. The intent was to leverage HII capabilities in the energy market, and we just recently talked about what our intentions around UniversalPegasus are. That business is, by the way, profitable right now. In 2015, we entered the unmanned market, specifically the UUV space. Again, Mike referred to this earlier when he was talking about unmanned, and he talked about the Proteus vehicle and the capabilities that we got in Panama City. This was the Engineering Solutions Group, sorry, Engineering Solutions Division of the Columbia Group that we acquired that got us the Proteus vehicle, which is actually a dual-mode manned-unmanned vehicle.
And it got us that capability, that core capability down in Panama City, which really provided us a springboard to where we are today in unmanned. And I'll talk about that a little bit more as we kind of continue around. In 2016, we formed Technical Solutions. The catalyst for that was the acquisition of Camber. We bought Camber, like Mike said, that we had worked with Camber, and we looked at them to leverage their strengths in the training and simulation piece of the business. They brought us, in addition to strengths in training and simulation, and expanded our capabilities around cyber and intel, federal IT, and even logistics capabilities that we had in a smaller way. And they expanded those capability sets as well as the customer sets.
And we decided at that point, we were close to about $1 billion in these businesses. And at that point, we decided to create the Technical Solutions division to try to get those businesses in the right spot and try to optimize the portfolio there. And that's certainly what we've been working on. Shortly after that, in 2017, we talked to some of y'all last night about this. We formed a partnership with the teaming arrangement with Boeing on the XLUUV program. This is the Navy's Orca program. It's the Navy's largest UUV program. It's the flagship UUV program. This is something that was strategically very important to us. It's been a great relationship with Boeing. They've been a great partner. We think that there is a tremendous amount of upside in the large and extra-large segment of the market.
And we felt like partnering with the premier player in that segment of the market was the way to go. We went and did that, and that relationship has worked really well. And so we've got. We're already working with Boeing on building the first five of those vehicles. And we'll continue. We believe that there's a lot more after that. In late 2018, we acquired G2. G2 is a small but very capable cybersecurity company, based in Annapolis Junction. We acquired this capability, not because we wanted to become a cybersecurity company. We bought it because, like Mitch said and talked about in his remarks, cybersecurity is a fundamental capability that underlies everything that we're doing across all domains. When he talks about resilient networks across all domains, cybersecurity is a critical component of that.
We felt like we needed to have some core capability that beef up our core capability in cybersecurity. And so we found G2 and have gotten that capability. And now we can provide that capability in other areas of our business. It's been integrated into the Defense and Federal Solutions business unit that I referenced earlier. And we believe that it provides us a fundamental capability that's going to be extremely important going forward. In just about a year ago, we acquired Fulcrum. Fulcrum gave us a significant presence in the ISR market. They gave us added capability in the federal IT market. They gave us additional cyber capability. They gave us additional relationships and presence in the intelligence community. They gave us additional presence in mission support. Excellent company that has a lot of tremendous growth potential.
Great example of that is, just about, I think it was three weeks ago, we announced we won a $954 million contract to provide IT services to USAFE over in Eastern Europe. That's a contract that was a recompete for some existing work that Fulcrum was doing, a significantly upsized recompete from where we were before. And we think that we've got some more growth potential beyond that. And that's an area that we are certainly focused on. Then we also, just a couple of weeks ago, we announced the acquisition of Hydroid. Hydroid is significant. And again, Mike talked about unmanned. Unmanned is an absolutely critical part of our strategy going forward. It's a natural extension of what we do as HII.
Hydroid, the way it fits into what we've been doing, we got into it with the Proteus vehicle down in Panama City. We added the partnership with Boeing, where we're doing production of the extra-large end of the market. We didn't have any real presence in the small and medium segment of the unmanned, specifically the UUV market. What Hydroid does is get us a very strong position in that piece of the market. Hydroid is the premier player in the small and medium and even has capability in the large segment of the market. So when you look at the way the Navy thinks about the way the market is segmented for UUVs, we'll now have a very strong position in every segment of that market from small, medium, large, and extra-large.
Everywhere the Navy can potentially go, we'll be there. There's strong growth potential on the small and medium end of the market, you know, especially in the near term. And then there's significant growth potential and upside on the large and extra-large. So regardless of how the market develops, we're going to be there. And we'll talk a little bit more about that in a little bit. And then the last thing we announced right before earnings last week, we announced that we're taking our San Diego shipyard, the former Continental Maritime that I spoke to earlier. We're taking that asset, and we're contributing it to Titan Acquisition Holdings, which is owned by Carlyle and Stellex Capital. We're doing an exchange for a minority equity stake.
that will result in our San Diego ship repair facility being combined with Vigor and MHI, which Carlyle and Stellex closed on late last year. And that was designed to optimize our ship repair facility and get it into that combination and provide the best solution for the customer, given the maintenance model that the Navy's operating under right now. That was the best solution. We felt like it was a win for us. It was a win for the Navy. And it was a win for Vigor and MHI. It just made a lot of sense, no matter how you looked at it, for the three of us to come together.
And then looking beyond, yeah, we didn't put anything beyond, but, you know, we like Chris and Mike have alluded to earlier, we are always on the lookout for potential opportunities that can create value for shareholders. And we're looking at opportunities, you know, specifically around, you know, the unmanned markets, in the DOE space, in the Defense and Federal Solutions space, you know, where things make sense, where we can create value, where we can fill gaps, fill customer needs, better, where it makes sense. We're going to continue to look, and take it from there. So after all of that, and you put all of that stuff together, and we've been, you've got, you know, some folks in the room here have been integral parts of integrating all of those businesses.
That's a lot of that that's behind us, but some of that is ongoing. What do we look like now? We've got the unmanned piece of the market. That, again, this always goes from designing and engineering unmanned vehicles all the way through the production of those vehicles, the systems integration, the testing, the autonomy software engineering, and then fielding that vehicle, and then on the back end, doing the sustainment. We're involved in every step of the way. It's a natural extension of what we do. We have a long history of doing work with undersea vehicles, of course, like Jennifer talked about. It's a natural thing for us to be involved in.
Defense and Federal Solutions, these are capabilities that we have acquired and grown and cultivated over time in terms of next-generation IT, Agile software development, resilient networks, again, cybersecurity, C5ISR, training and simulation. You probably saw the simulators down the hall. That's stuff that we're doing for the Navy. Mission support services, like we're doing, you saw in the video, mission support services for, like, the Warrior Preparation Center, you know, over in Germany, training for F-15 pilots, logistics management that we do, you know, both for ships and for the Marine Corps and for the Army. This is stuff that we do. We're already doing it every day. We have strong past performance. We have access to all the right contract vehicles.
And we have the capabilities to bring to bear and compete effectively in that market. Nuclear & Environmental Services, again, Mike pointed out, we're already parts of teams operating nuclear sites, you know, part of the whole DOE complex. And I'll talk a little bit more about that in a little bit. We are experts at complex environmental remediation projects. It's an, again, a natural extension of what we do. We're doing it already. I rely, frankly, heavily on Jennifer, because it's in our DNA, in the Newport News DNA, to bring that nuclear, complex nuclear operations capability from the shipyard, which has been highly successful, cradle to grave, you know, nuclear reactor startup, operation, refueling and overhaul, all the way to decommissioning and decontamination, to take that out and take that to DOE sites.
We're very good at handling nuclear material. It's a significant synergy between Technical Solutions and Jennifer's team. We believe that it's a strong differentiator. We also believe that we can take that and we can apply that to, you know, not only the DOE sites, but we believe that we can apply it to potentially commercial nuclear D&D activities. Fleet sustainment is a business that is something we've been in for a long time. It's again part of our DNA. We're on over 80% of the fleet every year. We touch really 80% of the ships in the U.S. fleet every single year. We have flyaway teams all around the world.
We have 600-700 people out traveling on ships all the time, you know, helping to repair ships, modernize them, help sailors learn how to maintain them. We've been doing this for a long time. This is, you know, at its core, this is through what we used to call our AMSEC subsidiary, which is now part of Technical Solutions, and as a piece of the business that is absolutely core, one that, you know, is critical to sustain, not one that we're looking to expand that we would look to expand via M&A, but something where we see just kind of that continued year-in, year-out growth.
So when we look at growth markets and we think about, you know, where we're going to get our organic growth and where we might look at potential M&A opportunities, these are the areas we're looking at. These line up with what Mike talked about earlier in his slides. Unmanned systems, Hydroid's perfect example of that. We've got leading positions on a lot of programs. I won't belabor that anymore. It's a critical part of Navy strategy. It's a natural fit with us. We'll continue to look at that, but we feel like we're in a good spot now. Defense and intelligence, C5ISR, we've got a strong position there, but that is a big market. Mitch talked about the overall market dollars, the strong growth in that market. It's a big and it's a growing market.
There's a growing demand for, quote-unquote, "ISR as a service." That's something that we're one of the few companies that actually does that. And we have the ability to capitalize on that experience. We did it with the most recent contract announcement around PMRO. We feel like we can continue to do that. Next-generation IT, you know, again, this is all about cyber operations, resilient networks, scalability, data analytics, artificial intelligence. You know, we're making investments in that space right now. We have that capability. You know, we're doing it for our customers and federal civilian agencies. And we actually have people working with NIST helping to write the standards for this kind of work. And then training and simulation, as you can see from the demonstration down the hall, that's something that's absolutely core.
You know, we leverage the same technologies that Jennifer and Brian do. You know, some of it is, you know, augmented reality. Some of it is blended reality, virtual reality. It's really being able to take those technologies and adapt quickly to the customer needs so that we can provide the, you know, what they call Ready Relevant Learning, the right training to the sailors or the airmen or the soldiers where they need it and where and when they need it. And then on the nuclear and environmental side, again, leveraging our strengths in nuclear operations, like we have across the DOE complex already, and then potentially, expanding into that commercial nuclear market that you've probably heard a lot of big numbers cited, about the commercial nuclear, decommissioning, decontamination market.
Needless to say, it's a nascent market. We're at the very early stages of the decommissioning of commercial nuclear reactors. It's a natural fit with our skill set and what we do. It's something that we can potentially be involved in. We would do it in a measured way and make sure that we do it in the right way. But it is something. It is a potential growth vector for us. So just to give you, I'll walk through just a couple of quick examples. The intelligence lifecycle support. So what I wanted to show you was when you take some of the capabilities that we've combined between the Camber acquisition and Fulcrum, Proteus, Hydroid, our Orca partnership, G2, etc., you really start to shape a picture of us being part of every aspect of the intelligence operations lifecycle.
We're part of the actual sensors, the vehicles and the sensors that are going out and gathering this information, you know, out on the front lines. The ISR support, we're helping doing from concept to planning to implementation to processing and exploitation and dissemination of the data. We're helping manage that operation from beginning to end. The government likes that. Our DoD customer likes the fact that we're good at it, and they want us to do it more. The analysis on the back end, what do you do with all that data, that processing and exploitation, dissemination I mentioned before, that real-time data analytics, we have that capability. We're continuing to do more and more and beef it up. The capabilities that we got with Fulcrum and Camber, we continue to develop that.
And then IT and cyber, again, going back to the whole concept of resilient networks and the all-domain concept, there the infrastructure that's required because all of this is based on data and communications and analysis. The resilient networks that are going to underlie and underpin all of these operations are absolutely critical. So you've got to have that cyber capability to do all these other things, okay, that cyber doesn't operate in a vacuum. It underpins everything that we're doing. So another example, HII, the way we leverage our Newport News capabilities and what we got with Stoller across the DOE complex. What this shows you is this is just a map that gives you a sense for where the key DOE sites are, right, whether it's the Office of Science, the EM sites, the NNSA sites.
It just gives you a sense. A lot of these names are going to sound familiar to you. It gives you a sense for what the landscape looks like. Then you overlay where is HII today. That's the gold markers show you where we are today, where we have contracts, all right? So we went from and actually, the Kesselring site is where Jennifer's team is. We had this Savannah River Site down here, and we've since added two major contracts at Los Alamos, as well as the contract in Nevada over the past couple of years. So significant expansion of our presence in DOE. And we believe and these are notional. We believe that there are several more opportunities in the DOE space to continue to grow organically in that space.
So where does that leave us? Kind of when you put all that stuff together, how we've shaped the portfolio, the things that we've done to make sure that we're aligned with these key markets, the things that we've done around implementing the execution operating system to make sure that we're positioned well for organic growth. We've got a strong pipeline of qualified opportunities. We've got a good book-to-bill. We've got a good win rate, whether you're looking at new work or recompetes. We're very competitive. We've posted some good year-over-year growth. And we believe that with the portfolio shaped where it is today, we're in a good position going forward.
In summary, we're well positioned to capitalize on these growth opportunities and unmanned C5ISR, training and simulation, nuclear services. We believe that we have the right blend of capabilities and customer relationships and program execution expertise, that core execution DNA of HII that differentiates us and makes us successful across any program. We believe that we have the ability to grow organically, no doubt about it, very confident in our ability to grow organically. We do believe, though, it can be accelerated and augmented by disciplined acquisitions in those spaces. We'll never lose sight of the fact that executing our existing book of business is absolutely paramount. It's critical to the success of our business that we stay focused on that, first and foremost. With that being said, I'll turn it to Dwayne for questions.
Doug Harned, Bernstein.
Andy, when you look at the maintenance side, the ship maintenance side of this, I mean, there's a lot of money going into the budget, but, you know, a lot of that's split with government yards, and BAE's just decided to exit Pearl Harbor. And you're going in and working with Titan now. How do you look at this in terms of growth potential and then also the profitability that you're looking for in those types of operations?
Yeah, that's a great question. So there are sort of two components to it. There's the Navy component. The Navy is working on the public shipyards and how they do contract maintenance, right? Best we can do is work on our piece of it and optimize how best we deliver Fleet Sustainment Services to the Navy, right? And so you know when we looked at that, given the ship maintenance environment as it is right now, you're right. There's a lot of challenges on the Navy side and given those challenges, we looked at all different types, all different potential avenues, you know, for, like, the San Diego shipyard.
And how best can we best serve the customer and at the same time make sure we manage risk for HII and at the same time continue to create value for shareholders, right? And we felt like the best thing that we could do is to partner with another provider that could put it in a pretty unique position to partner with us that could help optimize on a combined company basis that could help optimize all of those facilities, which makes at the end of the day the combined entity more competitive. It gives the Navy actually more options. It gives them more capability at the end of the day. And at the same time, it helps de-risk us.
Morning. Ben Arnstein, JPMorgan. Can you touch on, how you kind of see the unmanned market, evolving over the next 5 to 10 years, you know, the size of that addressable market and, you know, how that portion of funding kind of competes for resources in a flattish budget environment?
Yeah, I'll talk to how we see the market developing in terms of how exactly it competes. I'll leave that to my counterpart here, Mitch. But, you know, we actually see growth across all segments. And I'll continue to talk about it in terms of small, medium, large, and extra large, okay? When you think about it, or really small and medium and large and extra large, when you think about small and medium, that's a market that already exists. You know, for example, Hydroid already has 600+ UUVs fielded, right? In contrast, there aren't really any LDUUVs, and that's going to be competed next year. And there's only in XL, the extra large is, you know, we're still working on the first one, right?
So there's already a significant installed base of small and medium that will continue to grow. That's going to be probably the fastest-growing segment of the market for the next few years. And you're talking about in the hundreds of millions of dollars, right? What we think you're going to see, following that, as you get further out, is as XLUUV gets fielded, as LDUUV gets fielded, and these things get tested and they and the Navy and other customers figure out how they're going to use these vehicles, we believe that then that market is going to take off and have a pretty significant uptick in growth. And it's not going to be. We're not talking about 10 years out.
We're talking about it could be three, four years out, significant uptick in growth potential, and then you could end up in a situation potentially 10 years out from now where both markets have grown significantly and the large and extra large piece of the market is significantly bigger than the small and medium, even though they've both grown, only because the cost per unit is significantly greater at the large and extra large end. One thing to note is that when you get down the road after these things have been fielded, about half of the market is the sustainment, the logistics and sustainment piece of this. So that actually is something that we bring to the table. Significant competitive advantage for us, for HII, is we bring that sustainment capability to the table. We do that. I mentioned it earlier.
We have people around the world, every single day working on ships, Navy platforms everywhere. We bring that capability to UUVs as well because these things are going to be deployed all over the place. Like, Hydroid already does it. We're going to be bringing it to the large and extra large segment of the market. So we're going to be very, very well positioned to capture not only the actual design and engineering and production of all four of those segments, but also the big piece of logistics and sustainment, which is, like in any business, it's that ongoing, revenue stream that comes afterward.
George Shapiro, Shapiro Research. You talk about organic growth and inorganic growth. I mean, how big would you want this business to be in five years' time frame?
I think, you know, I don't have a specific target, George, in terms of size. I will tell you that as we've gotten bigger, as we've acquired and we've gained size, you know, especially, you know, as we added Camber to AMSEC, and then we added G2, and then we added Fulcrum, we're becoming more and more competitive. As you're well aware, as you get bigger, you have greater capability to move people around. You have more capabilities to offer the customer. The customer is increasingly looking at bigger contracts just like this recompete I mentioned earlier. That went from a relatively small contract to almost a billion-dollar recompete that would have been very hard for a small business to recompete on its own.
So, you know, the advantages of being bigger and having a wider breadth of capability and more people and greater past performance certainly not lost on us. And as we get bigger, we realize those, but we don't have a set target in terms of we want to be X to be competitive because, you know, as we've shown, we've been pretty competitive, as we are.
Final question.
Sure. Byron Callan, Capital Alpha Partners. Just going back to the unmanned portion of this, can you frame a little bit more of the strategy you're pursuing? Is it going to be a platform strategy that you want to have the best platform, allow other people to put their sensors on it? And then what's kind of the problems that need to be solved for this to really take off? Is it an algorithmic problem that you need to have the best operating system to allow these things to navigate? Is it a power problem? What propels this upwards?
I'll answer the second question first. It's sort of all the above, right? I mean, there's a lot of physics problems involved. And I think Mike even alluded to it in his remarks. Different from UAVs, UUVs present a significantly more complex set of physics problems, whether, you know, it's power generation, it's sensors, it's communications. It's just simply the corrosive effect of salt water on the actual components. There's just a lot of things that can create problems because you can't have constant communications, you know, like you can with a UAV. I mean, these vehicles are truly autonomous. So that being said, you know, the autonomy software, power generation's an issue. The materials are a big issue. The autonomy software, getting that nailed down is a significant issue.
And I say it's an issue. It's something that we've got a lot of people working on it. Again, we're partnered with Boeing on the XLUUV. Hydroid's got folks working on it. We're in a really good spot when it comes to autonomy software for UUV, and we're really comfortable that we're not going to; we're on the leading edge of this. We're not going to be a follower when it comes to autonomy software for UUVs. So there are a lot of problems associated with the actual fielding of UUVs. So our strategy around it really is to we want to be a platform provider, but we want to make sure that we own and operate the brains of it. We haven't made big technology bets.
As you've probably seen, we haven't made big technology bets around, say, you know, strictly, you know, an autonomy server, software developer or a battery provider or a propulsion provider or a control system provider. We want to be the company that may provide some of those capabilities, you know, depending on the platform, but at the end of the day, we're integrating it and helping to customize it, you know, like whether we're doing it with Boeing or we're doing it at Hydroid up in Massachusetts, we're integrating those systems and customizing it, and we're on the front lines with the customer, making sure we deliver their product they need, and so as technology evolves, we can be a little bit agnostic in some ways and very quickly insert new technologies and the latest technologies into our platforms.
All right. All right. So I think next up is Chris Kastner. Morning.
Chris Kastner, CFO, honored to be a part of the management team since the spin of HII nine years ago, 15 years in shipbuilding, about 30 years. Prior to that, I was at Northrop Grumman, some of the largest programs, B-2, Joint STARS, Global Hawk. What I'm going to talk about is 2019 results, some of the deliberate steps we've taken over the last couple of years to set up the next five years, and then the next five years, how I'm thinking about that. First, 2019. We just talked about this on the earnings call. Good revenue growth, almost 9%, 5%-6% in shipbuilding, 12% organic growth within TS, 8% or 8.1% operating margin, right around the midpoint of the way we talked about it. Generated $460 million of free cash, a bit light of what I was expecting.
That was just timing related to some receivables, distributed $363 million and ended the year with $46 billion of backlog, as we have previously mentioned, and really good operating rhythm as we moved out of 2019 into 2020. Touch a little bit more on the path to 2020. Mike talked about this previously. I did want to talk about capital. We spent $1.5 billion over the last four years. We're going to complete that this year. Jennifer and Brian talked about the investments we've made. We are almost complete there and that we've returned about $2 billion of free cash to shareholders over the last four years. Also, Andy talked about shaping that portfolio. It looks very different than when it did four years ago. I want to touch a bit on capital.
There's been a lot of discussions within the shareholder base, within analysts as well on, can you get back down to 2.5% of sales? We absolutely can. This is a cyclical type, capital investment, priority. You can see after Katrina and when we finished up the capital investments, down at Ingalls, we experienced light capital investments for seven to eight years. We expect another seven to nine years, seven to ten years of a good run with lower capital expenditures within our shipyards. This is a significant source of tailwind for free cash flow as we move forward. Talked a lot about the strategic focus and sharpening that strategic focus. Andy talked about those markets very thoroughly. I don't need to go through those again, but we are refining it as well. You need to continue to evaluate your portfolio, and we will divest UPI this year.
They are profitable. A lot of confidence in that management team. They have been growing, and it's just best. They'll be more competitive as a part of a different entity. I hate to see them go. There's some really good guys, really good management team, but we just think it's the best thing for that business and our business to divest UPI this year. So step back a little bit and slow down the financial characteristics of this business. A little different than the strategic characteristics, but just how I, as a CFO, think about moving forward with this business. The unprecedented visibility in the revenue. When you do a financial plan, you'll see it by product. I'll show it to you in a moment. But it's really unprecedented, what we have in front of us.
Our segment operating margins are going to improve both in shipbuilding and in TS, and we're going to expand our free cash. And it's a pretty simple formula. We're going to grow, improve the margins, and lower our capital expenditures. And a very strong balance sheet now and in the future to support the customer, continued shareholder distributions, and the strategic flexibility we need to grow TS. So I've been doing financial plans a long time, right? About 20 years I've been doing financial plans. Airplanes, ships down at Ingalls, and then ships at HII. I've never been able to draw a chart like this, which is 85% of my revenue is already under contract for the next five years. 85% of my revenue is already under contract for the next five years. And these are all ships we've built before, except for Columbia-class, which we're a major subcontractor.
All ships we built before, no first-of-class ships in this portfolio, 85% of my sales already under contract. In TS, we really focused that portfolio into higher growth, higher margin markets. You can see the revenue CAGRs in unmanned, 78%. I think I got this question on the call. Luckily, I was prepared for it. Defense and Fed Solutions, fleet sustainment's pretty flat. Then Total Technical Solutions, about 4%-5% CAGR. That's all organic. To give you a bit of a pro forma, this will fluctuate a bit based on when the acquisitions and the divestitures close, but it'll be about $1 billion this year, 7%-9% EBITDA margins grown to 8%-10% by 2024, 5%-7% return on sales, 6%-8% by 2024. The question was asked, how big can it be?
Andy gave a very politically astute answer, because the CFO is going to be next. And George, you just asked me, right? And Doug asked me as well, like, you know, how big can it be? This could be 20%-25% of our business over the next five years. No specific timetable, but we're going to grow it organically and inorganically in the spaces that Andy and Mike talked about. This is a very simple formula. 2019 to 2024, segment operating income's going to grow between 4%-6%. We know shipbuilding's going to grow. The portfolio's becoming more mature and more profitable. And then TS is growing and becoming more profitable as well. It naturally grows 4%-6% through 2024. It's the same formula for cash.
And I know I created a bit of a storm on the earnings call, relative to how we bridge to it. But it's pretty simple when you think of that formula. CapEx is ending, pension cash is moderating, and then we're growing revenue, operating margin, and lower CapEx in the future, for free cash flow improvement. And you see us becoming a $700 million free cash story by 2024. It could happen in 2023, but by 2024, we're a $700 million free cash story. And then that's a new normal moving forward such that we provide $3 billion of free cash flow over the next five years. And our capital allocation priorities we put together really support shareholder value creation. We're always going to maintain our shipyards. That's going to be our top priority.
We're going to continue to grow our dividends not as quickly as we have, over the last couple of years. We've done 20% increase, but we're going to target a 30% pension adjusted payout ratio by the end of 2024. We're going to continue to strategically shape the portfolio and Andy's organization. And then we're going to provide excess cash back to shareholders in share repurchases. We are committed to distributing substantially all our free cash flow through 2016 through 2020, as our previous commitment. And we have $1.2 billion left on our authority through 2024. We'll be committed to investment grade. Our customer is very comfortable with that. We're very comfortable with that. It provides a strategic flexibility. And we think we can actually execute on all of our capital allocation priorities over the next five years. So what does it mean? 2020 through 2024.
Talked about the 85% shipbuilding revenue stability or in our backlog already. CAGR at 3% with some near-term upside here. TS growing at 4%-5%. Segment operating income growing at 4%-6% over the next five years. Shipbuilding operating margin at 9% in 2020 and over the next five years. Free cash flow of $3 billion. Always a strong balance sheet. We think we really have the opportunity to create some significant shareholder value over the next five years. Questions?
Rob.
Rob Spingarn, Credit Suisse.
Yes.
So Chris, I just wanted to dive into the margin outlook a little bit.
Sure.
Because it seems like the growth is driven by TS, given that from 2020 to 2024, you're at 9% on the shipbuilding side. Is there anything else there, or is it really about Andy's group? I wanted to go back to the comment earlier that most of this savings from the efficiencies in the shipyards, from all this great work you've done, is getting passed through. In other words, is there any opportunity to exceed 9% at the shipyards over that five years?
Yeah. There's always an opportunity to exceed 9%. It's kind of a changing our focus a bit to operating income growth versus just return on sales percent because that's going to fluctuate from time to time based on the product mix, as Brian indicated. So it we just think of it historically as being 9%, and in the future, it'll average about 9%. But because of revenue growth, we're going to grow earnings in the future.
Again, the margin growth that you talk about over time, that's driven by TS? The total combined?
The percent growth, the total number will be driven by not only shipbuilding growth, which will drive an absolute number increase at the 9%, but also TS growth.
Okay. Thank you. Excuse my voice.
Jon Raviv, with Citi.
Hi, Jon.
Just on the allocation five years ago, you said 100% to shareholders. Can you just clarify what you mean over the next five years in terms of the free cash flow, where it's going? And then also in terms of your TS expansion strategy, can you achieve that? Do you need your free cash flow to do that, or can you achieve a lot of that through balance sheet? Thank you.
So we made the commitment four years ago to return substantial free cash flow to shareholders when we made that capital investment decision of $1.5 billion-$2 billion as well. We think that it's not necessary to make that commitment of substantial free cash flow anymore. We think we have a $1.2 billion authorization. We think we have a balance sheet that can not only grow TS but also provide an adequate return to shareholders. So it's it's just not; it's not language we need anymore. It's really a maturing of the capital allocation profile. Yeah. So we we could use our balance sheet a bit. We like to be investment grade, but we could use our balance sheet. We just we always make sure that we manage the business back to investment grade if we had to use it.
Myles Walton, UBS.
Hello.
Chris, just a question on free cash flow for 2020 from your slide. I don't want to overinterpret it, but it's right up next to a $500 million kind of tagline. And I'm just hoping you can provide a little bit of a walk from 2019, $460 million. You had a $50 million working capital that slipped into 2020. I would presume you have earnings growth in the back of the 100 basis points of margin expansion. So why isn't that closer to $600 million as opposed to $500 million?
Yeah. It's just working capital through the programs, right? You're getting the, obviously, last year of capital, right? And then some pension tailwinds. And then it's working capital. And you're right. It's, we're not playing games with the graph at all. It's north of $500 million but not quite to $600 million.
So just to clarify, 2020, even with the working capital slipping into 2020 as a benefit.
Yes.
Net net for the full year working capital is still a consumption.
Yeah. I wouldn't necessarily say that. It's more like it's capital and pension, and the number floats right between 500 and 550.
Yeah. Chris, if I just did a quick little arithmetic, if TS grows at, you know, 5%, you need and you want to get to $2 billion-$2.5 billion in revenues, which would be about 20%-25% of the company. So the expectation would be that you do roughly $750 billion-$1 billion worth of inorganic growth. And what areas would you do that in?
It's possible we could do that. We'd have to be very disciplined to ensure that it strategically and financially makes sense. Andy talked about the areas that we're interested in, unmanned, the defense IT part of the business as well. So he thoroughly talked through the parts of the business that we're interested in. We have no timing related to it. We need to be very disciplined to ensure that we're going to create shareholder value and always test it against, you know, is it a better use of cash than providing the cash back to shareholders and share buybacks? So we just need to remain disciplined when we do that.
Okay. Thanks.
Thanks, Joe DeNardi, Stifel.
Yeah.
I think you guys had messaged previously that shipbuilding's cut at 9%-10%. Now it's 9%. Is that intentional? And then, you know, given the visibility that you guys have and things like a two carrier buy, why doesn't that equate to higher margins for the business? I mean, it seems like part of the 9% commentary is that's kind of what shipbuilding has always been. Why shouldn't it be better going forward given the visibility and the contract benefits?
Yeah. So the visibility absolutely helps, right? But a lot of the two aircraft carrier buy really enabled CVN 81 to be put under contract. And we get the savings related to that. So we're sharing some of that with the Navy. And Jennifer talked about the risk registers on the aircraft carriers. We're going to be very conservative on, as we been on CVN 79, on CVN 80 and CVN 81 as well. So we really think 9% is the right way to think about it. It was intentional. It absolutely was intentional. When you look at all the new work that we're getting, and that we've gotten, we've laid those production plans in place. We've come through our financial plan and our business plan. Look how it impacts the portfolio at Ingalls and Newport News.
We thought the responsible thing to do was to go out and say that really this is the right way to think about this as a 9% business.
Just on the payout ratio, is that a percent of net income or cash flow? What's the 30% based on?
Net income.
Thank you.
Hi. This is [Jeff Malvari] from Cowen and Company. Thanks for taking my question here.
Sure. Sure.
You've already kind of substantially met your goal, so you're committed to pay that or deploy substantially all of excess to shareholders for your period through 2020. So my question.
One year left.
Yeah. One year left, right? But, my question is specifically to 2020. Will we kind of see a significant step down in buybacks for this year in particular, given that you've already sort of accomplished that?
Yeah. So I don't have a specific number, relative to share buybacks. We have a very disciplined process to do it, managed by a bunch of nuclear shipbuilders. So we absolutely follow that process to ensure that we create value, where there's some opportunism there. So, I don't have a specific number. We're in the market. We'll continue to be in the market, as we move through the year, but we'll still make our commitment. Okay.
So this is the part where I come back and, remember at the beginning I told you this is what we're going to tell you, and then we told you, and now this is the part where I'm going to come back and say, "This is what we said." And so we're going to go through that, and then we're going to, we're going to do a round of, stump the chumps here. And Chris is going to join me again for that. So our focus is on creating value in this business. We have absolutely established the foundation, both from a backlog standpoint as well as from a track record now of executing in shipbuilding, to create a really strong ability to see where the shipbuilding business is going to take us over the next not just five years but over the next 10 years.
The backlog is at $46 billion today. We can see today with a 3% revenue growth, and we actually see some upside on the near term. We continue to refine and improve our operating system to create more confidence in the execution of our business. We have taken the steps now. We've been going through a period where we planted a lot of seeds out there to see what might grow. We have now taken the steps to pick the winners and make the choices and then do the things that we need to do to shape the portfolio to align that portfolio with where the customer requirements are that we believe are going to drive higher revenue and higher earnings growth. The acquisition of Hydroid, we've talked a lot about that this morning.
The repositioning of the San Diego shipyard, I think I want to add to a little bit of that discussion. There is clearly a demand signal from the government that the repair and maintenance side of the Navy needs to be addressed, and they're moving their budget in that direction. It is also pretty clear that the industry needs to figure out how they're going to respond. The work that we've been doing with the government is trying to get aligned around what's the business model for how the government's going to execute this work, and how is the industry going to be structured to do it efficiently. As we've gone through that over the past, I'd say 18 months or so, there's been some dislocations in that. And so we've and we felt it. You saw what happened in San Diego last summer.
The Navy is recognizing that they've got to make some refinements to their business plan. The industry is restructuring itself to be able to respond to that. It is still a place where the demand signal is higher than the supply signal. And so it's a good place to be. We're happy to be there, but we need to get this structured right so that we can be very successful. Our contribution of our shipyard to the Titan Acquisition Holdings is a way for us to actually restructure our business and keep ourselves in it. And we'll see where it goes. We get this sorted out. This is going to be a really great opportunity for us. And the really tough decision to exit oil and gas.
You know, we went into oil and gas thinking that this is a space that needs workforce development and needs modular construction, and we can help disrupt that space. And it did get disrupted, but it got disrupted by fracking. And so, over time, what we've come to realize is that this is a place where they need to be able to go and do their best work. And we believe that for UPI to be able to do its best work, it's going to be not with us. And that's going to be, we think, good for both of us. We do have its size, as Chris points out, and Andy's pointed out. It is sized right now and is a very successful business. And we've learned a lot as we've gone through the process of sizing that business and understanding that that field.
But it's time, it's time for them to be able to go out and do their very best work. And as Chris just talked about, we have now the financial flexibility to pursue those growth opportunities and also return our cash to shareholders. We have a very strong balance sheet. Our CapEx is coming back down next year. And in between now and 2024, we see $3 billion of free cash flow being generated. So we are poised to create growth, drive growth, generate strong returns, and manage risk. I told you at the beginning you're going to hear this over and over again. We are driving growth into the business. We're improving the returns on the business, and we're managing the risk of the business. We hope that that's what you heard from us today. That's certainly what we intended to communicate.
And with that, I'm going to go ahead and take questions. I'll get Chris to join me up here. And the hands are already up.
Hey. Yeah. Ron Stempin. Thanks.
You're on.
From Merrill Lynch.
M&A clearly was a big theme today. When you look out over the next several years, how much inorganic growth do you want to get from M&A? Like, when we think about that, like, five years from now, right, so your ship business will grow for, what, about 5% a year, ballpark. How much inorganic growth do you want to get?
Yeah. We don't have a specific target for that, Ron. We see the opportunities as they come by. First of all, a lot of the acquisitions that we look at, the valuation of them is a little bit high, too high. And so, we pass on a lot of opportunities. The point for us is that we want to be in there with customers who, as we understand better what capabilities they need, are these things that we're going to be able to solve for them. And so, you know, we've done that. We believe we've built a great capability in the unmanned space.
I actually am fairly excited about what we're doing in the ship repair space right now because I think we're moving in a direction there that's going to unlock some significant value. But in the meantime, the acquisitions that have come along have created, I think Andy laid out, we now find ourselves with a toehold in the entire intelligence life cycle. We're in that cycle. We're there. We know the customers. There are going to be more capabilities that we don't have that we're going to have to decide whether we want them or not. It's going to be around a capability discussion rather than we need to go do X amount of acquisitions every year because we have some kind of a growth target out there.
I think that's the way you get into you end up kind of overextending yourself a little bit. I'm really focused more on the capability side of it.
So then as maybe a natural follow-on to that, the Navy Force Structure Assessment is supposed to come out imminently, right, in the next.
Right.
Week or so. What are you expecting to see, right? I mean, what where do you think you're set up well, and where do you think you might have some holes relative to that?
Yeah. I'm not sure that I can really predict what that assessment's going to say. I know that, you know, these assessments come along from time to time. I think we had some sense back when we started the capital in 2014. We had some sense that if the Navy were to do another assessment, they would say they need more ships. The assessment that they did in 2016 actually came and said they need more ships, but they did that assessment in advance of the election because they wanted to be able to present to whoever won the election what their demand was, what their needs were. They haven't done that since then. Now it's 2020. We're heading into another election. What's changed in the last four years?
The biggest thing that's changed in the last four years is that the current administration did the National Security Strategy. They laid out and said, "You know, we're moving from this Global War on Terror. We're moving back into a peer competition environment that's going to be very high-tech." So I think the Force Structure Assessment is going to be kind of a first cut on what is all of this technology that's out there today that we've kind of not looked at that seriously over the past 15 years. What does that mean to us from a force structure perspective? I'm not terribly worried about that in the sense of they're not going to wake up and say, you know, we don't need destroyers anymore. They're going to need the platforms that we're providing.
The fact that we have most of that under contract today for the force for the near-term future means that we're going to continue to do that, and that gives us the opportunity to engage with the Navy on, "Okay. So how do you, if you're going to make a course change of some kind, how do you make it in a way that the industry can support you?" If then you can, you can go and put on a whiteboard a Navy that you'd love to have, but you may not have an industry out there that can support that, so I think that this is just going to be the next step in the development of what the future Navy looks like, and we're right in the middle of, you know, we've invested in it. We're ready for it.
We believe unmanned's going to be a much bigger part of this structure assessment than it was in 2016. I think that we're just ready to go. We're ready to support that. Answer one question, and that puts more hands up. I don't know if that's a good thought.
Careful what you wish for. Rob Stallard from Vertical Research. A couple of questions. First of all, for Mike, a longer-term question. Obviously, you're a long-term industry. Going forward, the concern about climate change, you know, is there something you might have to do to your yards in, you know, storms, hurricanes, God knows what, that could come that could require additional investment? And then for you, Chris, you know, historically, the results have been a bit volatile quarter to quarter. Is there anything you could do to adjust the accounting structure or anything else to try and strip out some of this volatility? Thank you.
So relative to climate change, both of our shipyards have pretty robust programs in engaging with local authorities and trying to understand what the impact in the local area might be. You know, it evolves year in and year out. We pay very close attention to that. I would say at this point, we're not seeing a significant, well, first of all, at Ingalls, we had a significant reinvestment after Katrina, which probably set us up pretty well there and at Newport News, before Katrina, we had Hurricane Isabel that kind of gave us what it could look like, but we're involved in all of the local climate studies and work that's going on, but we don't see anything, you know, imminent right now in terms of the impact to our yards.
Yeah. Really a challenge on volatility quarter to quarter when you evaluate every ship every quarter. You look at the risk and opportunities and have to make adjustments, so yeah, it's a challenge. I would say that when you get into serial production and you get more cost predictability, you're able to start at a higher rate, and that reduces the volatility a bit. Both with the new ship programs we have right now, I don't expect significant changes in the volatility. We'll try to help you with events quarter to quarter on what could potentially happen, but it's just the fact of nature. When you have seven large programs, you're going to be pretty volatile quarter to quarter, unfortunately.
Chris, you had mentioned on the call that of the $46 billion backlog, $18 billion is funded. So is the disconnect between the two just primarily the Block V Virginia-class ships and Columbia, or is there other stuff in there that's unfunded?
The aircraft carriers are incrementally funded as well.
Yeah. I think it's across, you know, even the destroyers get funded year in and year out. So I think where you know, the funding piece really is about appropriations. You know, basically, the Congress has said that it no longer makes sense to try to capitalize the entire 50-year cost of a carrier in one year. So they've kind of created these incremental funding profiles. But what that does is it sort of it kind of obligates the appropriators to come back and then the Navy to budget for it and the appropriators to appropriate the money in the out years. So where we are right now is just of the $46 billion that is under contract. And I have 100% confidence that that's going to play through. $18 billion of it has been appropriated so far.
That's what that really means.
Okay. So there'd be some risk maybe on how many destroyers you might buy, but the other stuff is pretty much locked in.
I mean, if it's under contract, it's locked in for us already. The issue is what's in the plan going forward. Are they option ships? Are they, you know, what does that mean to the, you know, the procurement plan? But if it's under contract, it's locked in.
Yeah. We have high confidence in that $46 billion.
Yeah.
Yeah.
Myles Walton, UBS. Hey, Mike, on the procurement contract initially for Columbia, I guess May would be kind of the expected date. Who knows? September slip into the summer. But in terms of the work share that exists between yourselves and your partners, is it still that 22/78 split? And also, when do you get visibility on if there is additional work to be brought your way through the Virginia-class program?
Yeah. So all of the prior, the first part of it is the split's about the same. All everything you had there was right. The additional visibility on the Virginia-class program, well, you know, I think that's really going to be more. It's not a decision to be made right now. It's a decision to be made as we get into construction of the first and second ship of Columbia and what the impact is to our partner and how that impacts, you know, and how we can best assist that. You know, the fundamental decision on Columbia was that there would only be one yard delivering it. And I think that was the right decision because you only have, you know, a finite, you have a small number of platforms.
And that puts us in the position of being the overflow for the submarine industrial base for the Virginia-class submarines going forward. And I think that's actually the most efficient way for the nation to do this. And we're pretty excited about that. So but I don't think it's a decision to be made quite yet.
Doug Harned, Bernstein. You know, for some time and probably for the foreseeable future on large warships, you and General Dynamics have really been the two players. You work together. You compete against each other.
Right.
But now when you look at the frigate, you look at undersea, you've got new competitors coming in. So the dynamics seem to change a little bit when you get to these smaller and new technology platforms. How does that affect the way you compete in the future to make sure you can grow in these areas?
Wow. I think that you almost have to step back to five years ago. I mean, you're exactly right. The big platforms today are essentially between us and them, and we work together. We compete and all that sort of thing. But five years ago, when we set out and said, "We're going to make a capital investment in our shipyards," what we said about that was, "It's a generational investment, and it's going to be designed to create a more competitive posture." Because we recognized even then that you couldn't continue on the path that we were on and continue to hope to be successful. We needed to change our competitive posture.
And so, as we've gone forward, we've recognized that, you know, back in those days, the organic piece of our service support business, the AMSEC piece, the San Diego Shipyard piece, our DOE piece, they were in the business, but they were inside the shipyards. As we went forward from there, Doug, we recognized that they compete in marketplaces that are very different. And so the style of competition is fundamentally different for those businesses than they are for the shipyards. And so we then, at the point in time when we acquired Camber, we said, "Now let's put all the businesses that have the same style of competition in the same place." And we created the Technical Solutions division. So what you see today is you see a nuclear shipyard that goes to the nuclear shipbuilding business.
We see a non-nuclear ship warship yard that goes to the non-nuclear warship business. And then you see in Technical Solutions all of the other parts of our capabilities that create access to those capabilities that have to go to market in a very competitive posture. You see that we've segregated that. And I would go back and say DOE is, like, to me, is the best example of how that works. In 30 years of my career, we had exactly one time where we had been able to create access for the Department of Energy to reach in and touch what happens in the nuclear and environmental piece of Newport News Shipbuilding to support the project of Savannah River. That happened once in 30 years. We stood up Technical Solutions.
In the first 18 months, we were on three winning teams, priming one of them because we had now unshackled the style of competition. We had allowed these businesses to go to market not as shipbuilders, but go to market as everybody else in the place goes to market. If we can go to market like everybody else in the industry goes to market, and we can bring the capabilities of HII, I think that's a combination that's pretty powerful. It's playing out in the DOE space. It's playing out in the UUV space. You know? So I think that I'm not worried about, you know, getting down and starting to have to compete with somebody. We already are. You know? We've recognized this problem going back five years ago.
I think, three years ago, we created Technical Solutions because of exactly what you're talking about. I'm very excited about this. That's why I have a lot of confidence in, not only what we're doing in shipbuilding, but I'm also very confident about where we're going with Technical Solutions and the markets that we're pursuing there. That was a long-winded answer. That I think that it's a really important issue because we kind of get this, "Yeah. You know, you guys most of your work is allocated to you, and you don't have to compete." The fact is we do compete, and we do win. We're excited about that.
Thanks. [Stifel]. Sorry to harp on the margins. But Mike, if you look at your CapEx as a percent of sales, you guys put as much of your capital at risk as your peers. You look at the margins on the business. Historically, it seems like you're taking on as much or more risk than them. So why aren't the margins consistent with what your peers earn? And do you view your margins just on a shipbuilding basis as kind of at parity with your main competitor? Thank you.
Yeah. I guess, I'd start with, okay, who are we talking about as peers? Because I think if you decide that you want to look at the shipbuilding industry piece, which is the biggest part of the chart, this is kind of where the margin discussion is. The history of shipbuilding is that it's been a sustainable 9% business. Now, there are people in the defense business that actually get really good returns? Sure. They have products that are very different than ships. They are in mass production. They're in assembly lines. They've got risk profiles that are very different. There's lots of things that you can start to talk about that are very, very different in terms of the way they go to contract, things in terms of the way you do accounting, in terms of visibility, lots of things like that.
I think the first question is, who are the peers that we're talking about? We believe, in our sense of this, is that the sustainable operation that we have right now in the product mix that we have, the businesses that we have, that the right way to think about our business is 9%. I would tell you that if you go back to the early days when the 9%-10% construct first came up, and we talked about 9%-10%, that was in response to, "How do you know that your business is operating well in shipbuilding?" And I'm not backing away from, "Your business is operating well in shipbuilding. It's going to be in the 9%-10% range." If you're above 10%, it means that you're harvesting mature programs, you know, successfully.
And I think Brian and his team did that very well over the last three or four years. If you're below 9% and you're operating and you're executing well, what that means is you're probably on the design end, or you have a lot of new work, or you have large risk registers that you have to deal with and go forward. If you get it blended, it's going to be somewhere between 9% and 10%. We look at our mix today, and we see $45 billion of backlog on the front end of that. And we then go through each of our programs and, you know, pick one.
They all have some kind; they're all stuff that we've built before, but they all of them have some kind of technical insertion going on, whether it's a well deck going into the LHA, Flight III on the destroyers, Columbia is a whole new class of ships. The Virginia Payload Module is going into the Virginia-class program. All of them have some technical insertion going on. And so I'm not backing away from 9%-10% as a way to measure that you're executing well. But I'm telling you that the best way to think about our business right now in the near term is it's a 9%; that's the sustainable year in, year out, over a period of time, 9% is the best way for us to think about that business.
That's you know, I think that's consistent with, you know, with where we're going to be. Five years from now, I think we'll look back and say, "That was right.
Byron Callan, Capital Alpha Partners. Mike, it kind of goes back to Doug's question about the changing competitive landscape. It's probably a more general question, but you guys are specialized on large complex warships. There's been a whole debate about size recently. You know, CNO had talked about smaller aircraft carriers, CNO Richardson, distributed operations, smaller ships, smaller amphibious ships. Is there something that's fundamentally changed in the survivability of smaller ships in their cost and manning? Or is this just one of these periodic, philosophical debates that navies go through, and we're going to come back to the big ships are the best?
Yeah. You know, I mean, that's probably a better question for the Navy than for me. I think there's always been a bit of a, well, you know, pendulum where we go back and forth between we need lots more numbers, and then we need lots more capability. The truth is, for us, the cheapest thing we build in all the ships is the size. Right? It's the volume is actually almost yeah. And that's why and frankly, what happens is just take the carrier. You end up with you have a 100,000-ton carrier, and you go and say, "Okay. What's that capability?" All right. Well, it's too big. It's too expensive. So can I get 60% of that capability for 40% of the cost?
And the problem is that because size is the cheapest thing we do, you can get 60% of the capability, but it's going to be 80% of the cost. And so when that you know, we go through this, and we go through all that math, and you step back and say, "Well, why would I reduce the capability so much for such a smaller cost change?" And so that's why the pendulum keeps going back and forth. I do think that there is new technology out there in terms of autonomy and unmanned and less manned or lightly manned applications. And in the peer environment, you're looking for lots more opportunities to be asymmetric. And so I think that's informing the way the Navy's talking about this right now.
But I'm not terribly concerned about it from the standpoint of. I'm not going to do what I'm frankly. I'm hoping that 10 years from now, we're not doing what we're doing today. I hope we're doing what the nation needs for us to be doing, so. Okay. I think that's a wrap then. We have lunch planned. All right? Right out in the hall. Thank you all for your attendance today. I really appreciate the fact that you took the time and come and spend with us. As you can tell, this is the best leadership team on the planet, as far as I'm concerned. And I'm very excited to be part of this group. So thank you all for your attention today.