ARTICLE

July 2004

Lack of Specificity in Navy Shipbuilding Plans Irks the Industry

by Roxana Tiron

Frustrated by perpetual fluctuations in U.S. Navy shipbuilding budgets, industry leaders are asking for funding stability.

The Navy, for years, has said it would build seven to nine new ships a year in order to maintain its goal of a 300-vessel fleet and to keep key U.S. shipyards from going out of business. In recent months, however, the rhetoric has shifted away from numbers of ships toward vague notions of “capabilities.”

Although the Navy has not backed away from its official requirement of 300 ships, the service already has forecast it will be down to 290 ships by 2006 before the numbers crawl back up again. Senior Navy officials, meanwhile, repeatedly have said that numbers tend to be artificial measures, and that the service intends to focus on what capabilities it needs to meet the nation’s defense strategy, which may or may not require a 300-ship Navy.

This new approach is creating problems for shipbuilding executives, whose business is based entirely on numbers and who depend on predictable orders to keep a steady workforce and numerous subcontractors employed.

Philip Dur, chief executive officer of Northrop Grumman’s Shipbuilding Systems, argued that the Navy’s concept of “capabilities versus numbers” not only would hurt the service’s operations, but decimate the industry.

If the Navy decides it cannot afford 300 ships, it should come up with a smaller number and set new ship construction plans based on that number, Dur said.

It also would be helpful, he added, if both the Navy and the Coast Guard jointly planned their long-term shipbuilding buys. “I do not know that either service takes the other service’s capabilities into account,” he said. If both services set their shipbuilding goals collectively, “then the shipbuilders can lay out an investment plan, a hiring plan [and] a training plan that was predicated on the assumption that we would competing for an X-number of platforms per year on a going-forward basis,” Dur said.

Northrop Grumman has about 61 percent of the Navy’s surface shipbuilding programs and shares the market with General Dynamics’ Bath Iron Works. Northrop also is a prime contractor for the Coast Guard Deepwater program.

If the Department of Defense can frame a requirement for ships and defend it, the industry would make the necessary adjustments to either scale down or ramp up, Dur told reporters during a recent tour of the company’s shipyards in Louisiana and Mississippi.

The Navy faces a tough problem, because it has global forward-presence responsibilities, but a tight shipbuilding budget.

“Whatever it’s capabilities, a ship can only be in one place at one time,” he said. “The last time I checked, there are at least five maritime domains where the U.S. has vital interests at stake.”

But while the capabilities-based planning makes sense, the Navy nevertheless ought to be able to peg a number to the requirement, said Ronald O’Rourke, a naval analyst at the Congressional Research Service.

Those numbers may change over time as threats and technologies change, he notes, but capabilities-based planning does not serve as a reason to permanently set aside the question of the planned size and structure of the fleet.

The lack of a consensus about the future size and structure of the Navy, however, has certain upsides, said O’Rourke. “It permits Navy, Defense Department and industry officials to explore new ideas for fleet composition, and to examine potential tradeoffs that can lead to a new plan for the fleet that is better aligned with changing strategic needs and technological developments,” he told an industry conference.

The downside is that it creates uncertainty for Navy planners, contractors and lawmakers whose careers are tied to shipbuilding programs.

Northrop Grumman, like many defense companies, invests corporate funds in upgrading facilities in anticipation of future military contractors. If business shrinks, companies are exposed to huge losses.

Northrop Grumman is investing upwards of $500 million for three shipyards—Avondale, Gulfport and Ingalls—to prepare for upcoming work. “Every year, another five-year plan is attached to the president’s budget that goes to the Hill for authorization and appropriations action,” Dur said. “We use that five-year shipbuilding plan as the best information we have.”

“If the government comes back and says we are ultimately in a freefall to a 200-ship Navy, if that statement were made, I can guarantee you that the market will adjust the industrial base to that expectation, but we never get those guys to say that.” Instead, the Navy revises the projected funds for shipbuilding every year, making it difficult for the shipyards to plan accurately for the workload.

The Navy does not have an officially approved consensus plan for the future size and structure of the Navy, according to O’Rourke.

The 2001 Quadrennial Defense Review approved a plan for a Navy of about 310 ships. This plan includes 12 aircraft carriers, 116 surface combatants (cruisers, destroyers, and frigates), 55 nuclear-powered attack submarines, and 36 amphibious ships organized into 12 amphibious ready groups. The 310-ship plan also includes additional mine warfare and support ships.

Since 2002, Navy leaders have spoken of an alternative plan for a 375-ship Navy, noted O’Rourke. “The primary difference between the 310-ship plan and the 375-ship plan is that the 375-ship plan includes several dozen smaller surface combatants, called Littoral Combat Ships, that are not included in the 310-ship plan.”

The 375-ship plan includes 12 aircraft carriers, 55 attack submarines, four converted Trident cruise-missile-carrying submarines, 160 surface combatants (including 104 cruisers, destroyers, frigates, and 56 LCSs), 37 amphibious ships, and additional mine warfare and support ships.

“Although Navy leaders in speeches and testimony to Congress routinely refer to the 375-ship plan, the plan remains a Navy proposal, rather than an official [Defense Department] goal,” O’Rourke said. As a matter of fact, Secretary of Defense Donald Rumsfeld and Navy Secretary Gordon England both declined to endorse it.

If anything, the Pentagon is raising questions about the 310-ship plan, O’Rourke said. “As a result, there is now some uncertainty regarding the planned size and structure of the Navy.” That affects the surface combatant force in particular, because surface combatants account for most of the difference between the 310 and 375-ship plans.

Some observers speculate that Navy leaders may have chosen the 375-ship figure as an arbitrary starting point that reflected a general desire to have a fleet closer to 400 ships than to 300 ships, O’Rourke argued.

Congress, in examining the Navy’s programs and budget, has to ask if the service accurately has identified the capabilities and the force structure it needs. The next question is whether the service’s proposed procurement programs support the stipulated force structure and whether the Navy has a credible plan to fund the programs.

“[Defense Department] and Navy officials may find the current uncertainty over the planned size and structure of the Navy convenient for managing any latent differences they may have over the planned size and structure of the Navy,” O’Rourke added.

Rampant speculation continues about cutbacks to the shipbuilding budget in 2006. Among the considerations is to cut the new amphibious attack ship, the LPD-17, from 12 to eight, a decision that would financially hurt shipyards. Another of the company’s ship programs, the DD(X) destroyer, could be delayed.

The Navy may, however, accelerate the development and construction of new logistics ships, such as the Maritime Preposition Force-Future (MPF-F) and the LHA-Replacement, a new class of amphibious ship viewed as a critical platform for Marine Corps operations.

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