Navy’s Message to Shipbuilders: If We Go Down, You Go Down, Too
The price of Navy ships has doubled in 20 years. If programs stay on the current path, cost will continue to double every 20 years, indefinitely, says Lewis, who is the Navy’s program executive officer for ships.
The Navy has come to accept this trend as an unchangeable fact of life, “like the moon and the tides,” Lewis says in a Jan. 13 presentation at the Surface Navy Association’s annual convention in Arlington, Va.
But ship hyperinflation should not be regarded as immutable, Lewis contends. The trend can be reversed if shipyards modernize their production methods and boost their workers’ productivity, Lewis says. “The commonly held view is that the cost of ships goes up forever, and industry likes that.”
Industry has a “responsibility that is higher than just making money,” Lewis says. “We need to change how we do business in shipbuilding, and we need to change soon.”
Statistics garnered from U.S. industrial indexes show that there is a direct correlation between productivity improvements in industry and the inflation rate in that sector, Lewis says. In Navy shipbuilding, what this says is that industry is "not innovating, not implementing capital improvements and they have high inflation as a result of that.”
Every sector of the U.S. economy has to contend with cost-of-living adjustments and soaring health care costs, but that alone is not what has been pumping up ship price tags. “Unless industry finds ways to either mitigate or eliminate that cost growth with productivity improvements elsewhere, costs will rise,” Lewis says.
Industry actually would benefit from reduced costs, he argues. Companies could still make a profit while helping the Navy to stabilize its ship acquisition plans, he adds. The alternative would be a “reduced force structure,” says Lewis. “Force structure in my mind is absolutely connected to innovation and productivity by industry.”
The Navy wants a larger fleet, while industry wants to increase profitability; both can be achieved simultaneously, he insists. “The Navy is doing its piece. Industry needs to step up to the plate and do its piece.”
A call for reversing decades of overpriced ship acquisitions comes at a time when the Navy is trying to expand its fleet from 286 to 313 ships in about two decades. Over the next five years alone, it wants to build 50 to 55 new ships. Still, most of the fleet in 2020, at least 70 percent, will consist of ships that are in the force today.
Within the next 10 years, 82 ships from 13 different classes will be coming into the fleet. That is a 60 percent increase over what was delivered to the Navy in the past decade.
The Navy is in a fiscal bind, however, because such expansion will have to be executed with flat budgets — about $15 billion a year for the foreseeable future, says Jim McCarthy, an assistant deputy chief of naval operations who oversees Navy budgets. By 2020, the Navy estimates its shipbuilding budget might climb to $18 billion a year, in 2010 dollars, he says.
Although the Navy is required by law to draft a 30-year shipbuilding plan, any forecasting that goes beyond five years out is guesswork, at best, McCarthy says at the SNA conference. By the 2020-2030 period, the “threats are less clear, technologies that will be available become less clear, the numbers of ships we’re going to buy becomes less well defined. We start to lose clarity,” he says.
In any discussions about the fiscal outlook for the fleet, the elephant in the room is the new ballistic missile submarine, the SSBN-X, that the Navy expects to build to replace aging Ohio-class boomers. The high price tag of SSBN-X means that beginning in 2020, one-third of the entire shipbuilding budget will be consumed by one ship. To keep the rest of the programs in place, the Navy would have to boost its shipbuilding account to $17 billion on average per year. “That’s going to be a significant challenge for us,” says McCarthy. To increase ship budgets within a flat budget, the Navy will have to sacrifice other procurement programs or hope that personnel costs stop rising as fast as they have been, he says. The SSBN-X acquisition also is timed to coincide with the expected retirement of many of the Reagan-buildup ships, which were produced in large quantities. Between 2020 and 2030, ships will leave the fleet faster than the Navy can replace them, he says. As a result of SSBN-X and the rapid decommissioning of Reagan-era ships, “we lose force structure in the 2030s.”
New ship construction ambitions also have to be balanced against the increasingly demanding maintenance of the current fleet, which is experiencing a higher operational tempo than planned, according to Adm. Jonathan Greenert, vice chief of naval operations
“I think we have to inculcate into the community, down to the deck plate, a concept of cleanliness, preservation and stowage and a better understanding and a better foundation — fire in the belly, if you will — of planned maintenance,” says Greenert. “It doesn’t cost a lot of money, but I tell you, with all the other things that we want to do, if we don’t have that, then we won’t get there.”
Concerns about ship program costs are legitimate, he says. Addressing them requires both the Navy and industry to work together, he adds. ”This is not, in my opinion, just industry’s issue. It is our issue. … We need to understand each other better,” Greenert says. “We need to share our strategies better … and really listen to what our realities are.”
Navy-industry conversations often resemble the Tower of Babel, he says. “We tend to talk past each other,” Greenert says. “My message to industry would be, help us define the realm of the feasible. What technology, and what kind of schedules are we asking you to do. Are they within the realm of the possible?” he asks. “Tell us whether the requirements are nonsense … Give us straight talk about performance. Help us re-plot a course when adjustments are needed, and help us understand the trade space.”
Grace Jean contributed to this report