Navy’s Shipbuilding Forecast Gets Chilly Reception on Capitol Hill
With 286 ships today, the Navy’s fleet is the smallest it has been in decades. The service has projected an expansion in the coming years — to 324 ships by 2021 — but the growth is predicated on so many hypotheticals that a betting man would give this plan long odds.
The biggest variable that, by most experts’ accounts, could wreck the Navy’s expansion strategy is the cost of ships. The shipbuilding plan assumes that manufacturers will lower costs, that ship procurement budgets will not be cut in the future, that many of the current ships will stay in service longer than initially planned, and that new ships will be constructed and delivered on schedule. What are the chances that nothing will go wrong? Or so wondered Rep. Todd Akin, R-Mo., chairman of the House Armed Services seapower and projection forces subcommittee. “Probably the most worrisome aspect of the Navy’s budget is that it will require near-perfect execution,” he said in an opening statement at a hearing last week.
The Navy's most recent shipbuilding plan, dated February 2010, envisions buying a total of 276 ships over 30 years at an average annual cost of about $18 billion. Congressional Budget Office senior naval analyst Eric Labs has estimated that the cost of the Navy’s plan is about $3 billion a year higher — or $21 billion per year. “There is nothing in the Navy’s 2012 budget request that suggests those numbers will change significantly,” Labs said in a March 9 statement.
The assumption that shipyards can deliver vessels at lower costs so far is based more on wishful thinking than real evidence.
The Navy’s senior acquisition executive, Sean Stackley, has acknowledged that the proposed fleet expansion goals are indeed ambitious. “Costs have been rising faster than our top line for a long time,” Stackley said at an industry conference in Washington, D.C., hosted by Aviation Week. “If we don’t change that trend, we’re not going to be able to get there,” he said.
“The program to build back the navy to 313 from 286 ships faces a lot of challenges,” Stackley said. “The most important thing we have to do is ensure that the fleet we have doesn’t retire early.”
He said it takes about 30 years to build a fleet. “So you’re not going to get to 313 in a hurry, and you’re never going to get there if the ships you have on hand don’t meet their full service life.”
The 2012-2016 budget funds 55 new ships. Stackley said his staff is scrutinizing the budget “line by line, to ensure cost is right, and dollars are backing up the estimates.” But there is no doubt, he said, that “affordability needs to improve.”
Shipbuilders have in recent years vowed to slash costs as long as the Navy committed to a stable program with steady funding and block buys of multiple ships. Stackley said the Navy is delivering on industry’s requests for predictability. Now the pressure will be on shipyards to boost efficiency. Stackley worries that the two giant companies that build Navy ships — General Dynamics and Northrop Grumman — may have made the industry less efficient by buying up their smaller competitors. When six shipyards became two, that “changed the dynamics,” Stackley said. “Consolidation was intended to bring efficiencies and leverage. In certain cases that proved true. In other cases it went the other way.”
More competition would benefit the Navy, although Stackley recognized that there is probably not enough work to keep more shipyards in business. Last year, he ordered an independent study of the size and shape of the industry, which was expected to be completed this month. Stackley also is contending with the impending sale of Northrop Grumman’s shipbuilding operations. The company announced it would exit the business as soon as an acceptable buyer was identified. Stackley said that, for the time being, he is keeping a “mindful eye on the industrial base.”
At a HASC hearing this week, Stackley said the Navy had completed a “force structure analysis” that called for a minimum of 313 ships, and 324 ships by fiscal year 2021.
The 2022-2031 period get tougher as the Navy expects to begin procuring 12 new ballistic missile submarines to replace the current Ohio class. The first boat in the class must be ordered in 2019 to ensure that 12 ballistic missile submarines will be available before Ohio boats are retired, Stackley said. This program is predicted to throw a big wrench into the Navy’s budget because of the huge price tag of $5.4 billion per boat. Even though the Navy plans to bump up its ship budget to $17.5 billion during that time, the total number of ships built per year will “inevitably fall because of the percentage of the shipbuilding account which must be allocated for the procurement of the SSBN(X),” Stackley said. “Recognizing these impacts, we are looking at various ways to control the cost of these ships.”
In the 2032-2041 forecast, average shipbuilding budgets are projected at $14.5 billion per year.
Members of Congress who traditionally support Navy programs appear skeptical about what they see as overoptimistic projections.
“It concerns me when we see the secretary of defense coming in, as he did last year, talking about the shipbuilding plan and saying that the outyears of the shipbuilding plan are simply a fantasy,” Rep. Randy Forbes, R-Va., chairman of the House Armed Services readiness subcommittee, told Navy leaders.
“OMB disagrees with the number of ships that the Navy projects,” Forbes said. “They think we're headed towards 270 and not in the 300s.”
Navy Secretary Ray Mabus told lawmakers that the new “force structure assessment was built on capability needs and mission needs and not to reach a certain arbitrary number.” On CBO’s estimates that the Navy is underestimating the cost of ships, Mabus stood by his numbers. “If you'll look at our five-year shipbuilding plan and on out to 10 and then 30 years, one of the things we tried to be very realistic about was how much money we could expect, and the average is 15 billion dollars a year,” he said at the hearing. “For our shipbuilding needs, we think that that falls within the historic average, and it will give us the ships we need if we manage that money correctly and if we bring those ships in at the budget that they need to be brought in.”
Comments from other Navy officials, however, suggest that reaching the 324, or even the 313 ship goal, is far from a sure thing.
The price of Navy ships has doubled over the past 20 years. If programs stay on the current path, cost will probably continue to double every 20 years, says Rear Adm. David Lewis, the Navy’s program executive officer for ships.
He said ship hyperinflation could be contained if shipyards modernize their production methods and boost their workers’ productivity, Lewis said at aJanuary conference in Arlington, Va. “Unless industry finds ways to either mitigate or eliminate that cost growth with productivity improvements elsewhere, costs will rise,” Lewis said. In the absence of major change, the result will be a “reduced force structure,” he said. “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 said. “The Navy is doing its piece. Industry needs to step up to the plate and do its piece.”
Within the next 10 years, 82 ships from 13 different classes are expected to enter the fleet. That is a 60 percent increase over what was delivered to the Navy in the past decade. Jim McCarthy, assistant deputy chief of naval operations who oversees Navy budgets, cast doubts on the precision of long-term shipbuilding projections. Any forecasting that goes beyond five years out is guesswork, at best, McCarthy said at the 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,” he said. “We start to lose clarity.”