Navy Pressing Shipyard to Reduce Labor Costs of Aircraft Carriers
This should be welcome news for the nation’s sole manufacturer of nuclear carriers. But as the USS Kennedy contract deadline approaches, the admiral who oversees the program is laying down a warning:Unless the price tag drops dramatically, aircraft carriers could end up a casualty of the coming Pentagon budget crunch.
Congress first approved early-procurement funding for the Ford class in 2001. By 2004, the Pentagon had estimated the first three ships of the class — USS Ford CVN-78, USS Kennedy CVN-79 and CVN-80, would cost an average of $12 billion each.
That price tag appeared reasonable back then but is now considered unaffordable as the U.S. government faces crushing deficits and Pentagon spending is no longer soaring as it did over the past decade. “The budget is now a zero-sum game,” said Rear Adm. Thomas J. Moore program executive officer for aircraft carriers. “The reality is that we have to compete for defense dollars,” he said during a Sept. 27 interview at the Washington Navy Yard.
If the cost of carriers isn’t contained, Moore suggested, the Navy could face unpleasant choices, such as dipping into other ship accounts to pay for the Ford, or delaying construction of the third ship, the CVN 80.
Moore said he expects CVN-79 to cost about $11.4 billion. But he believes CVN 80 needs to have an even smaller price tag of about $9 billion for the Navy to be able to afford it.
“I’m not saying $9 billion is cheap … but it is a good investment for the 50 year of service” that aircraft carriers provide, Moore said.
Moore became the sixth program executive officer for aircraft carriers in August 2011, but he is no stranger to the business. He started working on carrier programs with Newport News Shipbuilding in 1992, when he was a lieutenant commander, and has overseen the refueling and overhaul of three Nimitz-class aircraft carriers.
The ballooning price tag of aircraft carriers has been a perennial thorn in the Navy’s ship budgets, but the service has managed to absorb the added costs over the past decade when Pentagon spending nearly doubled. Moore is taking over the Ford-class construction at a time where there is little room for financial maneuvers and much less tolerance for Pentagon overruns.
Five years into the development and prototyping of CVN 78, the Navy has a firm grasp of the technological challenges in this new class of ships, and the design is now stable, Moore said. It will be up to the shipyard to do its part and modify construction processes so that CVN 79 and CVN 80 can be built for billions of dollars less than CVN 78, Moore said.
It will take 50 million man-hours to build CVN 78. That is too high, Moore said. “We need to drive the man-hours back down into historical Nimitz-class levels.”
He expects CVN 79 to require 43 to 44 million man-hours. The only way to hit the $9 billion cost bogey for CVN 80 is to make sure it does not exceed 40 million man-hours, he said. “If we can do that, we’ll have a sustainable cost.”
Moore said his office is working with Newport News executives to achieve what the Navy calls an “optimal build plan” that will slash several million man-hours from future carriers.
Such dramatic cost reductions face strong headwinds. Shipyard executives for years have been grilled on Capitol Hill about the rising cost of U.S. Navy ships, and their response always is that it is not the industry’s fault. Navy shipbuilding is intrinsically inefficient because the Navy doesn’t buy enough ships, executives have argued.
“There’s no magic formula to this,”Mike Petters, president and chief executive officer of Huntington Ingalls Industries, told reporters in December. “The ships we make are complex” and the “build rate” is not efficient, Petters said.
Moore gets that, but said shipyards must come to grips with the reality that the Navy is not going to increase orders in the foreseeable future. In the case of aircraft carriers, the best that Newport News can hope for is to start one every five years.
“We are at five-year centers and we are not going to change that any time soon,” Moore said. “Five-year centers is a good point that balances fiscal needs and allows us to continue to build at a pace that allows Newport News to manage its supply base.”
Shipyard executives have said a four-year cycle would be far more efficient, but Moore said that is unrealistic. “We can moan and groan that we don’t have four-year centers” but that is not going to change anything, he said. “So we have to think differently about how we are going to build the ship. We have to change processes.”
Other ship programs have achieved impressive cost reductions, he said. One relatively easy way to eliminate labor hours is to construct and assemble a bigger portion of the ship on land, said Moore. “The most expensive part is what is done when the ship is in the water.”
It’s known as the 1-3-8 rule, said Moore. The same task takes one man-hour in the shop, three man-hours in lay-down areas outside the shop or the dock, and eight man-hours once you send the ship overboard.
Activities such as electrical cabling, ventilation and piping could be pulled inside the shop, he said. “History tells us the overboard part is the most expensive.” South Korean shipyards, he added, have figured this out and do more of the work early in the process.
Another cost-saving technique is to assemble the ship in vertical modules. Aircraft carriers are now built in horizontal layers. “We stack the pieces like a wedding cake,” he said. Other ship programs do vertical builds. They construct a large section of the ship from the ground up, take large modules and slide them together. “Newport News is working on this for the bow section of the ship,” said Moore. But there is more to be done, he added.
Shipyard officials for years have asked the Navy to allow advance purchases of materials for two ships at a time, which would increase the government’s purchasing power. Moore supports that notion, but still is not persuaded the savings would be significant because the big money is in labor, not materials.
“We want to be convinced that we’ve got the cost of the ship and the man hours under control. If you can prove there’s a benefit of buying material early, we’re for it,” Moore said. Asking the Defense Department for money upfront to buy items that might not be needed for years always is a tough sell, he acknowledged. In today’s zero-sum budget, “We would have to convince OSD [the office of the secretary of defense] and the Navy that it would be better use of dollars than building another littoral combat ship or destroyer.”
Moore said the burden is on Newport News to “prove to me that they can bring the cost down before you buy more stuff.”
The shipyard announced Sept. 27 it had received $296 million for long-lead-time material procurement for CVN 79. The ship's first steel was cut in December 2010, and delivery to the Navy is scheduled for 2022.
"Advance construction and procurement enables us to transition smoothly from Ford into the bulk of Kennedy's construction starting in 2013," Mike Shawcross, Newport News vice president, said in a statement. "We are working hard with the Navy to make the entire class more affordable.”
Cost reduction measures, he said, include “maximizing work in earlier stages of construction where it can be done more efficiently, re-sequencing unit construction to build similar units repetitively, decreasing the number of lifts required to erect the ship, increasing overall ship completion levels at major key events, and improvements to processes and tools.”
Huntington Ingalls’ spokeswoman Beci Brenton said the company is “intensely focused on driving down the costs of the John F. Kennedy and future Ford-class aircraft carriers.”
The shipyard is working to “identify opportunities to further reduce costs, such as maximizing work in earlier stages of construction, building similar units repetitively, and increasing the size of building blocks required to erect the ship,” Brenton said in an email to National Defense.
In the run up to next year’s CVN 79 construction contract, Moore expects to hear more specific plans on how the shipyard would cut man-hours. “I keep telling the yard that the fiscal environment is challenging,” said Moore.
He recognizes that the Navy has limited bargaining room because Newport News is the only company that can build nuclear-powered carriers. The Navy needs carriers, said Moore. “But at any cost? Not necessarily,” he said. “They [shipyard executives] have an obligation to work with us so when we’re faced with a budget squeeze, the first place the budget cutters don’t go looking is the aircraft carrier,” he said. “If you’re a budgeteer at OSD and you’re trying to find a quick $10 billion, you only have to cut one ship. … It’s an enticing target for green eyeshade folks.”
But Moore insisted that the Navy views the shipyard as a partner, not as an adversary. “We are absolutely mindful of the industrial base,” he said. “In kind, they have an obligation to make the ships more affordable.”
The company is aware that the CVN 78 price of $12.9 billion is not acceptable for future ships, he said. “We understand the reasons why it costs what it does, being the first ship in the class … But there are no excuses going forward in 79 [because] we’ll have a complete design.”
Newport News executives, he said, “Certainly have an obligation to their shareholders,” but that has to be balanced against the government’s need to reduce cost.
Moore’s message to the shipyard: “The status quo is not good enough. There’s more danger for us in the status quo than taking a little bit of risk and trying something new. We have to think differently.”
If cost reductions fail to materialize, he said, “We put the entire carrier program at risk, and I really believe that.”
Photo Credit: Huntington Ingalls