Littoral Combat Ship Buy Could Affect Industrial Base
Industry and lawmakers are concerned that plans for the Navy’s littoral combat ship may not be able to sustain the shipbuilding industrial base, leaving vendors at a potential disadvantage for future frigate production.
Rear Adm. John Neagley, program executive officer for LCS, said at a 2017 House Armed Services seapower and projection forces subcommittee hearing that purchasing three ships per year would be the optimal sustaining rate for industry.
“Certainly from a cost efficiency standpoint, leveraging the investments we’ve already made in those shipyards to produce ships efficiently, three ships a year is the correct number,” he said.
However, the service’s budget request released this February showed an intention to purchase only one vessel in fiscal year 2019. This would leave one of the two LCS vendors — Austal USA and a Lockheed Martin-Fincantieri Marinette Marine team — without a ship to build, and cool production lines ahead of the upcoming frigate competition. The future fighting frigate is intended to eventually replace the LCS as the primary small surface combatant under production, and is expected to have the ability to counter submarines, airplanes and other surface ships.
Austal USA said in a statement that funding the procurement of one LCS in fiscal year 2019 is “not sufficient to support the shipbuilding industrial base.” The company is delivering, on average, four ships a year to the Navy, which includes two littoral combat ships and two expeditionary fast transport vessels.
“Any reduction in volume would negatively impact the shipbuilding industrial base, including our suppliers (local and national), as well as the ability to efficiently transition to frigate,” the statement said.
Terry O’Brien, company vice president, highlighted Austal’s ongoing littoral combat ship production line as one of the advantages of its future frigate submission, which is a derivative of the current Independence-class LCS.
“The hot production line, that’s one of our biggest advantages, we would think,” he said. “More change equals more cost, so we’re in a position to have less change as we go forward with that.”
As of press time, Lockheed Martin had not responded to a request for comment.
Bryan Clark, a naval analyst at the Center for Strategic and Budgetary Assessments, said companies fear they might need to lay off employees who work on the initial phases of ship construction, such as the hull, because they will have run out of work around 2019 or 2020.
“The concern on the shipbuilders’ part is, ‘I’ve trained these people, I’ve put a lot of time and money into bringing them up to speed and I’ve got a learning curve that they’ve been working on, so they’ve been getting better at their jobs and more proficient,’” he said.
A single ship purchase may lead to layoffs with the hopes of hiring back workers if the company receives the frigate contract, he said.
Another potential option for companies would be to reassign these workers to another task that they are not trained for, he noted.
The Navy’s decision may lead to a “ripple” of layoffs, said Jerry Hendrix, the director of the defense strategies and assessments program at the Center for a New American Security. Hendrix noted that for Fincantieri Marinette Marine’s shipyard in Marinette, Wisconsin, downstream parts suppliers located in about 41 states would be affected as well.
“If you saw a significant downscaling of the effort there, then you’re going to have long-term ripples and, essentially, layoffs across all 41 of those states,” he said.
Industry would not be able to prepare for this downturn because “the profit margin associated with both LCS designs is so thin that the yards themselves cannot absorb essentially keeping people on for a year” without work and “maintain profitability,” he said.
These issues were raised during a House Armed Services seapower and projection forces subcommittee hearing in March, when Rep. Bradley Byrne, R-Ala., expressed concern about laying off workers with critical shipbuilding knowledge. Both Austal USA and Lockheed Martin have locations in Byrne’s home state.
“It’s in the interest of the Navy to … maintain that level of expertise and the shipyard workers,” he said. “Both the industrial base and the Navy have said that one ship is not enough to maintain the industrial base and current cost efficiencies.”
"Both the industrial base and the Navy have said that one ship is not enough to maintain the industrial base and current cost efficiencies."
Austal and Lockheed Martin are in the running as two of five companies that were awarded frigate conceptual design contracts in February.
Regan Campbell, LCS program manager, said the service plans to downselect to one company and purchase the first frigate in 2020. The second is slated for purchase in 2021, and then two per year afterwards, she noted earlier this year at the annual Surface Navy Association’s national symposium in Arlington, Virginia. During the competition, the Navy will perform a technical review and provide companies with feedback on designs that may need “buffing up,” she said.
The anticipated average threshold cost of ships two through 20 is $950 million, which includes government-furnished equipment, she said. However, Neagley later said the Navy believes it can acquire the ship for under $800 million each, which is the follow-on objective cost.
Some requirements for the vessel include having a speed of 26 knots and cells that can fire either one Standard Missile-2 or quad-packs of the Evolved SeaSparrow Missile, she said. The service has an objective requirement of 32 cells, but a threshold of 16.
“The use of mature weapon systems and things like that is a pretty stable, … cost-effective and conservative approach,” said Roman Schweizer, managing director of the Cowen Washington Research Group for aerospace and defense. “The requirements in this case seem to be to be pretty well defined. … It’s not like you’re trying to develop a next-[generation], a sixth generation hypersonic fighter.”
James “Hondo” Geurts, assistant secretary of the Navy for research, development and acquisition, said the industrial base will have to “spin back up” for the competition.
“Not operating at optimal production rates will cause some concerns in workers, and we’ll have to spin that workforce” to prepare for the upcoming frigate work, he said in testimony before the House Armed Services seapower and projection forces subcommittee.
Hendrix noted that the decision to purchase one LCS in fiscal year 2019 left the Navy more money to use in its budget request to invest in three Arleigh Burke-class destroyers.
“There’s also the fact that the Navy doesn’t want, really, any more LCSs and wants to make the transition to a frigate,” he added. “They’re not necessarily enthusiastic about having a 33rd LCS or even more, and so they’re anxious to kind of bring the LCS experiment, with all of its issues, to an end and get on to a more robust multi-mission ship.”
Hendrix predicted the Navy may use the littoral combat ship as a single-mission, forward-deployed platform in the Western Pacific after it transitions to the frigate. Some potential applications include using them for anti-submarine warfare or mine-countermeasure missions, he said.
Congress may also weigh in and authorize the purchase of additional vessels for fiscal year 2019, Clark noted.
The Navy “sometimes will send a budget over where they have funded the maintenance and the personnel ... and then maybe take some shortfalls in shipbuilding, particularly, because there’s a lot of congressional support for shipbuilding and it’s an easy thing to argue that you need to add,” he said. Over the last several years, Congress has added additional ships to the Navy’s shipbuilding plan, he noted.
The Navy previously requested one ship for fiscal year 2018, but Congress later approved the purchase of three LCSs in total. Sen. Tammy Baldwin, D-Wis., had encouraged this move in a letter to President Donald Trump last May, stating that purchasing one ship in fiscal year 2018 would result in losing 1,850 jobs in Wisconsin and that purchasing two ships would result in losing 1,200 jobs across the state.
Navy Secretary Richard Spencer, testifying before the House Appropriations subcommittee on defense, expressed confidence that the fiscal year 2018 and fiscal year 2019 purchases will provide enough work to sustain these companies.
“Yes, we need to increase our capacity. But we also need to understand what the industrial base can absorb and how we can work as partners with the industrial base while purchasing our assets at the most effective and efficient rate,” he said. While the decision to purchase one vessel in fiscal year 2019 is “not optimal,” it is a “good sustaining rate for both yards as we move into what’s going to be a very robust competition for the frigate,” he added.
The Navy issued conceptual design contracts for the future frigate to Huntington Ingalls, Lockheed Martin, Austal USA, General Dynamics’ Bath Iron Works and Fincantieri Marine Group in February.
According to the announcement, the $15 million contracts each have options that could push the value up to $22 million or $23 million. Work is scheduled to be completed in June.