American Shipbuilding Association

Fiscal Year 2007 Naval Shipbuilding Budget Submitted to Congress

With the submittal of the President’s FY07 budget to Congress on February 6th, there are some positive trends in the budget for naval shipbuilding.  First, the FY07 budget requests $8.9 billion for the construction of seven new ships.  This is a $2 billion increase over what Congress appropriated for shipbuilding for the current fiscal year.  Second, the industry is encouraged by Admiral Mike Mullen’s, the Chief of Naval Operations (CNO), repeated statements that the Nation cannot allow the current Fleet of just 281 ships to continue to fall, and that there needs to be a stable shipbuilding plan upon which industry can plan and build to achieve efficiencies throughout the industrial base.  Lastly, the CNO has issued a long-term shipbuilding plan as the first step in providing increased stability.

These are positive first steps in what will be a long and difficult national effort to reverse more than a decade of historically low and unstable shipbuilding budgets.  Industry looks forward to supporting the CNO in his effort to rebuild America’s Navy to a size and capability needed to execute the war on terror and to deter emerging threats from China, which is rapidly building a substantial force projection Navy.  The industry also supports the CNO’s efforts to increase the production rate of the Virginia Class of Submarines to two per year to maintain a minimum submarine force of 48 to 50 ships.

Legislative Priorities for 2006 

The American Shipbuilding Association continues in its efforts to ensure this country maintains a strong U.S. shipbuilding industry and a vibrant manufacturing industrial base because of the importance of ships to the safety and security of the United States.  To support these goals, the industry’s 2006 legislative priorities include:   

FY 2007 Naval Shipbuilding Budget

ASA will work with the Navy to defend its shipbuilding budget request with Congress.  Specifically, industry strongly supports efforts by Congress:  To increase the rate of SSN-774 submarine production to two per year beginning no later than fiscal year 2010;  To maintain the budget request of $2.6 billion to equally split fund dual lead ships of the DDX class of destroyers;  To support contractual authority granted by Congress in fiscal year 2006 for the Navy to use the $784 million requested for the CVN-21 aircraft carrier to be used to order long lead materials and to begin construction of the ship with her full funding split over three years; and, To support the CNO’s request to Congress that $1,285 million in unfunded priorities be restored to the FY07 budget to construct the ninth LPD-17 amphibious transport dock ship.

Limit Lease Terms of Foreign-built Defense Auxiliary Ships

ASA will continue to work with Congress to urge that legislation be passed to limit the practice by the Department of Defense (DOD) of using long-term leases as a de facto means of buying foreign-built ships to meet dedicated military logistics requirements.  DOD has indirectly acquired nine to ten ships using five year leases, and has announced plans to acquire ten or more additional ships using the same acquisition approach.  By using five year leases, that are renewed for an additional five years, DOD is able to circumvent U.S. law requiring that ships for the military be built in the United States, and the 1990 Budget Enforcement Act passed to halt lease/purchases of capital assets because of concerns that leasing is more expensive than a direct purchase.   Representatives Jo Ann Davis (R-VA) and Gene Taylor (D-MS) have led a bipartisan effort in the House to limit the leases of foreign-built ships to a period of no longer than two years.  Senator Thad Cochran (R-MS) has expressed interest in championing similar legislation in the Senate.

Title XI Ship Loan Guarantee Program

ASA will ask Congress to appropriate $30 million for new loan guarantees for the Title XI Ship Loan Guarantee Program, which is administered by the Department of Transportation’s Maritime Administration. 

The Title XI Ship Loan Guarantee Program provides small and medium sized ship owners with a federal guarantee of their commercial bank loans for the construction of commercial ships in the United States.  The financing terms and conditions facilitated by Title XI are not subsidized rates, but rather are comparable to finance rates at commercial banks to which large corporations have access.  Title XI has one of the lowest default rates of any government sponsored loan guarantee program – less than 3%.  If it were not for Title XI, most medium and small size companies would not be able to modernize and expand their fleets. 

The majority of vessels built with Title XI financing are for companies that operate dry and liquid cargo ships in the U.S. trades.  The ships built with Title XI financing also play a major defense logistics role as a supplement to the Department of Defense military auxiliary fleet.  For example, during Operation Iraqi Freedom, the Department of Defense was in need of commercially available, American-built and operated clean product tankers to carry jet fuel.  Of the 22 tankers chartered, only six were American-built.  These six tankers were built with Title XI financing.  Additionally, one roll-on/roll off vessel also utilized during the conflict was built with Title XI financing.  Arguably, none of these ships would have been available to the U.S. military unless this financing mechanism existed.  By ensuring that the military has access to American-built ships, the U.S. mitigates reliance on foreign-built and owned ships, and bolsters America’s security in re-supplying American troops with ships built in the U.S.

With the exception of a special projects appropriation of $5 million contained in last year’s Highway Bill, Title XI has received no funds for new loan guarantees since $25 million was included in the FY 2003 Emergency Supplemental Appropriations Bill.  An appropriation of $30 million is needed in the Transportation Appropriations Bill for fiscal year 2007 to sustain the Program, and U.S. commercial shipbuilding and ship operating industries. 

Article Reveals China’s Clandestine Military Build-up

In an article by Bill Gertz published in the February 16, 2006 edition of the Washington Times, an anonymous official within the Pentagon confirmed that commercial satellite photos have revealed that “`the Chinese have a whole network of secret facilities that the U.S. Government understands but cannot make public’” supporting speculations that China’s covert military build-up is even more secret than originally believed.  According to the article, the commercial photographs are believed to be similar to intelligence photographs already in possession of the U.S. Government.  One of the commercial photographs is said to show a secret underwater submarine tunnel believed to contain nuclear warheads for submarine missiles.  This build-up is another example of the growing enigma of China; statements that it has no aggressive ambitions, while quietly building a massive navy.

offensive, rather than defensive in nature and composition, with increased attention to power projection far beyond territorial waters.  The 2006 Quadrennial Defense Review (QDR) released in early February states that “of the major and emerging powers, China has the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional U.S. military advantages absent U.S. counter strategies.”  The QDR also reveals the Navy’s plan to shift more naval ships to the Pacific theater, including “at least six operationally available and sustainable carriers and 60% of its submarines” to increase the U.S. presence in the region.

New Partners

IMECO, Inc. and ATSCO have joined the American Shipbuilding Association.  Headquartered in Iron Mountain, Michigan, IMECO is a primary supplier of marine heating, ventilation, and air conditioning systems.  ATSCO, located in Mentor, Ohio, is a leading manufacturer of industrial air tools and pneumatic motors. 

Sea Power Ambassador Coordinator Recognized

The American Shipbuilding Association recognizes the outstanding efforts of Robin Mysliwy of Henschel, located in Newburyport, Massachusetts, in recruiting Sea Power Ambassadors.  As a result of her active recruitment, nearly all of the employees of Henschel have enrolled as Sea Power Ambassadors, and Robin has also successfully reached out to Henschel’s top five suppliers to recruit their employees.  As a direct result of her efforts, the number of Sea Power Ambassadors continues to grow. 

Are You A Sea Power Ambassador?

Be Informed!  Make a Difference!  Join today!
www.seapowerambassador.org

Well Said!

“Ultimately, the nation needs to decide whether the United States will yield
its dominance of the sea in the coming century, or if we will retain it”

Mike Petters

President, Northrop Grumman Newport News
Proceedings
February 2006