Navy’s Shipbuilding Plan Ignores Industrial Base
“The fragility of the defense shipbuilding industrial base cannot be overstated or ignored… any disruption, delay, or reduction in shipbuilding production programs will have significant cost implications for every program in the Navy’s budget, and immense implications for our Nation’s future as a sea power.” Testifying before the House Subcommittee on Projection Forces on March 30th, Cynthia Brown, President of the American Shipbuilding Association, stated that the United States is entering its 13th year of procuring only 6 new ships a year on average – a historical first. According to Brown, if these shipbuilding budgets continue, the Nation will witness the continued diminution of the fleet, and America will lose the industrial capability to ever rebuild our Navy.
Citing several studies conducted by the Navy, DOD, and other agencies, Brown commented that the Navy’s requirement for more ships is being studied away. Despite all of these studies, there is one notorious omission. The Navy has never commissioned a study or issued a report on the impact low rates of procurement and fleet size are having on the industrial base, particularly the retention of engineers and skilled production workers, at both the shipyards and at the supplier level. The procurement delays and gaps tend to be longer for the supplier chain. Brown told the Committee that the American Shipbuilding Association is in the process of conducting a comprehensive survey of the supplier base to determine the impact the production gap between the DDG and DD(X) class of surface combatants will have on the manufacturing base.
In response to a question from Congresswoman Jo Ann Davis (R-VA) on the production gap in FY 06 as the Navy transitions from DDG-51 to DD(X), Brown noted that it is critical for the new class of surface combatants to remain on schedule. Any slippage will be dramatic to both the shipyards and supplier base. Congressman Gene Taylor asked to know the industry’s proposed solution to mitigate the damage caused by this gap, and any slippage in procurement of the new class. Brown noted that the negative consequences could be mitigated, or even eliminated if more DDG’s are added to the budget in FY 06. Congressman John Kline (R-MN), directing his comments to Assistant Secretary of the Navy for Research, Development, and Acquisition John Young, stated that the Projection Forces Subcommittee would not accept the negative consequences associated with the 1 ½ year surface combatant production gap, and urged the Navy to provide solutions, or Congress would proceed on its own to preserve the shipbuilding industrial base.
Since the threat to the supplier base is directly linked to the Navy’s low procurement rates, the Committee inquired as to the Navy’s view of the required fleet size. Chief of Naval Operations, ADM Vern Clark has repeatedly stated that the Navy needs a minimum 375-ship fleet. Testifying on behalf of the Navy, ADM John B. Nathman, Deputy Chief of Naval Operations, answered that the 375 number is correct. However, both ADM Nathman and Sec. Young qualified their statements by commenting that numbers are “notional”, something Secretary of the Navy Gordon England has also stated publicly. Both Nathman and Young told the Committee that other factors, such as capability, speed, and access should be used to measure fleet size and capability. Rep. Davis commented that Congress needs some definitive metric to determine adequate fleet size in order to carry out its constitutional duties to “provide and maintain a Navy”. She asked Subcommittee Chairman Roscoe Bartlett (R-MD) to hold a hearing on her bill HR 375, the National Naval Force Structure Policy Act, in order to provide Congress with the insight it needs to make certain the Nation has enough ships to defend its freedom and security, and to ensure the survival of the U.S. shipbuilding industrial base to meet our security requirements.
Shipbuilding Accounting Legislation Added to Senate Bill
Legislation aimed at stimulating the entire shipbuilding industrial base has been included in the Jumpstart Our Business Strength (JOBS) Act, S 1637. A modified version of S 774 sponsored by Sen. Olympia Snowe (R-ME), the shipbuilding accounting provision contained in the JOBS bill is an important first step in correcting a Tax Code inequity that penalizes the builders of U.S. naval ships.
Today, shipbuilders are required to estimate what their profit will be three to eight years into the future and pay a percentage of that “estimated” profit annually to the Internal Revenue Service long before profit is known or received. This policy diverts cash during the critical construction phase of a naval ship; cash that is desperately needed for facility investment, workforce training, and timely payment of suppliers to enhance efficiencies and reduce costs in ship construction. Shipbuilding is one of the most capital intensive industries in the world, making cash flow especially critical to contract performance. The original legislation sponsored by Sen. Snowe, and the provision contained in the JOBS bill do not reduce the amount of taxes each company pays, but instead allow each shipbuilder to pay its income taxes when their profit is actually known and received. A companion bill in the House, HR 1479, sponsored by Nancy Johnson (R-CT) and William Jefferson (D-LA) also seeks to achieve this same goal.
The JOBS bill has been temporarily halted in the Senate, pending resolution of unrelated items contained in the legislation.
ASA would like to acknowledge the support of the sponsors of the Senate provision, and also extend its appreciation to the co-sponsors of the companion bill in the House. Senate sponsors include, Senators Snowe, Trent Lott (R-MS), John Breaux (D-LA), George Allen (R-VA), John Warner (R-VA), Barbara Boxer (D-CA), Jim Bunning (R-KY) Thad Cochran (R-MS), Susan Collins (R-ME), Lincoln Chafee (R-RI), Chris Dodd (D-CT), Elizabeth Dole (R-NC), Dianne Feinstein (D-CA), Mary Landrieu (D-LA), and Herb Kohl (D-WI). In addition to Reps. Johnson and Jefferson, the following House members have pledged their support for HR 1479: Representatives Rodney Alexander (D-LA), Jo Bonner (R-AL), Eric Cantor (R-VA), Duke Cunningham (R-CA), Jo Ann Davis (R-VA), Phil English (R-PA), Randy Forbes (R-VA), Virgil Goode (R-VA), Wally Herger (R-CA), Amo Houghton (R-NY), Duncan Hunter (R-CA), Steve Israel (D-NY), Walter Jones (R-NC), Carolyn Kilpatrick (D-MI), Frank LoBiondo (R-NJ), Jim McCrery (R-LA), Richard Neal (D-MA), Bobby Scott (D-VA), E. Clay Shaw (R-FL), Rob Simmons (R-CT), Gene Taylor (D-MS), David Vitter (R-LA), and Roger Wicker (R-MS).
ASA appreciates the support of these Members of Congress who are working to create jobs in the shipbuilding industrial base.
Mark Your Calendars
ASA announces the first of this year’s Sea Power in the 21st Century Forums. The forum will be held on
Tuesday, April 20th from 11:45 AM to 1:30 PM in the Russell Caucus Room, SR 325 of the Russell Senate Office Building.
Senators John Breaux (D-LA) and Susan Collins (R-ME) will discuss the naval shipbuilding budget,
and General Michael W. Hagee, Commandant of the Marine Corps will speak on sea basing. Richard Vortmann, President of National Steel & Shipbuilding Company in San Diego, California
will give the industry perspective.
The purpose of these forums is to increase awareness of the critical role of Sea Power
in defending the security of America, and the increased risk to our security
as the Nation allows our Sea Power fleet to decline.
A light lunch will be served, so please RSVP to ASA at 202.544.8170.
We look forward to seeing you on April 20th!
General Atomics Catapult Design Selected
On April 5th, the Navy selected General Atomics (GA) of San Diego, California for the development of the Electromagnetic Aircraft Launch System (EMALS). EMALS will replace the existing steam-driven catapults, providing a revolutionary advance in carrier launch operations. The GA design will result in less stress to the aircrew and aircraft, and will require significantly less maintenance and onboard personnel, reducing life-cycle costs. EMALS will be installed on CVN-21.
Industry News
Bath Iron Works Awarded ISO 14001 Certification and OSHAS 18001 Certification
Bath Iron Works (BWI) has been recognized by the International Organization for Standardization (ISO) for its achievements in environmental excellence with the award of an ISO 14001 Certification. An ISO 14001 Certification is only awarded when a company documents through an independent audit that it has in place a comprehensive Environmental Management System (EMS). A documented EMS is a high priority goal that the Environmental Protection Agency has established for companies in the United States.
With this recognition, BIW becomes the fourth shipyard in the United States to have received ISO 14001 certification. The other three shipyards include, Electric Boat, National Steel and Shipbuilding Company (NASSCO), and Newport News Shipbuilding.
BIW also became the first shipyard in the United States to have been recognized by the British Standards Institute with the award of its OSHAS 18001 Certification, which is awarded only to a company that has independently documented that it has a comprehensive Occupational Safety and Health Management System. BIW is the only shipyard in the United States that has received both the ISO 14001 Certification and the OSHAS 18001 Certification.
Well Said!
“When America loses its shipbuilding industrial base, the United States will be forced to depend upon other countries to build and maintain a naval fleet to defend our homeland, and our economic security interests. What country can we rely on for our defense? The fastest growing shipbuilding country in the world is China. The fastest growing economy is China, and China is investing heavily in building her naval power. Will China defend America?”
Cynthia L. Brown
President, American Shipbuilding Association Testimony Before Projection Forces SubcommitteeMarch 30, 2004
|
