American Shipbuilding Association

Conferees Complete FY 2004 Defense Authorization Bill

After nearly four months of negotiations, the FY 2004 Department of Defense Authorization bill was passed by both the House and Senate.  Conferees authorized $8.5 billion for the construction of five new ships in FY 2004, including one submarine, three destroyers, and one Amphibious Transport Dock (LPD).  The procurement of two T-AKE’s are budgeted at $722 million in the National Defense Sealift Fund. 

Conferees agreed to an additional $20 million over the Administration’s budget request for the modernization of the DDG-51.  Multi-year procurement authority was granted for the Virginia-class submarine.  An authorization of $75 million was included for the advance procurement of the LPD-23 to move production of that ship to FY 2005.  Conferees matched the Administration’s $1 billion request for the continued development of DD(X), the next generation of surface combatants, and added $25 million to the Administration’s request for development of mission modules for the Littoral Combat Ship (LCS).

The American Shipbuilding Association applauds the two ship increase over the FY 2003 budget.  However, the seven ships procured for FY 2004 are three ships fewer than the 10 ships needed to sustain a 300 ship Navy, and five ships fewer than the 12 ships the Nation must procure annually to rebuild to the requirement of a 375 ship Navy to meet current and emerging threats.    

Compromise On U.S. Defense Manufacture Initiative

House Armed Services Committee Chairman Duncan Hunter (R-CA), faced with opposition by the Senate and White House, was forced to withdraw several provisions contained in the House version of the Defense Authorization bill designed to strengthen the U.S. defense industrial base.  The Chairman’s original proposal called for identifying critical defense systems and components and requiring the manufacture of these systems in the United States.  The U.S. defense industrial base is being decimated as a result of the defense “procurement holiday” of the past decade and foreign sourcing of critical defense components because of degradation to U.S. defense manufacture laws.  Despite this reality, conferees rejected the provisions that critical defense systems be manufactured in this country.  However, conferees did agree to the establishment of a program that would assess the ability of the U.S. industrial base to produce military systems and key critical components and materials.  Additionally, the Department of Defense must report on levels of foreign procurement and the market sectors impacted; identify all critical components and essential U.S. capabilities necessary to produce such items; and eliminate procurement from foreign country sources if the country refuses to deliver military products because of opposition to U.S. military activities.  Conferees also called for the creation of a Defense Industrial Base Capabilities Fund to develop U.S. capabilities for the production of critical military systems and components.    

While the compromise falls far short of needed reform to U.S. defense acquisition laws, the agreement reached by the conferees lays the foundation for Congress to strengthen U.S. defense manufacture laws next year.   

In the naval shipbuilding industry, more than 60% of critical systems and component manufacturers have been put out of business over the past four years, and thousands of defense shipbuilding jobs have been lost.  If action is not taken to strengthen the defense industrial base, the U.S. will become completely dependent on foreign sources for our national security.

Committee Orders Future Fleet Architecture Studies

Defense Authorization Conferees expressed concern regarding the Navy’s plans for its future fleet architecture.  In a modification of the House recommendation calling for eight future fleet studies, conferees directed the Secretary of Defense to commission two independent studies on future fleet architectures to be completed by January 2005.  The studies are to present one or two proposals and include details such as the number, kinds, and sizes of ships, and how available resources could be used to effectively counter future threats.  

Title XI Authorized at $36 Million in FY 2004

Conferees agreed to authorize $36 million for the Title XI Ship Loan Guarantee Program each year for the next five years; $30 million of which is allocated for new loan guarantees.  However, the Senate did demand changes to the way the program is administered to help reduce the risk of defaults.  The Defense Authorization bill codifies the recommendations set forth in a report by the Department of Transportation Inspector General in March of this year.

Included in the conference report is the mandate that no loan will be disbursed to a ship owner before the obligor of the loan guarantee has met its cost sharing obligation.  The Maritime Administration (MARAD) would be limited in its power to waive the economic soundness criteria and may be required to establish an independent, risk-based process for verifying the progress of projects under construction before disbursing loan funds.  MARAD must also monitor the financial condition and operation of the obligor on a regular basis during the term of the guarantee.  In the event of default, MARAD is directed to maximize the return on a default-related sale of assets by obtaining independent appraisals and ensuring competition during foreclosure proceedings. 

In an attempt to reduce the backlog of pending Title XI applications, Conferees included provisions that would set guidelines for approval or denial of loan guarantee applications, in addition to establishing an organizational framework for the management of the loan guarantee program to ensure a distinction between loan application and approval, project monitoring, and default management. 

MARAD is in the process of implementing the reforms set forth by the Inspector General in his March report.  Funds appropriated for FY 2003 are on hold until the Department of Transportation has certified that the reforms are in place.    

Tank Vessel Construction Program Approved

Defense Authorization Conferees re-authorized the Maritime Security Program (MSP).  Contained in the reauthorization is the establishment of a new priority for U.S. built, owned, and operated tank vessels for the transportation of jet fuel.  Conferees recognized the lack of U.S. built and registered tankers transporting jet fuel to re-supply forward deployed forces in Iraq.  Of the 26 double-hulled product tankers that were chartered for the supply effort, only six vessels were U.S. built.    This raised serious concerns among conferees about availability of ships for future military operations. 

In an effort to correct the shortfall of available U.S. product tankers, conferees established a new national defense tank vessel construction assistance program.  The program will provide financial assistance to U.S. citizen owners by paying up to 75% of the actual construction cost of up to five vessels, with a cap of $50 million per vessel.  Vessels will be constructed for participation in the international commercial market, but must also satisfy the sealift requirements of DOD in times of war.  These vessels will be given priority for Title XI loan guarantees, and will also be given priority for an operating agreement under the new Maritime Security Program.

On November 18th, Senators Trent Lott (R-MS) and John Breaux (D-LA), and Representatives Randy “Duke” Cunningham (R-CA) and Robert Brady (D-PA) sent a letter to the President urging him to budget $250 million for a clean product tanker construction program, and a minimum of $30 million in new loan guarantees for the Title XI Program in the FY 2005 budget request to Congress. 

ASA Welcomes New Partner

EMS Development Corporation recently joined ASA.  EMS, headquartered in Yaphank, New York, is a leading manufacturer of military electronic systems, including equipment for naval mine warfare.    

Industry News

Newport News Responding to Navy Schedule Change

Newport News Shipbuilding in Newport News, Virginia, is working with the Navy to address its decision to delay by one year the planned refueling and overhaul of the aircraft carrier USS Carl Vinson.  The Navy’s decision to delay the Vinson’s scheduled maintenance was made to address the fleet’s current operational needs.  According to Tom Schievelbein, President of Newport News Shipbuilding, the issue is “critical from a people perspective”, and that the shipyard is working to find ways to maintain technical capabilities and stabilize the industrial base.   

Well Said!

“We as a country should be very grateful for the men and women who build these ships… You play a key role in defending our freedom.”

Former President George H.W. Bush
Keel Laying Ceremony for USS George H.W. Bush
September 6th, 2003