American Shipbuilding Association

Navy Secretary Plans Increases in Shipbuilding

In a budget letter to Secretary of Defense Donald Rumsfeld, Secretary of the Navy Gordon England proposed an increase in Navy shipbuilding purchases.   The letter states that instead of buying the five ships slated for purchase in FY 2004, the Navy would buy seven ships.   According to the letter, “The pace of recapitalization has been of concern for some time…we cannot afford to continue to defer critical investment.” 

Budget documents explain the shipbuilding plan to buy a total of 52 ships over 6 years, seven of them in FY 04.  This includes the purchase of 3 destroyers, one Virginia class submarine, one LPD-17, and 2 T-AKE cargo ships.  As a result of planned retirements of some ships, and the low shipbuilding rate for more than a decade, the fleet will drop to 291 ships by fiscal year 2004. 

Though the long-term budget would, compared with the Administration’s FY 03 request, cut shipbuilding funds over 6 years by $400 million, it would increase the annual shipbuilding rate through split funding of submarines and funding CVN (X) in the R&D account.  Split funding refers to paying only part of the ship cost up front, rather than the entire bill, and rolling the remaining cost to the succeeding year.

Funding spikes normally needed to buy either a nuclear powered attack submarine or a nuclear powered aircraft carrier in a single year often troubles the Navy.  The result often creates  instability, which leads to increased costs, including prior year shipbuilding bills, and can impede industry efforts to stabilize workforces.  The Navy believes that alternative strategies will help revitalize the fragile U.S. shipbuilding industrial base by stabilizing the overall shipbuilding program. 

The plan is still subject to change and approval by the Secretary of Defense and Office of Management and Budget. 

MARAD Considers Waiver Proposal

The Maritime Administration (MARAD) is currently reviewing comments it solicited regarding a requested waiver to the Cargo Preference Act of 1954.  The government of Israel, which purchases jet fuel from the United States, made the request.  Israel has expressed concern that qualified U.S. flag tonnage may not be available in 2004 because of the retirement of many single hull tankers under the Oil Pollution Act of 1990 (OPA ’90).    

The Cargo Preference Act of 1954 requires that 50%-100% of government sponsored cargo be transported on U.S. flag vessels when such vessels are available.  The law excludes foreign built or foreign flagged vessels from carrying such cargoes, unless the foreign built vessel re-flags as a U.S. vessel, and operates under the U.S. flag for at least 3 years.  Israel is requesting that the 3-year wait requirement be waived.   

The waiting period for foreign vessels was designed to protect the interests of domestic ship owners, encourage new ship construction in U.S. shipyards in support of national security, and ensure a vibrant merchant marine.  The Cargo Preference Act may be temporarily waived, but only by Congress, or the President or Secretary of Defense, and only when a declared emergency exists. 

ASA submitted a statement to MARAD in opposition to Israel’s waiver request.   In addition to asserting that MARAD lacks the statutory authority to grant such a waiver, ASA stated that every time the U.S. build requirement is waived, it further weakens the already fragile U.S. shipbuilding industrial base, a cornerstone to national security.  Approval of such waivers also   creates a dangerous precedence that will strip the Cargo Preference Act, along with the Merchant Marine Act, and ultimately lead to a total dependence on foreign-built, foreign-flagged, and foreign-crewed ships.  Furthermore, MARAD has an obligation to uphold the Cargo Preference Act.

MARAD is evaluating the comments from interested parties who submitted their views.   After the review is completed, MARAD will rule on Israel’s request for a waiver and publish its decision. 

NAVSEA Commander Discusses Challenges Facing Navy

According to Vice Admiral Phillip Balisle, Commander of Naval Sea Systems Command (NAVSEA), the Navy’s acquisition and support structure is being challenged.  In a statement to NAVSEA personnel, Admiral Balisle discussed the difficulties facing the Navy, and encouraged innovation and hard work to improve the Fleet. 

One area for improvement mentioned by the Admiral is ensuring the “health” of the shipbuilding industry.  He specifically acknowledged a need to “sustain the readiness of our weapons, ships, and their equipment to meet any attack and conduct every mission…” and “retain the technical and industrial capability and responsibility to respond to our nation’s needs – for today and tomorrow.”  Highlighting the Navy’s vital role in the fight against terrorism, he asserted that we must ensure the Navy has the resources it needs to be successful.   

The Admiral concluded his statement with the reminder that the U.S. has the best Navy in the world, and that accomplishments are measured in terms of “real ships with real systems that sail the oceans today in defense of freedom.”

Admiral Balisle assumed command of NAVSEA in June of this year.  NAVSEA is tasked with providing the Navy with operationally superior and affordable ships. 

Conferees Asked to Keep Defense Increase

The American Shipbuilding Association has urged House and Senate members of the Defense Appropriations Subcommittees to follow the recommended funding level of the Senate for naval shipbuilding, conversion, research and development.  The Senate version of the FY 03 Defense Appropriations bill recommended $9.2 billion, almost $1 billion above the Administration’s request. 

In a letter to defense appropriations conferees, ASA asserted that, “If the Nation is to maintain a naval fleet of the size and capability to defend our freedom, it is imperative that shipbuilding procurement rates be dramatically increased or the fleet will continue its dive toward 180 ships or fewer.”

The conference on the Defense Appropriations bill is underway.   

INDUSTRY NEWS

Schneider Departs DoD for NSA Post

In September, Paul Schneider, Principal Deputy Assistant Secretary of the Navy for Research, Development and Acquisition, departed the Department of Defense for a position at the National Security Agency. 

Mr. Schneider’s career has been distinguished by numerous professional, technical, and engineering achievements.  His nearly four decades of service to this country to ensure U.S. naval supremacy have been invaluable.  Though he will be greatly missed among those in the naval community, Mr. Schneider’s service to this country will continue as he assumes his new job as Senior Acquisition Executive for the National Security Agency.  

The American Shipbuilding Association thanks Mr. Schneider for his contributions over the years, and wishes him all the best in his new position. 

Ingalls Receives Destroyer Contract

In mid-September, Ingalls, Northrop-Grumman Ship Systems of Pascagoula, MS was awarded a $1.9 billion naval contract to build four additional DDG-51 Aegis guided missile destroyers.  The contract is part of a multiyear procurement plan, in which the Navy awards several ships under an individual contract.

Under this multiyear contract, Ingalls and Bath Iron Works in Bath, ME will build one more ship each year in FY 2002 through FY 2005.  This arrangement is part of an agreement arrived at this past June between the Navy and the two shipyards.  The agreement also transferred the construction of four LPD-17 amphibious assault ships from Bath Iron Works to Ingalls and Avondale in New Orleans, LA (see subsequent article). 

Bath Iron Works Awarded Destroyer Contracts

In September, Bath Iron Works (Bath, ME) won a $3.2 billion multiyear contract to build six Navy destroyers over the next four years.  Bath Iron Works (BIW) is the lead designer and builder of the DDG 51 class destroyer.  

BIW was awarded a $464 million contract to build DDG 102, an Arleigh Burke (DDG 51) Class destroyer for the Navy as part of the DDG - LPD swap (see previous article).   

By centralizing production at a single facility, the Navy reportedly anticipates that this arrangement will provide for stability and cost savings, in addition to improving workload stability at BIW.

Well Said!

“The shipbuilding rate is not strong enough…
The shipbuilding industrial base is strong enough.  In fact, we’re running it below capacity.”

Pete Aldridge

Undersecretary of Defense for Acquisition, Technology and Logistics
August 8, 2002