American Shipbuilding Association

QDR Highlights Forward Deployed Naval Forces

The Department of Defense released the 2001 Quadrennial Defense Review (QDR) shortly after the terrorist attacks on New York and Washington this year. The 2001 QDR affirmed the global nature of U.S. interests and the defense strategy of forward deployed naval forces in preventing conflict stating: “Deterrence in the future will continue to depend heavily upon the capability resident in forward stationed and forward deployed combat and expeditionary forces.” The QDR specifically sites the Global Naval Forces Presence Policy as an example for other services to establish a joint presence policy.  The QDR places new emphasis on force projection beyond Western Europe and Northeast Asia. Specifically, the QDR directs the Secretary of the Navy to increase aircraft carrier battle group presence in the Western Pacific, and explore options for home porting additional surface combatants and guided cruise missile submarines in the area. 

Ms. Cynthia Brown, President of the American Shipbuilding Association, remarked, “This QDR emphasizes the essential and critical role of naval forces.   Forward deployed naval ships are mobile bases and staging areas, which are not dependant upon the permission of host governments for projecting force and protecting the security of America in operational theaters around the world.”

The 2001 QDR points out that prior estimates of available resources for defense are no longer adequate. Before the September 2001 attacks, DOD had planned for gradual increases in defense spending accompanied by roughly corresponding internal efficiencies. At this juncture the Defense Department is developing new estimates of needed funding, in line with emerging, new military requirements. Regarding the future size of America’s forces, the QDR simply states that “today's force structure… is the baseline from which the department will develop a transformed force for the future.” Secretary Rumsfeld has promised that the Pentagon's budget submission to Congress for fiscal year 2003 will reflect the results of additional in-depth studies.

DOD Continues To Under Fund Naval Ships

Astonishingly, in direct opposition to the priorities and importance that the 2001 QDR places on forward deployed naval forces and the ships that are leading the war in Afghanistan, reports have circulated that the Navy’s Program Objective Memorandum for 2003 (POM03) will result in our naval fleet shrinking to 286 ships by 2007. This continued contraction is due to the failure of the Navy and the Department of Defense to adequately budget for the numbers of ships annually needed to meet the nation’s security requirements.  Shrinking shipbuilding budgets continue to exasperate the growing “bow wave” of under funded requirements, compound stress on the Navy’s operation and maintenance budget accounts as the fleet tries to extend the service lives of aging and increasingly obsolete ships to maintain current force structure, and increases the unit and program costs of existing and future programs.

With naval forces increasingly involved in missions around the globe – ranging from enforcing the No-Fly zone in Iraq, operation Allied Force in Kosovo, and now Enduring Freedom in Afghanistan – common sense dictates that shedding naval forces should be stopped to preserve forward deployed combat capabilities.

House Appropriations Committee Reports FY2002 Defense Appropriations Bill

On October 24, 2001, the House Appropriations Committee reported its Defense Appropriations bill, in which $6.8 billion for new construction of naval ships and a total SCN account of $10.1 billion was recommended. The Committee increased the Administration’s request for DDG-51 destroyers by one for a total of four (4) ships, and provided an additional $463 million over the budget request for the conversion of four (4) Trident ballistic missile submarines to “Tactical Trident”(SSGNs) cruise missile platforms. 

Unfortunately the bill cuts the DD-21 Research and Development program by $493 million, leaving only $150 million to continue development of transformational technologies for the new land-attack destroyer. The bill also cuts funding for the LPD-17 program from $421.3 requested by the Administration to $286.3; reduces payment for prior year shipbuilding bills by $120 million to $680 million; cuts $30 thousand from the new Virginia-class submarine; cuts all funding for the LHD-8 amphibious assault ship, which is incrementally funded between FY99 and FY06; and includes language prohibiting future Department of Defense budget submissions from using Advanced Appropriations as a means to efficiently increase the rate of naval ship production.

The House Appropriations Committee approved the following for the Navy’s Shipbuilding and Conversion account:

• $3,786 million for four (4) DDG-51’s
• $1,578.9 million for one (1) SSN-774
• $370.8 million for one (1) T-AKE
• $138.9 million in Advanced Procurement for CVN (X)
• $684.2 million in Advanced Procurement for SSN-774
• $286.3 million in Advanced Procurement for the LPD-17 class
• $549.4 million in Advanced Procurement for SSGN conversion

Cruise Ship Market Collapses
in Wake of September 11th Attacks

The cruise ship industry, which flourished in a new “Golden Age” of design and construction in the last decade, is presently at rock bottom.  The downturn in the U.S. economy that started in late 2000 was taking its toll on the tourism industry, and the September 11th attacks sent the cruise market into a tailspin, with decreased bookings, increased cancellations, and many companies offering huge fair discounts.  As a result, Renaissance Cruises and American Classic Voyages have filed for Chapter 11 bankruptcy reorganization, and the financial viability of other cruise lines are threatened by the free fall in bookings and stock prices.

U.S. shipbuilders began to feel the aftermath of the September 11th attacks on October 25, 2001, when Ingalls Shipbuilding announced that it had stopped work on Project America, a cruise ship program to build two 1,900-passenger cruise ships. This decision forced the layoff of 1250 shipbuilders and was a result of the U.S. Maritime Administration’s refusal to honor a September 19th agreement to guarantee the sale of bonds necessary to complete construction of the two cruise ships for Project America, Inc. (a wholly owned subsidiary of American Classic Voyages). 

The disintegration of the cruise ship market has serious costs consequences for naval shipbuilding. The last nine years of historically low levels of naval shipbuilding have made commercial shipbuilding even more critical in sustaining the defense shipbuilding workforce that builds America’s warships. Commercial orders, like cruise ships, reduce the cost of naval ships by allowing the shipyard to spread its overhead cost over more ships under construction.  It is estimated that existing naval ships under construction at Ingalls will experience a $65 million cost increase with the loss of these two cruise ships to absorb overhead.

Bethlehem Steel, which filed for Chapter 11 on October 15, 2001, was once the largest shipbuilding company in the world. During World War II most of Bethlehem's existing shipbuilding berths were committed to naval work, so in January 1941 it was arranged that a Bethlehem subsidiary would operate a new yard - Bethlehem-Fairfield – to build Liberty Ships and later Victory Ships. The yard acquired one of the best speed records on the East Coast, and it maintained a consistently low production cost figure. A total Liberty ship output of 385 vessels came from this yard alone. The downturn in shipbuilding forced Bethlehem Steel to exit shipbuilding in the 1990’s to focus exclusively on its steel business. The company is one of the largest producers of manufactured steel, and is a major supplier to ASA shipbuilders.

On October 18, 2001, National Steel and Shipbuilding Company (NASSCO) announced that the U.S. Navy awarded a $709-million contract for the design and construction of the first two ships in the T-AKE program, a new class of combat logistics force ships. The award includes options exercisable by the Navy for 10 additional ships over the next six years for a potential contract value of approximately $3.7 billion. “This award is a fantastic win for the company and a great tribute to the tremendous gains in product quality and productivity made by the men and women of NASSCO over the past five years,” said Richard Vortmann, President of NASSCO and Chairman of ASA. 

On October 31, 2001, the U.S. Navy awarded Electric Boat a $17.2 million contract modification to provide design agent, planning yard, and engineering and technical support for various nuclear submarines. Under the terms of the one-year award, Electric Boat will perform design agent services, update ship drawings and related data, and provide planning, scheduling and technical support for overhauls. Work will be performed on Seawolf-class and Virginia-class submarines, as well as the proposed SSGN, the designation given to Ohio-class submarines converted to conventional-strike and special-warfare platforms.

Electric Boat (EB) employees have donated a total of $140,413 to benefit the families and victims of the September 11th terrorist attacks. The EB Employees Community Services Associations at Groton and Quonset Point, along with other company sites, solicited more than $70,000 from employees. Working with the Community Services Association in the drive were the Metal Trades Council, Marine Draftsmen's Association and the Electric Boat Athletic Club. Electric Boat matched the amount raised. “Electric Boat employees have a long tradition of coming through to help when it counts the most,” said EB President Mike Toner.