American Shipbuilding Association

Congress Passes Defense Authorization Bill For FY2002

On December 13, 2001, both the House and Senate passed S.1438, the National Defense Authorization Act for Fiscal Year 2002.  The Act authorizes only 5 and 1/7th new naval ships, the ninth consecutive year that the Navy’s Shipbuilding and Conversion account has provided on average only 6-ships a year. Well below the 12-ships a year now necessary to sustain the minimum force level of 305-ships identified as the requirement in the 1997 Quadrennial Defense Review.  

The conferees authorized $267.2 million to continue building LHD-8, $421.3 million for advance procurement of the fifth and sixth San Antonio-class amphibious ships, and $138.9 million for advance procurement items for CVN (X). Finally, the conferees authorized, three (3) DDG-51 destroyers, one (1) SSN-774 attack submarine, and one (1) T-AKE support ship.

The conferees also authorized $137.4 million for advance submarine conversion planning for converting Trident nuclear ballistic missile submarines (SSBN) into Tomahawk cruise missile submarines (SSGN), and $320.8 million in the Navy’s other procurement account for an additional SSGN reactor core.  The funding increases support long-lead activities to convert all four available SSBNs to the SSGN configuration.

Astonishingly, while the war in Afghanistan is being waged from 40-ships in the Arabian Sea – launching missiles, aircraft, special operations forces and Marines – the Pentagon leadership is proposing to draw the Navy’s size and capability down even further. A preliminary draft of the Navy’s Fiscal Year 2003 budget proposes to buy just five (5) new ships next year, shrinking the fleet to 286-ships by 2007. The failure of the Navy and the Department of Defense to adequately budget the numbers of ships needed annually to meet the nation’s security requirements is responsible for this dangerous contraction.

The 1997 Quadrennial Defense Review (QDR) process established a bare bones fleet requirement of 305-ships to meet the minimal war-fighters’ requirements. This force level remained the baseline of the 2001 QDR.  The Navy’s regional Commanders-in-Chiefs (CINCs) however, have repeatedly testified to Congress that the Navy’s fleet is stretched perilously thin and needs to be increased to 360-ships to meet their war-fighting requirements. Real world experiences in Kosovo, Iraq, and Afghanistan are reinforcing the fact that numbers of ships do matter, as technology and transformation will never enable one ship to be in two places at the same time.

Anemic budgets for the Navy’s future years shipbuilding plans reveal the Department’s procurement and modernization problems are getting worse. Instead of increasing the average annual shipbuilding rate to 12-ships a year to maintain a bare bones 300-ship fleet, the Navy’s Future Year Defense Plan (FYDP) proposes only five (5) ships in FY2003, five (5) ships in FY2004, seven (7) ships in FY2005, eight (8) ships in FY2006, and finally reaching ten (10) ships in FY2007. This proposed FYDP expands the current 40-ship shortfall to 55-ships by 2007, in maintaining even a 300-ship Navy.  In other words, these budgets will plunge the fleet to a force of 245-ships. Should these budgets be sustained, our Navy will be cut to 180-ships.

As the first session of the 107th Congress draws to a close, Senator John McCain (R-AZ) has been unsuccessful in getting S.127 scheduled for Senate floor consideration. The American Shipbuilding Association, along with the International Association of Machinist, International Brotherhood of Boilermakers, International Brotherhood of Electrical Workers, United Automobile Workers, Sheetmetal Workers, United Steel Workers, and the American Maritime Officers have all gone or record opposing this legislation.

S.127, and its House companion bill H.R 2901, would amend the U.S. ship construction law of the Passenger Vessel Services Act (PVSA) to allow an unlimited number of foreign built ships into the U.S. coastwise trade.  This legislation would result in the loss of thousands of highly skilled American jobs in our shipyards, and jeopardize the viability of shipyards dedicated to building the naval ships that defend our Nation.

In the aftermath of the September 11th attacks and subsequent collapse of the cruise ship markets, three established cruise ship companies have filed for restructuring under Chapter 11.   One of these companies, American Classic Voyages (AMCV), was in the process of a large capital expansion of its U.S. cruise fleet. Subsequently, the Maritime Administration declared the company in default of its Title XI loan guarantees and has taken possession of several ships. Each of these ships is available for purchase from MARAD by any company wishing to enter the U.S. cruise market today in compliance with existing U.S. law. 

Unfortunately, construction has been stopped on two 1,900 passenger cruise ships at Ingalls Shipbuilding because MARAD has refused to honor its September 19th Agreement with Ingalls and Project America (a subsidiary of AMCV not involved in the Chapter 11 reorganization). A company wishing to enter the U.S. domestic cruise ship market could certainly negotiate with these parties to assume ownership of these ships, which would put 1,250 shipbuilders back to work. 

On November 28, 2001, President Bush signed H.R.2500 into law.  The bill provided $33 million for the Title XI Ship Loan Guarantee Program.   This new money, combined with approximately $7 million in carry over funds from FY2001, will leverage public and private dollars for $800 million in ship construction. In light of the Administration’s efforts to zero all funding for this critical program, the shipbuilding industry commends Congress for its leadership in preserving a program that creates thousands of highly skilled jobs, stimulates the economy, and supports the defense shipbuilding industrial base.

The builders of naval ships in this country have always depended on a combination of commercial and naval ship orders to sustain their companies, their highly skilled engineering and production workforces, and their network of thousands of vendors and suppliers throughout the nation.  Foreign-built commercial ships are cheaper because foreign governments provide billions of dollars in subsidies for shipyard facilities, technologies, and labor to accommodate below cost and discounted ship prices.  Many foreign governments even offer interest free loans to ship-owners who contract for ships built in their shipyards. Ships will not be built in the U.S. if owners do not have access to affordable financing. The Title XI Ship Loan Guarantee Program allows ship-owners to obtain this necessary, affordable financing.

Captain William G. Schubert was confirmed as the new Maritime Administrator on November 30, 2001.  Senator John Breaux (D-LA), Chairman of the Senate Subcommittee on Surface Transportation and Merchant Marine, gave Captain Schubert notice at his nomination hearing that he expected him to be a strong advocate for the Title XI Ship Loan Guarantee Program. Senator Breaux asked, “My question to you is, if the President says, ‘Captain, what do you think about the Title XI program?’… Are you going to be a yes-person?”  Captain Schubert said he would not, but that he would “respectfully” support the Administration’s position. At the hearing, Captain Schubert stated his mission at the U.S. Maritime Administration would be, “developing sound maritime policy that will make it economical for vessels to operate under the U.S. flag.”

Since being confirmed, Administrator Schubert has publicly discussed repealing the U.S. law that requires foreign built ships, re-flagged in the U.S., to wait three-years before being eligible to carry U.S. government food aid. Congress repeatedly has rejected any amendment to the Merchant Marine Act to allow foreign-built ships to carry government food aid or repeal the three-year waiting period.

U.S. law requires that U.S. food aid consist of 100 percent American produced agricultural products, and that 75 percent of these products be transported on American-built, owned, and crewed ships.  This U.S. origin requirement for both the grain produced and the ships that transport this grain was a fundamental principle to ensure a return on this investment for the American taxpayer. Allowing foreign-built ships into this trade will place existing U.S.-flag operators at a competitive disadvantage, and weaken America’s ability to build and ship its exports.

On October 31, 2001, Jerry St.Pe’ retired after 40-years of service in the shipbuilding industry. A widely recognized shipbuilding industry leader, Mr. St.Pe’ joined Ingalls shipbuilding in 1961 and held increasing positions of responsibility and trust over his career. Specifically he served as, President of Ingalls Shipbuilding, Chairman of the American Shipbuilding Association, Executive Vice President of Litton Industries, and finally as Chief Operating Officer of Northrop Grumman Ship Systems.  Fortunately, Mr. St.Pe’ will continue to serve in a consultant role in the future.

On November 26, 2001, Ingalls shipbuilding successfully tested the Low Observable Multifunction Stack (LMS) designed to demonstrate two different advanced exhaust suppresser systems for surface combatants.  The exhaust system, enclosed in a low signature composites structure, integrates an embedded communication array thereby avoiding numerous communications antennas that typically cover the topside of surface combatants. The Office of Naval Research sponsored the project though it’s Advanced Technology Demonstration (ATD) Program.

On December 4, 2001 the Navy awarded Electric Boat a $42.3 million contract modification for nuclear submarine work. The award is a continuation of a contract awarded in May 1999 to provide design, engineering, material and logistics support for the Trident program, the Trident UK program, the two operational Seawolf-class submarines, NR-1, and efforts supporting Los Angeles-class ships. It also supports work at Puget Sound Naval Shipyard in Bangor, Wash., to backfit older Tridents to accommodate D-5 missiles, and D-5 pre-ERP (Extended Refit Periods) work at Kings Bay, Ga.

NASSCO Awarded $5.1 Million Contract for Extended Dry-Docking and Maintenance of USS Antietam

On December 3, 2001, National Steel and Shipbuilding Company (NASSCO) announced it had received a contract valued at $5.1 million, with option up to $20.2 million, for the six-month extended dry-docking and maintenance of the USS Antietam (CG-54).  The initial award provides funds to begin advance planning for the Antietam maintenance, repair and alteration work package, to include converting the ship to all-electric auxiliaries and to install the Navy’s “Smart Ship” electronic control and automation systems. Actual work on the ship will begin in March 2002 and is to be completed by September 2002.