LONG TERM OUTLOOK FOR U.S. NAVY SHIPBUILDING

outlook long

NAVY PROJECTS SPENDING $11 BILLION PER YEAR Editor's Note: This article only forecasts business opportunities in the shipbuilding sector. For a projection of business opportunities in the ship repair and maintenance sector over the next 10 years, see Mr. McCaul's article, "U.S. Ship Maintenance & Repair—A $50 Billion to $60 Billion 10-Year Market," in the Naval Technology & Shipbuilding Supplement in the December 1988 issue of Maritime Reporter and Engineering News. The U.S. Navy ship construction program has been a major source of business for shipyards and manufacturers in the U.S. Over the past five years, the Navy has spent an average of $9.5 billion per year on ship procurement. While this spending is expected to continue, the Navy will be required to make difficult decisions on the size and composition of its shipbuilding program over the next several years.

These decisions will have important implications for many firms.

Overall Situation The Navy views a future shipbuilding program of about $11 billion per year as necessary to maintain the current force structure.

This figure would support a building rate of 18 to 20 ships per year. However, the U.S. Navy has entered a period of unsettling change. Defense objectives are being reexamined, the federal budget is under heavy pressure and technical problems and cost overruns are hurting the Navy's image.

Navy Options The Navy is faced with making long-term strategic decisions. Options include: • maintain current fleet size by permitting an aging process which produces the average ages shown in Exhibit 1.

• retire older ships—and accept a lower force structure.

• continue to build ships at a rate necessary to replace those facing obsolescence. • compromise by accepting (1) a somewhat lower force structure, (2) a gradually increasing average age and (3) a somewhat stretched out building program.

Exhibit 2 summarizes how IMA views the direction and composition of Navy shipbuilding over the next 10 years. The remainder of this article describes the most likely course of action in each of the major programs. SUBMARINES The number of missile submarines will decline and the attack submarine force increase slightly over the next 10 years.

Tridents—The ballistic missile submarine fleet will shrink to 17-23 ships as new Trident submarines replace older SSBNs. Each Trident has 24 missile tubes vs. 16 tubes in Polaris/Poseidon submarines. Fewer submarines are needed to provide the same missile launching capabili- ty. Trident construction will likely end at 20 units. Sixteen are now in service or under contract. Future construction will probably continue at the rate of one per year through 1992.

A t t a c k submarines—Construction of six to eight additional SSN-688s and 20 to 25 SSN-21s has been planned over the next 10 years. However, budget pressures are likely to cause cancellation of some of the remaining SSN-688s.

The SSN-21 program could prove very controversial due to program cost. The Navy projects SSN-21 follow ships will be about 20 percent more costly than the SSN-688. This seems very optimistic—considering the SSN-21 is far more complicated and one third larger than the SSN- 688. The SSN-21 cost estimate is going to be a major target for criticism over the next few years.

The Navy is now studying new roles for attack submarines—including antiair capability—which may lead to major changes in submarine design. The Defense Advanced Research Projects Agency (DARPA) has been assigned responsibility for assessing promising concepts which could lead to major breakthroughs in submarine technology. Funding of $95 million has been provided this year for the DARPA program. The Navy and DARPA work in this area could provide many new business opportunities. CARRIERS The goal of 15 operational carriers is very controversial. Aircraft carriers are enormously expensive to build, deploy and maintain. The four CVNs now under contract are to offset retirements of three older CVs. But five instead of three CVs—and possibly the USS Enterprise (CVN-65)—may be retired in the 1990s for budget-cutting reasons. It's possible that the next administration could stretch spending on CVN-75—maybe even CVN-74.

However, the contract for both ships has been awarded and a major cancellation cost would be incurred should there be a change of plans. Cancellation would be unlikely. CRUISERS/DESTROYERS The Navy's goal to build 29 DDG- 51s may be pushed higher. There is again talk of a 60-ship force requirement— which would provide a five to six per year construction program through the 1990s. The higher figure is in line with the number of DDGs originally planned in the early 1980s.

However, future requirements for DDGs largely depend on the number of carriers and battleships in service. Each carrier group and surface action group roughly requires three missile destroyers for protection. Any cut in major ships in service (carriers or battleships) will reduce DDG force requirements.

Budget constraints will also play a major role in limiting expansion of the DDG building program. These ships must compete with attack submarines and other high priority programs for a share of the SCN budget.

At $1 billion each, a larger force objective for DDG-51 surface combatants will meet resistance.

FRIGATES DOD's decision to retire P-fired boiler frigates has taken or will take 16 ships from the fleet over the next year. Several other older frigates will likely be retired by the early 1990s. SWATH-type hulls are being studied for future frigate design. However, no frigate building program is in the five-year ship construction plan.

The Navy plans a major modification program for FF-1052 Class frigates— intended to add five years of useful life to existing ships. An improved ASW system, anti-ship missile protection, and better command and control capability is to be added. This is a major program which should keenly interest shipyards and ship systems manufacturers. AMPHIBIOUS SHIPS Four LSD-41 (CV)s are planned under an option package to Avondale. Two LHDs are to be ordered from Ingalls. Completion of the LHD and LSD-41/49 programs will add eight to 10 amphibious ships to the fleet in the 1990s.

While no other amphibious shipbuilding program is planned at this time, the Marine Corps will likely press for at least one amphibious ship of some type to be funded annually. Candidates include a program to replace several LPHs or LPDs which will reach 30 years of age in the early 1990s.

PATROL COMBATANTS The Navy has plans to build six high-speed patrol boats in the early 1990s. A proven hull design—hydrofoil or high-speed displacement hulls—is to be chosen. However, this program is very tentative. Patrol craft don't generate much interest in the Navy and funding will not likely receive high priority. MINE WARFARE The remaining MCMs will be contracted to Peterson and Marinette Marinette Marine—completing the objective of building 14 new MCM ships. An additional 16 MHCs are to be ordered. A second source is to be chosen for the MHC program—to provide competition to Intermarine, the current builder. No other major program is planned. Old MSOs will be retired as MCMs and MHCs are delivered.

COMBAT LOGISTICS SHIPS According to the Congressional Budget Office, the Navy may be understating its force requirements in this area. An April 1988 CBO study says the Navy's force goal for combat logistics ships (AOE, AOR, AO, AE, AFS) may be too low. The Navy says it needs 65 ships. CBO thinks a figure of 93 ships is more realistic.

TENDERS Some of the older tenders may be retired over the next 10 years. Three submarine tenders (AS) and three destroyer tenders (AD) date from World War II. The two repair ships (AR) now in service were built in the early 1940s. However, there are no plans to replace these ships in the foreseeable future.

STRATEGIC SEALIFT This program has essentially been completed. There are now 39 strate- gic sealift ships in varying operational status. Four crane ship conversions still remain to be performed. Two have been funded and will soon be under contract. MarAd has requested funding for TACS-11 and -12 in the FY 1990 budget. This request must be approved by OMB. There is talk about additional TACS conversions.

The nine Sealift class tankers will be 20 years old in 1995. There probably will be a replacement requirement— which could generate a build/charter tanker program within the next several years. This would obviously interest yards such as Avondale, NASSCO, Bethlehem Steel-Sparrows Point and Tampa Shipyards.

SURVEY & SURVEILLANCE SHIPS The Navy plans to build a fleet of 27 T-AGOS ocean surveillance ships. Nine will be SWATH design. Five ships still remain to be contracted. The Navy also plans to build six to nine survey ships—some of which are to be SWATH design. Funding for the first SWATH oceanographic ship had been planned for FY 1989. The Navy retracted its request after submitting the proposed budget— saying the design needs more work.

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