Defense officials blame the increasing cost of building ships, including rising steel prices, and Congress's reluctance to allow the Navy to try new funding methods. For example, the Navy is required to allocate the total cost of a new ship upfront instead of breaking up the payments over time, a policy it has fought for years.
The proposal is also the result of competing priorities within the service, which has diverted funds to cover the expense of rising health care costs and of maintaining and operating its ships and aircraft, industry and defense officials said.
"The Navy found that after it calculated the bills for increased health care costs, overseas contingencies and new intelligence initiatives, it has very substantial shortfalls," said Loren B. Thompson, industry analyst for the Lexington Institute, an Arlington-based think tank. "The Navy is making a blunt statement that it doesn't have enough to meet all of its needs."
The Navy's cuts, if enacted, could lead to thousands of layoffs and force a restructuring of the industry, said Cynthia L. Brown, president of the American Shipbuilding Association. That would be in addition to the thousands of workers the industry was already expecting to lose through the end of the decade, Brown said.
Shipbuilders have struggled with foreign competition since the 1980s, when Reagan ended federal subsidies to the commercial shipbuilding market, industry analysts said. A spike in defense spending helped offset those losses, but Clinton-era cutbacks led to more layoffs and consolidation, they said. There are half as many shipyards as there were in 1981, according to the American Shipbuilding Association.
Attempts to further consolidate the industry have been derailed by concerns about the impact on competition. The six remaining shipyards are owned by Los Angeles-based Northrop Grumman and General Dynamics. Forcing them to close even one could hobble the military if demand for destroyers or submarines spiked in preparation for a war, industry officials said.
"If you lose one of these shipyards, you are not going to be able to build the Navy of the future," Brown said.
A Northrop spokesman said it was premature to comment on the Navy proposal since it has not been finalized but added that "to preserve the industrial base, the Navy clearly needs to increase the number of ships it plans to build in the coming years." A General Dynamics spokesman declined to comment.
Skeptics contend that the concerns about maintaining competition in shipbuilding are more political than practical. It's too late to preserve competition in a market already split between two companies that often share the work rather than battle for it, said Christopher Hellman, director of the Project on Military Spending Oversight at the Center for Arms Control and Non-Proliferation. "They argue that there is competition in the shipbuilding industry, but that's a joke," he said.
Michael E. O'Hanlon, a senior fellow at the Brookings Institution, said: "I am inclined to think we may have too many [shipyards]. . . . I think there is room for further consolidation."
Most shipyards operate at 50 percent capacity, leaving more than enough ability to accommodate the Navy if it unexpectedly needed to build 30 ships a year, Hellman said. "Ships are being bought by and large to preserve the industrial base," he said. "When you're operating with that kind of surplus capacity, you have more than enough."
And attempts to preserve competition have been expensive, critics say. In the mid-1990s, the Navy chose General Dynamics' Electric Boat shipyard to build a new attack submarine, but after receiving complaints from Congress, it split the work with Newport News Shipbuilding. The change increased the cost of developing and building 30 of the subs by $3 billion, according to GlobalSecurity.org.
