Five Shipyards Too Many

By John Shephard Jr. and Harvey Sapolsky
Tuesday, November 8, 2005

The latest base realignment and closure (BRAC) plan has prompted the usual round of complaints and disputes over which military bases should be closed, as well as sighs of relief from supporters of the bases that were spared. But a bigger question has been overlooked in arguments over the plan: Why doesn't the BRAC process also focus on the private-sector operations that the government supports at great and often wasteful expense?

These are the arsenals, assembly lines and shipyards that build and overhaul the nation's weapons -- and do essentially nothing else. They are too costly to maintain at a time when there is no need for them, and yet they go unconsidered in the periodic BRAC processes.

For example, four large government-owned shipyards and six large private shipyards work on warships. The government-owned yards do only repair and overhauls; the private ones do new construction. All are underutilized, having been geared for the Navy's Cold War fleet. The government yards tend a Navy that is roughly half the size it was in 1990. The private yards are able to build more than five times the number of ships that the Navy is ordering now. Maine's Portsmouth Naval Shipyard, which specializes in nuclear submarine overhauls, was on this year's BRAC plan, and its eleventh-hour reprieve blew an opportunity. Yet closing Portsmouth would have made only a small dent in the problem: There would still be too many yards building and maintaining too few ships.

The merger wave that has swept the defense industries has done nothing to reduce excess capacity in shipbuilding. The Big Six private yards were once owned by six different corporations, but now they are owned by just two: General Dynamics and Northrop Grumman. While there have been some savings from consolidating component purchases, the post-Cold War era yielded a change only in corporate logos.

The warship-building market won't fix the problem; there is essentially only one customer: the U.S. Navy, which has a taste for fast, complex and expensive ships. No naval combat ship costs less than a billion dollars, and most cost a lot more. For practical, political and strategic reasons, the Navy can't seriously opt for foreign sourcing. Moreover, the Big Six yards have few options besides the Navy; most other navies buy locally or get their ships used from the United States. Commercial shipbuilding, which uses capital-intensive, mass-production methods and cheap labor, is a hyper-competitive, unprofitable business that already has too many yards chasing a handful of ship orders.

The private yards are wards of the Navy: public yards with private ownership. As long as they stay open, they get some Navy business. The Big Six are capable of delivering 20 to 25 ships a year and were building at nearly that rate during the Reagan administration's defense buildup. In the 1990s the rate dropped to seven or eight a year. Recently, it's been as low as four or five. No wonder shipbuilding costs have skyrocketed. With the costs of running all these facilities apportioned to fewer ships, and Congress making sure that each yard has a project, the government reaps no economies of scale. Worse, the underuse of each facility will prevent enough new capital investment to ensure that the best yards stay modern and technologically robust. Because these shipyards employ thousands of people, often in areas where their economic presence is dominant, they are hard to close. As with large military bases, closure means significant local economic hardship and a war with the local congressional delegation.

But hard decisions need to be made. In the end, the number of yards should be halved. The Navy spends about $10 billion a year on shipbuilding and major refits, and the total is not likely to grow, given fiscal constraints. Sharing the appropriation among five yards instead of 10 would be more efficient and less costly. Three construction yards can easily accommodate the eight to 10 ships a year needed to sustain a fleet of 250 to 275 ships that seems to be the Navy's future.

Yet there must be compensation for the corporations that own the private yards, the laid-off workers and the communities that will face significant unemployment and potential decline. The communities will need money to start new industries and rebuild their economic lives. These restructuring costs, normal for any business, should have been paid a decade ago. It is better to pay them now than to have continuing underutilization in naval construction, with its higher unit costs and debilitating politics.

John Shephard Jr. is a former senior vice president of Northrop Grumman. Harvey Sapolsky is director of the Security Studies Program at the Massachusetts Institute of Technology.

© 2005 The Washington Post Company