Squeezed by budget constraints, the Navy is proposing significant cuts in its shipbuilding program that could batter the already struggling industry.
The proposal comes as top Pentagon officials consider shifting the military's focus from preparing for large-scale warfare to training more specialized forces for guerrilla warfare, long-term peacekeeping and counter-terrorism efforts. The changes could eventually mean a reallocation of resources from traditional weapons such as ships, tanks and planes in favor of more troops, elite Special Operations forces and intelligence gathering.
The Navy's proposal would provide funds to build only four ships in 2006, compared with nine planned for 2005, according to a Defense official who spoke only on condition of anonymity because the budget proposal hasn't been made public. The plan would also delay production of a new generation of destroyers.
Defense Secretary Donald H. Rumsfeld has not signed off on the proposal, which would also need congressional approval, but the plan has provoked debate on how many ships the Navy needs and whether it can still afford to support six shipyards.
Industry officials predict that the proposal, if enacted, would cripple shipbuilders already suffering from low production rates. It is also likely to face a battle in Congress. The "Navy's proposal is irresponsible [and] would create unnecessary instability in the nation's fleet strength and uncertainty for our vital shipbuilding industry," Sen. Olympia J. Snowe (R-Maine) said in a written statement. "As our nation continues to fight the global war on terror, now is clearly not the time to be under-funding our critical military infrastructure by diminishing the Navy's fleet size." Bath Iron Works, owned by Falls Church-based General Dynamics Corp., is one of the largest employers in Maine.
The Navy will also likely face resistance from Sen. John W. Warner (R-Va.), chairman of the Senate Armed Services Committee. Northrop Grumman Corp.'s Newport News Shipbuilding is the largest manufacturing employer in Virginia, with 19,000 workers. The committee has not been briefed on the Navy proposal, but "I would look with great concern on any delay in funding for these critical shipbuilding programs," Warner said in a written statement.
The Navy declined to comment on its budget proposals.
The budget crunch goes across the military. Personnel costs for all of the services, including the Navy, have increased 30 percent since 1999, said Robert Work, senior analyst at the Center for Strategic and Budgetary Assessments. "All of the services are under very intense pressure on their procurement budget," he said. The wars in Iraq and on terrorism have also taxed resources, he said. "We're spending more money on flight hours, sailing hours; fuel costs are going through the roof. The procurement budget is one of the few places where they can divert money."
The Navy's shipbuilding aspirations have plummeted from the days when Ronald Reagan aimed for a 600-ship arsenal and missed the goal by only six ships. The Navy has more than 290 ships and has said it wants up to 90 more. The proposal is an acknowledgement the Navy will not be able to reach its goals under the current tight budget conditions, industry analysts said.
The proposal calls for delaying construction of a new class of destroyer until 2007 from a previous target of 2005, according to defense and industry officials. It also would delay a planned acceleration in the production of submarines and push back delivery of a new aircraft carrier.
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.