Why the US Navy’s budget plan creates uncertainty for shipbuilders
WASHINGTON — Dualities are emerging in the U.S. Navy’s shipbuilding plans, leaving industry to wonder what to make of the sea service’s near-term spending plans.
The quintessential ship programs are stable — the aircraft carriers, the submarines, the destroyers, the frigates, the oilers — but all other existing production lines would end or slow down under the Navy’s recently released fiscal 2024 budget plan. This may lead to what one shipbuilding industry source called a “knife fight” among shipyards over a handful of smaller, less complex ship programs laid out in government’s five-year forecast in a effort to keep the workforce busy.
The Navy insists it’s investing in industry and providing the necessary stability, but the naval sector feels off-kilter from last year’s long-range shipbuilding plan, which included three different approaches. Navy Secretary Carlos Del Toro said last week the FY24 long-range shipbuilding plan, due out “soon,” would likely include three options again.
For industry, “you want to have the stability to say: ‘This is the plan, and this is where we’re going,’ ” said Matt Paxton, the president of the Shipbuilders Council of America. Instead, vendors are feeling “some fluctuation,” he added.
Here’s what the Navy laid out in its five-year Future Years Defense Program for shipbuilding, and what it means for the prime shipyards and their suppliers.
A sparse workload
The Navy asked for $32.8 billion in FY24 for nine ships: one Columbia-class ballistic missile submarine, two Virginia-class attack submarines, two Arleigh Burke-class destroyers, two Constellation-class frigates, one John Lewis-class oiler and one submarine tender.
That’s one more than last year, but fewer than the 11 ships Congress ultimately chose to authorize and fund in FY23. (Navy budget documents show a request of nine ships in FY23, including one vessel already partially purchased in a previous year, which cannot by law be counted again.)
For FY25, the Navy plans to buy seven: two subs, two destroyers, a frigate, its first ocean surveillance ship, and its first Landing Ship Medium. That final vessel is smaller than any ship the Navy fields but larger than an amphibious connector.
Over the five-year Future Years Defense Program, a few new programs begin: The service will buy six Medium Landing Ships over the FYDP; three Next-Generation Logistics Ships, which are smaller than typical logistics vessels and will resupply dispersed ships or Marine units ashore; two submarine tenders; and four surveillance ships.
The shipbuilding industry source, who spoke on the condition of anonymity to discuss the sensitive matter, said these tier-two programs will likely spark a fight among multiple shipyards who need to keep their labor force and supplier base in tact.
Several major shipbuilders have begun filling their production lines with other work, as Navy programs have either ended or are getting strung along unpredictably through congressional adds rather than Navy long-term planning.
Austal USA in Alabama took on work as a supplier, building and outfitting submarine modules for General Dynamics Electric Boat, and it fabricated aluminum aircraft elevators for HII’s Newport News Shipbuilding. And in June 2022, Austal won the Coast Guard’s Offshore Patrol Cutter contract. Meanwhile, its littoral combat ship work will end soon, and the Navy is trying to end the Expeditionary Fast Transport line, on which Austal works. Though Congress did add two ships into the FY23 budget last year.
HII’s Ingalls Shipbuilding in Mississippi took on modernization work, having won a contract to integrate the Conventional Prompt Strike hypersonic weapon system onto Zumwalt-class destroyers. But Ingalls’ work on the Coast Guard’s National Security Cutter program is nearing an end, plus the Navy has proposed a “strategic pause” in its San Antonio-class amphibious transport dock line. And the service is stretching out the America-class amphibious assault ship program longer than the ideal four-year build cycles, leading to uncertainty about the yard’s upcoming workload.
And General Dynamics’ NASSCO yard in San Diego, California, is partnering with Spanish shipbuilder Navantia to try to enter the offshore wind market, the San Diego Union-Tribute reported this month. NASSCO builds the oiler, which continues through the FYDP, and the Expeditionary Sea Base, which does not appear in future Navy spending plans.
Paula Zorensky, the vice president of the Shipbuilders Council of America, told Defense News in a March 16 interview that the Navy’s smaller ship programs in the FYDP will draw “strong competition,” but that this alternate work strengthens the yards and the industrial base.
“There are other government programs, too, that our folks will compete for, and that ultimately benefits the Navy as a customer — whether it’s Coast Guard, or the Army’s got to recapitalize some of their vessels, [the Maritime Administration], [the National Oceanic and Atmospheric Administration], Missile Defense Agency, and then there’s a burgeoning offshore wind market,” she said.
“There’s a lot of people cutting their teeth, and in a really competitive market that just benefits the Navy,” she added.
From the Navy’s perspective, its FY24 request represents two years in a row of consistency and support for the industrial base.
“In this budget request [are] two consecutive years of consistent ship funding, two consecutive years of industrial-base funding. We’re giving industry what they’ve asked for — invest in them, give them headlights,” Rear Adm. John Gumbleton, the Navy’s budget officer, told reporters March 13. “So now we’re going to watch for that return on investment.”
Zorensky said investments in the shipbuilding industry proved helpful, and the Shipbuilders Council of America has regularly held conversations with the Navy’s Shipbuilding Industrial Base Task Force about investment opportunities as well as successes that stemmed from putting Navy funding toward “workforce and potentially some capital investments, machinery, etc., and other training opportunities. And so we’re seeing that funding definitely work its way through the system.”
However, companies need to make their own investments, she noted, which is difficult when their projected workload is constantly shifting. For example, a prime contractor needs to buy paint or valves in bulk from a supplier, or a supplier must invest in the rigorous accounting and cybersecurity systems that go along with government contracts.
To that end, industry has lingering concerns with the Navy’s FY24 budget request. One of them is volatility in the ship decommissioning plans.
Paxton told Defense News that the council represents both shipbuilders and ship repair companies, and that many suppliers do business on both sides of the Navy portfolio.
The service is accelerating the retirement of several ship classes in recent years — cruisers, amphibious dock landing ships, littoral combat ships and expeditionary sea bases — that it says either became too burdensome on the maintenance system or don’t pack a big enough offensive punch to justify continued investments.
The constant back-and-forth between the Navy and Congress on these decommissioning plans represents turmoil for half of the shipbuilding and ship repair portfolio, “where we want to see all of it have stability and predictability,” Paxton said.
Another issue is that instability in the tier-two programs may bleed into the larger, more stable ones. Many suppliers provide parts for multiple ship programs, and so their overall workload — and therefore the cost and availability of their parts — ends up in flux as some ship production lines are stopped.
“When you halt a program, that doesn’t just affect that product line; it has a ripple effect across our facilities in our supply chain. There has been consistency in some shipbuilding programs, and that’s great. We would like to see some of that consistency across all of U.S. Navy shipbuilding,” Paxton said.
Lt. Gen. Karsten Heckl, the deputy commandant of the Marine Corps for combat development and integration, told Defense News in a statement that the truncation of the San Antonio-class amphibious line, for example, could cause the amphibious warship industrial base to begin reducing its workforce in FY27.
Ingalls Shipbuilding did not confirm a timeline for this impact, but spokeswoman Kimberly Aguillard said in a March 17 statement that “any delay or pause could have significant impacts on the ability to maintain an efficient and affordable LPD line.”
The yard and its suppliers need a consistent demand signal from the Navy, she said, and “continuing the LPD program allows the Navy and Ingalls to take advantage of a mature design, an experienced workforce and provides stability for our partner supplier network.”
Another lingering concern is the multiple-choice approach to the shipbuilding plan. Although Del Toro said the three-option scheme provided stability in the first five years of the plan and left options for later years, Paxton said that method doesn’t help industry as it considers workforce levels and capital investments.
Paxton noted that industry appreciates the large sums the Navy spent on shipbuilding in recent years. But “to say that there has been a clear signal and a consistent signal over the last many years, I think industry would argue there’s been some chaos and a little bit of frustration in the shifting numbers, and where we see a new shipbuilding plan every year,” he said, referring to a continual string of force structure assessments that since 2020 have left companies unable to have confidence in any unveiled plan, since the next assessment is already underway.
“We know in the FYDP we’re supposed to have some level of fidelity in that five-year plan. I think shipyards would say: ‘If we can have that level of comfort over 10 years, that’s enough runway where we can really plan what we need to do,’ ” he said, whereas the three-pronged long-range shipbuilding plan creates uncertainty beginning in Year Six.
Paxton noted the importance of hot production lines and multiyear contracts for shipbuilding, which creates the cost-savings the Navy wants.
“When those things are truncated or halted, that’s where you lose workforce, you lose certain suppliers, and that’s where I think the difficulty comes in.”