At the outset of this examination of the shipbuilding industrial base let me quote two gentlemen who I admire very much — Admiral Frank Kelso, the current Chief of Naval Operations, and Homer Ferguson, Chief Executive Officer of Newport News Shipbuilding from 1915 to 1946. These two quotes in combination hold the essence of what will follow here.
Admiral Kelso told a congressional committee recently, “We have entered an era where we may no longer have the industrial capacity to rebuild a fleet in time of crisis. We must maintain sufficient construction to provide a capable fleet over the long term.”
Homer Ferguson, before another congressional committee some 56 years earlier, said, “A second best Navy is like a second best poker hand.” With a second best poker hand you might be able to bluff for awhile, but sooner or later you are going to lose. This country is holding a poker hand in the shipbuilding industry that we hope none will call. And, surprisingly, that band was dealt during the Reagan Administration.
For most of its 105 year history, Newport News Shipbuilding built a mix of commercial and naval ships. This balance made it possible to bridge the dips in the commercial market and to survive the vagaries of an unpredictable defense budget It maintained a talented and trained work force throughout even the lean years of the depression and the years following the Washington Naval Conference of 1921. This made it possible, for instance, to ramp up in a hurry to support the enormous shipbuilding effort in World War II. During World War ll Newport News Shipbuilding was not only able to deliver an Essex Class aircraft carrier every six months, and produce other ships, but it was able to create an entirely new shipyard in Wilmington, NC to construct Liberty and C-2 ships. This is one of the many reasons President Roosevelt could call America the”
Arsenal of Democracy.” Could the shipbuilding industry do that today?
As Admiral Kelso indicated in the quote above, it would be unlikely. Navy ships, particularly nuclear ships, with their attendant technology, testing and oversight procedures would inhibit that kind of rapid construction. Also, of course, the reduced number of shipyards that retain the capability to build Navy ships, and the limited number of domestic suppliers to the shipbuilding industry would make a fast ramp up, as happened in World War II, almost impossible. I would add one other point that reinforces what Admiral Kelso has said. The current acquisition environment and the uncertainty of government work make capital investment very risky indeed.
The foundation of the success of any military operation, and any company, is in its people and equipment Our country’s capability to build the appropriate types and amounts of equipment to win in war and to deter war has been one of our great strengths. We have seen this many times throughout our history which I need not elaborate here. I would only point out the most recent successes in the Cold War and in the Gulf.
Add to this the fact that this country is an island nation, heavily dependent on the seas as avenues of commerce, highways to our allies and trading partners, and for its protection, and you come to the indisputable conclusion that we need a strong Navy and maritime industry.
As the Reagan Administration began, there was great optimism in the shipbuilding industry because of its strong commitment to rebuilding the Navy. But, soon after that positive note, a discordant one reverberated throughout the industry. A policy decision was enacted eliminating subsidies in the American shipbuilding industry, making the United States the only country in the world shipbuilding market without such subsidies. Commercial customers for American shipyards soon disappeared, leaving the yards with only one customer, the U.S. Navy.
Some shipyards flourished during the 1980s and were able to invest in the future. Newport News Shipbuilding is one of those, putting almost a billion dollars into improved manufacturing facilities and computer capabilities over the decade. For instance, we built the most modem, state-of-the-art submarine modular construction facilities in the industry, and combined that with the most comprehensive computer capability in the industry. Our copyrighted three dimensional computer design tool called VMD is being used in the design of the SEAWOLF Class and future submarine construction. But, for many other companies in the shipbuilding industry, the hand dealt in those years caused them to cash in or drop out.
Since 1982, 40 percent of the shipyards then identified as essential to our country’s defense industrial base are no longer in the game. Over 50,000 shipyard production worker jobs have been lost. The talent represented by that loss is one of the hardest industry requirements to reestablish, and may be lost forever. Today, only five U.S. shipyards build the majority of major ships for the Navy. We at Newport News feel fortunate to be ~mong them. At one time there were six yards building aircraft carriers.
Today, only Newport News Shipbuilding has that capability. More than a dozen shipyards built major surface combatants and today there are two. The situation is similar in submarines. At one time nine yards built submarines and seven of those built nuclear submarines. Today, there are only two -Newport News Shipbuilding and Electric Boat.
At the same time, the supplier base, particularly the domestic suppliers, in the shipbuilding industry continues to shrink as we in industry, those in the Navy, Defense, Commerce and Transportation Departments and the Congress ponder and debate what can be done.
Newport News Shipbuilding is fortunate to still have an adequate base of suppliers for materials and components for submarines. These companies are located in 39 states across our country. However, this supplier base is dwindling. there are several reasons why.
Many of these firms have been suppliers to both the Navy and commercial shipbuilders. However, as mentioned before, there is now virtually no commercial shipbuilding being done in the United States. Additionally, suppliers of Navy ships must meet the unique military specification requirements that have special quality control and testing procedures. Without sufficient volume of work, and in the face of an uncertain market, suppliers are not willing to make the investments to support these requirements, and they leave the Navy supplier base.
Additionally, the volumes upon volumes of acquisition regulations and accounting procedures, coupled with often times intrusive oversight methods used by government, create an environment that companies that do have a commercial option simply will not tolerate. They would just as soon bypass government business rather than submit their companies and employees to this kind of treatment
Finally, but certainly not least, the defense market is unstable and suppliers have been leaving because of the uncertainty of future business levels.
Here are some examples of the supplier base erosion. There are now only three suppliers of the high quality steel used by Newport News Shipbuilding. The number of domestic plate mills have been reduced from 10 to 4 and the number of shape mills from 7 to 2 in just the past ten years. In recent years, four companies have left the pipe supplier market and since 1975, over 60% of the companies making pipe fittings have ceased operations. Both are key commodities.
Another critical commodity is valves. Yet, over the past five years seven companies have ceased supplying submarine valves. Loss of a valve manufacturer is expensive because of the designed-in proprietary nature of the producl Enticing new suppliers to pick up the requirements is difficult, given the limited application and uncertain future of naval contracting.
Navy News and Undersea Technoloc quotes one analyst as saying, “A Jot of vendors are in the hand-to-mouth situation. Between now and 1997, you will see the disappearance of many vendors which support the shipyards. A substantial contraction is expected … A lot of these vendors are specific to the Navy and specific to the nuclear submarine program especially.” This, of course, has to be a concern for the SEA WOLF program, considering the reduced rate of SEA WOLF construction in the current budgel We were disappointed to see that the construction rate had been reduced once again from the decision taken last year, the third such cut in three years.
SEA WOLF represents a significant advance in technology over previous submarine designs. And, much of the burden for developing these new designs has fallen on the submarine supplier base. As I wrote earlier, while the submarine supplier base is adequate now, the near future is a real question mark. The five year future forecast is not a question; it is certain to go down.
In recent weeks there has been much discussion about whether there will be one or two shipyards building the SEA WOLF Class submarine. It is very clear that it is in the best interests of this nation and the Navy, that both current submarine builders retain the capability and the work force to build nuclear submarines. If this country believes it will need a submarine force in the future, and I believe it will, then the reduction to one shipyard in that business would be tantamount to a threat to national security.
Leading naval sources forecast a 25% reduction in the number of overall suppliers by the tum of the century without some intervention in the marketplace. As American shipbuilders and their supplier base move into the 1990s, the key word seems to be uncertainty. With a reduction in the defense budget and an uncertain commercial market in the future, there is no other word that is more apt
Some things that could help are:
• a philosophical change in the approach to acquisition by DoD to make the market more attractive to suppliers, such as higher progress payments, lower retentions, less oversight, etc.
• a sealift building program to enliven the shipbuilding base, and to fill a definite need, since foreign flag chartered ships made up the majority of cargo transports to the Gulf War.
• a continuation of the fair-trade efforts for worldwide shipbuilding.
I would hope that the hand dealt to the U.S. maritime industry in this decade would be strong so that our great country will retain a predominant naval strength, and again achieve the kind of maritime stature for which we nave been noted in the past.
A small box came to me in the mail recently. Inside the box was a fortune cookie in a plastic bag wrapped in paper. Printed on the classic small piece of paper inside the fortune cookie was “Facts do not cease to exist by ignoring them.” That is clearly something all of us who have a stake in the future of shipbuilding and our country need to remember.
