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Remarks by Mr. John K. Welch Senior Vice President-Marine Systems Group

General Dynamics Corporation American Shipbuilding Association Forum 25 February 2003

Introduction by Mr. Schievelbein:

Last but certainly not least, it’s my pleasure to introduce someone who is a colleague, competitor, teammate and friend.

From October of 1995 until March of2002, he was the President of Electric Boat of Connecticut.

In 2002, he was promoted to lead the Marine Systems Group of the General Dynamics Corporation. This Group includes Electric Boat, Bath Iron Works of Maine and National Steel and Shipbuilding Company.

Please join me in welcoming Mr. John Welch, Executive Vice President of General Dynamics.

Thank you, Tom, and good afternoon everyone.

In my remarks today, I intend to review a bit of history about our submarine industrial base, describe where we are today, and suggest some important steps we and the government need to take to continue our progress.

First, let me touch on our history. As the Cold War ended, the Submarine Force demonstrated amazing flexibility, taking on new and expanded missions addressing threats no one foresaw in the 1980’s when a lot of boats operated today were authorized. The nuclear submarine industrial base similarly responded to the changed environment with dramatic re-engineering in order to remain flexible, innovative and affordable.

When I first went to work at Electric Boat in 1989, there were 17 submarines in the shipyard in various stages of construction. Employment was over 21,000 and the Navy’s attack submarines force level was just six ships short of the 100-ship goal set earlier in that decade.

With the end of the Cold War, the Seawolf submarine program went from a 29-ship class to three ships. The final two ships had a rough birth, but they were finally authorized and provided our industrial base with a bridge of work for transitioning to the VIRGINIA -class.

During the post-Cold War period, only five submarines were authorized over a ten year period. In contrast, during the previous ten year period, an average of 3-1 /2 submarines were authorized per year. In parallel with this downsizing of the work load, the shipyards and the suppliers kept a strong focus on the required capability of the submarines and on the affordability of these ships. We learned a lot and we, in fact, made major advances in our design and construction of submarines. For example, the computer aided design tools and the design-build process used for the \’VIRGINIA\-class have reduced lead ship changes by 90 percent compared to the SEAWOLF-class. i\s another example, a \’VIRGINIA\-class submarine is about 30 percent less costly to construct, compared to SEAWOLF, and the operating costs of a \’VIRGINIA\ are similarly about 30 percent less than SEAWOLF.

Another aspect of the re-engineering of the submarine industrial base has been the historic teaming arrangement between Electric Boat and Newport News Shipbuilding. This teaming is producing affordable submarines while maintaining the key elements of the two shipyards-both shipyards being crucial pieces of our nation’s industrial base. This teaming is working beyond our most optimistic expectations. Best practices, lessons learned and all management decisions are focused on delivering the best product, at the best price.

Now, well past the Cold War transition period, we are producing great submarines. The VIRGINIA is on track for early delivery in May of next year. Note that this early delivery is pegged to the original schedule, established in I 992. This is the first time since World War II that the lead ship of a class will be delivered ahead of schedule.

Controlling cost growth during lead ship development and construction program has been another VIRGINIA success story. The design is complete and the estimate at complete is within 3 percent of the original target.

The estimate at complete for the first four ships is within 15 percent of the original target. As I stated, the lead ship is scheduled for early delivery and the man-hour estimate for al I four ships is very close to original estimates, within 2 percent.

We have experienced greater than expected costs in inflation above the assumed rates mandated by the government in 1997 and actual material escalation. Material escalation has been higher than that experienced in other shipbuilding sectors and I believe this is due to the extremely low rate of production experienced in the later l 990’s to now, and the drastically restructured supplier base.

I’ll talk about how we can best deal with the supplier base in a moment. But I must take note of the strong leadership that was taken by the Navy and Congress in addressing prior year shipbuilding issues during the FY03 budget cycle.

All of us can be very proud of our performance in building submarines following the end of the Cold War. In spite of necessary massive down-sizing, we kept our focus on submarine capability and affordability.

But as we look to the future, we need to go further. And we need our customer, the Government, to take the necessary steps that will open opportunities for additional savings as we build ships to the required force levels. Specifically, we need two things: We need a multi-year acquisition process and we need to increase the submarine construction rate to two per year.

A multi-year acquisition of submarines with EOQ funding to support multi-ship set material buys will allow major decreases in the cost of submarine construction. The VIRGINIA submarine is now 82 percent complete and the following three ships are on schedule. The VIRGINIA-class is therefore mature enough to give confidence to the Department of defense and the Congress that these ships can be built on time and within funding limitations. A multi-year acquisition process in FY04 is the right next step.

The other key action required from the Government is an increase in submarine construction to two per year to support force level requirements. OMB noted with their release of the FY04 budget that ” … submarines are being procured in insufficient numbers to maintain a long-term force level o/55 attack submarines. Industrial base, political and budgetary considerations confound the Navy’s ability to achieve optimally designed shipbuilding programs. ”

Two submarines per year will provide the Navy with the needed number of submarines, will strengthen the submarine industrial base, and will significantly lower the cost per ship.

We have a major opportunity in the FY04 budget and its out-year planning. We have been good stewards of the submarine industrial base during the dramatic changes of the last decade. Working closely with our customer, we have built a strong record of producing new submarines with great capability and affordability.

We now need the Government to take the next steps: Multi-year contracting authority and an increased construction rate to two submarines per year will provide the stability and contracting means for significant cost savings.

Thank you.

Naval Submarine League

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