GD, Northrop warn of possible shipyard layoffs
WASHINGTON (Reuters) - The two largest U.S. military shipyards warned on Wednesday that the U.S. Navy's 30-year shipbuilding plan funded 13 fewer surface ships in the near term, which would likely result in layoffs across the industry and higher shipbuilding costs.
David Heebner, executive vice president for marine systems at General Dynamics Corp (GD.N), told the seapower subcommittee of the House Armed Services Committee that the Navy's plan was based on reasonable assumptions and should allow the industry to provide quality ships at the best possible value.
But the loss of 13 surface ships in the near term and 10 attack submarines over the longer term would have a "significant negative impact" on the industrial base, he said in written testimony released by the committee.
"Internal to our shipyards, this volume challenge will likely trigger shipyard workforce resizing," he said, noting it would also negatively affect thousands of suppliers who provide the components and commodities essential to ship construction.
"In the end, less volume will inevitably lead to higher shipbuilding costs -- not the best possible value for the taxpayer," Heebner said.
Michael Petters, head of shipbuilding for Northrop Grumman Corp (NOC.N), echoed those concerns, saying the plan assumed a smaller industrial base, which would result in layoffs, the closure of facilities and consolidation among suppliers.
He called on lawmakers, industry and the Navy to support more multi-year, multi-ship procurement agreements and provide incentives to the industry to avert layoffs.
Petters raised concerns about the Navy's plan to build half the number of destroyers each year going forward, asking lawmakers to consider if construction of just 1-1/2 ships per year would be enough to keep two yards in competition, and maintain the skilled workforce needed.
He also questioned the Navy's decision to take two command-and-control ships out of the shipbuilding plan, resulting in a 5-year gap between the start of the last LPD class ship and the start of the new ship class to follow.
Petters also urged lawmakers to remove funding for a new nuclear-powered replacement for the 14 Ohio-class submarines from the general shipbuilding budget and fund it separately, warning that the combined shipbuilding program would cost $20 billion in later years -- far more than current spending.
"If that goal is not attained, there will not be enough money to continue building all classes of ships. The surface combatant and amphibious assault challenges cited above will be greatly exacerbated, which could lead to conditions resulting in shipyard closures," Petters said.
In prepared testimony, Navy acquisition chief Sean Stackley and top Navy officers defended the 30-year plan, said it recognized the need for an adequate shipbuilding industrial base and was based on realistic cost estimates.
They said yearly shipbuilding spending would average $14.5 billion from fiscal 2011 to fiscal 2020, about $1.5 billion less than the 30-year average.
In the medium term, spending on the Ohio-class submarines would push spending to about $17.9 billion per year, or about $2 billion more than the steady-state 30-year average.
The Navy officials acknowledged that the total number of ships that could be built each year would decline due to the money needed for the new submarines, and said the Navy was looking at various ways to lower shipbuilding costs.
They said the Navy had also begun to study the shipbuilding industrial base as part of its 2012 budget deliberations. The study will review shipyard capabilities and capacities, the health of the supplier base, as well as trends in rates and overhead, productivity, and investment strategies.
Representative Todd Akin, the top Republican on the seapower subcommittee, welcomed the Pentagon's decision to add $1.9 billion to the fiscal 2011 levels over 2010, but said he remained concerned about the longer-term outlook.
Akin said he was particularly concerned that the Navy's shipbuilding plan would not fund sufficient ships capable of carrying out ballistic missile defense, especially given President Barack Obama's decision to defend Europe with Navy asset rather than a ground-based missile defense system.
"The Navy is being asked to support a new mission, but has not been given new resources necessary to succeed," he said.
(Reporting by Andrea Shalal-Esa; Editing by Richard Chang)