Index

 Statement of Ms. Cynthia L. Brown
President
American Shipbuilding Association

            Thank you, Mr. Chairman, Members of the Committee, for this opportunity to testify on behalf of the American Shipbuilding Association on the state of the industry.

            The American Shipbuilding Association is the national trade association that represents the six largest shipbuilders in the United States.  They are:  Avondale Industries of Louisiana; Bath Iron Works of Maine; Electric Boat of Connecticut; Ingalls Shipbuilding of Mississippi; National Steel and Shipbuilding of California; and Newport News Shipbuilding of Virginia.  These shipyards build all of the capital ships for the U.S. Navy and large oceangoing commercial ships.

            During the 1980's, the U.S. Navy was ordering an average of 19 ships per year.  Throughout most of the 1990's, the Navy ordered an average of only six ships per year.  As a result of this historically low rate of ship production, the industry has re-engineered the way in which we design and build ships to reduce costs.  Between 1991 and 1997, the industry was forced to cut its workforce by 33 percent while simultaneously making tremendous investments in technology, in facilities, and in training our people to use the latest technology in the design and manufacturing process.  We continually strive to improve our products and manufacturing processes through greater use of commercial technologies and practices in order to deliver the most sophisticated ships in the world at an affordable price.

            In spite of our on-going achievements in reducing costs, the full benefit of these investments will not be fully realized until stable, higher rates of ship production are achieved.

            The most important cost saver in ship production is stability.  Large swings in the number of ships ordered is extremely costly to shipbuilders, and to the taxpayer.  It takes years to train our highly skilled employees.  When production rates decrease, shipbuilding companies must lay off thousands of workers, only to later recruit, hire, and train new workers when production rates increase.  Not an easy task.  These contractions and expansions have a costly multiplier effect throughout the entire shipbuilding supplier base.  Stable, higher rates of ship production produce cost savings, and stable, higher budgets equate to stable shipbuilding programs.

            The Navy's fiscal year 2001 budget is based on the force structure levels of the May 1997 Quadrennial Defense Review.  This assessment determined that the Nation could not afford to fall below a minimum of 300 naval ships and still meet the Nation's security requirements.  However, shipbuilding budgets have not been providing for a 300-ship fleet.   For the past seven years, an average of only six ships have been procured -- which is four ships below the required stable build rate of 10 ships per year.  This has left the Nation with a shortfall of 32 ships.  The Navy's fiscal year 2001 budget request and five-year plan calls for the construction of only eight ships in each of the next four years and seven ships in 2005.  As a result, the Nation's naval fleet will continue to shrink and fall below 300 ships.

            Mr. Chairman, as you have stated on many occasions, Navy shipbuilding budgets will have to be increased if the Nation is to rebuild and maintain a bare bones minimum fleet of 300 ships.  Should Congress and the Administration decide to increase naval shipbuilding, industry urges that increased budgets be combined with the best commercial business practices in the acquisition and financing of ships to maximize stability and cost savings.

            Ships are very different from any other defense system.  They take three to seven years to build, and they are bought in very few quantities.  Aircraft and missiles are bought in the hundreds of units -- ship classes can be counted on your fingers and toes.  The uniqueness of naval ships dictates the need for different acquisition approaches if stable production rates and greater cost savings are to be achieved.

            We applaud this Committee's support of Multi-Year Procurement contracting for the DDG-51 class of destroyers and encourage extending this type of contracting to other ship classes, like submarines, where a quantity in "Ship-Terms" is planned to be procured.  This type of contracting method allows the shipbuilder to buy materials and systems for multiple ships of the class.  The savings in a quantity material and system buy is substantial versus a one-off buy under current shipbuilding practices.

            For other ship classes - such as the LHD class of large deck amphibious ships and the next class of aircraft carriers (CVN(X)) - it would make sense to spread the funding for these ships over several years, rather than budget the full amount in one-year.  Only one of these types of ship is bought once every three to five years.  They are high cost systems, and they take four to seven years to build.  If the Department were directed to fund these ships on an incremental basis, they would be more affordable, shipbuilding budgets would be much more stable, and breaks in production of other ship classes would be prevented.

            For noncombatant ships, ASA applauds this committee for its support and leadership in working to give the Navy the authority to enter into long-term leases for the services of these commercial-like ships.  Last year, you gave the Navy 25-year lease authority for noncombatants.  However, the Navy will not be able to use this authority until Congress defines these leases as "Operating Leases" to allow for the annual budgeting of the actual lease payment.  Because these leases are presently defined as "Capital Leases", the Department would have to seek budget authority in the first year for the total amount of the 25-year lease -- thus, nullifying the benefit of leasing.  Long-term leasing is a financing method used extensively by the commercial shipping sector.  If the Navy could do the same for its commercial type vessels, it would relieve budgetary pressures on the combatant ships in the Shipbuilding and Conversion account and give the Department the means to acquire the services of equally critical noncombatant ships for sealift, prepositioning, and other support missions.  The noncombatant fleet of the Navy is aging.  Many ships have, or will soon reach the end of their service life.  In many cases, the annual savings that would be realized in maintenance from the older ships would be sufficient to cover the lease payment of new ships.

            On the commercial front, I would like to stress how important commercial shipbuilding is to our national security, and thank this committee for its leadership in this area.  When we build commercial ships, the Navy benefits in a number of ways.  Commercial ship construction enables us to introduce into Navy shipbuilding programs commercial technologies and manufacturing processes that improve the quality of naval ships and enhance our productivity in Navy programs.  Our commercial business also helps us to stabilize our skilled workforce levels and reduce our overhead costs.  The Navy is the beneficiary of our commercial work in the form of lower cost naval ships and improved quality.

            To this end, we ask for your support in providing $50 million a year for the Title XI Ship Loan Guarantee Program to assist ship buyers secure financing for the construction of commercial ships in our shipyards.  $50 million would guarantee $1 billion in ship construction loans. 

            Another important bill before this Congress is, H.R. 3392, The All American Cruise Act of 1999 sponsored by you Mr. Chairman.  We applaud your vision in this important market.  If enacted, this bill would give American builders and American owners of cruise ships tax parity with foreign cruise ship companies that operate from American ports.  Your legislation would create a new industry in the United States and generate significant economic activity that in turn would generate more tax income for the treasury.

            Title XI and The All American Cruise Act of 1999 will stimulate commercial shipbuilding which supports and strengthens our national security.

            Let me close by saying that a 300-ship Navy will require a steady build rate of more than 10 ships a year.  We urge Congress to do everything in its power to meet the Nation's fleet requirements, and we recommend that the best commercial business practices be used in the acquisition of naval ships to ensure the Nation's needs are met in the most cost-effective and affordable manner possible.  Thank you.