Index

TESTIMONY OF WILLIAM P. FRICKS
CHAIRMAN & CEO

Thank you Mr. Chairman:

Chairman Hunter and Members of the Subcommittee, I am pleased to appear before the Subcommittee today to provide my company’s view on the status of the U.S. shipbuilding industry and on the Navy’s proposed shipbuilding program.

Mr. Chairman, neither I nor any of my colleagues here today are in a position to determine the appropriate size or capabilities of our naval fleet.  That is the role of the Department of the Navy and our national command authorities.

But we are in a position to comment briefly about some of the things that must be done in order to meet the requirements that have been defined by the Navy.

The 1997 Quadrennial Defense Review determined that national security requirements dictated a minimum fleet size of 300 ships, with a minimum of 12 carriers and 50 attack submarines.

During this past year more and more naval officers, including the CNO, have expressed doubt about whether the Navy can meet national security requirements with a fleet of only 300 ships.  The CINCs have consistently testified to the requirement for 15 carrier battle groups, and just recently a Joint Chiefs of Staff study validated a requirement for 68 attack submarines. 

I made these observations only to note that there is growing concern about the adequacy of a 300 ship Navy to meet our national requirements.  More to the point from an industry perspective is that the Navy’s shipbuilding budget over the past several years and as projected in the future years defense plan does not support even a 300 ship Navy.  Over the past seven years, the Navy’s shipbuilding budget has produced an average of only 6 ships a year.  The Navy’s shipbuilding plan for the next five years averages slightly less than 8 new ships a year, not counting the refueling / overhauls of Nimitz-class carriers and Los Angeles class submarines, actions that do not increase the fleet’s size, but are necessary to avoid further shrinkage.

In short, Mr. Chairman, the Navy simply does not have, and its future budget plans do not seek, sufficient national resources to build and maintain the fleet that our national security requirements dictate.  Only Congress can adequately address this overriding problem.

We in the shipbuilding industry are ready, willing and able to do our part to ensure that whatever resources Congress provides for shipbuilding are used in the most cost effective way possible.

In the last 10 years Newport News Shipbuilding has undertaken substantial reengineering of its entire business.  Our workforce has been reduced from almost 31, 000 to slightly more than 17,000 people; we have invested almost a billion dollars in capital improvements such as cutting edge computer aided design and manufacturing systems; and, we are leading the way in adopting the best commercial practices throughout our business with the difficult but necessary installation of state of the art commercial business tools, such as a shared data environment and an enterprise-wide resource planning system.  Throughout this period of declining workloads, we have continued to work with our US Navy customer to control our overhead expenditures, while providing both our unionized and non-unionized workforce with appropriate pay and benefits.

While adopting best business practices internally, we continue to work with the Navy to identify and adopt new financing approaches and other innovative measures to constrain the costs of carriers and submarines.

For example, in the fiscal year 1998 defense budget process, we recommended an incremental funding approach for CVN-77, which if it had been adopted could have avoided some $600 million dollars of cost for that ship.  We urge the Congress and the Administration to reconsider such an approach for the next generation of carriers, the CVNX.

In the past year, we have entered into Memorandums of Understanding with both Norfolk Naval Shipyard and Puget Naval Shipyard, agreeing to work with those shipyards in a number of areas, but most importantly in trying to more level load the nuclear-related workloads that we share with these public yards.  Additionally Mr. Chairman, of particular importance to the San Diego area, we managed for the Navy the integration of the nuclear and non-nuclear maintenance work performed on the USS Stennis in the San Diego harbor, in conjunction with our San Diego subsidiary, Continental Maritime, and the other private repair yards in that harbor.  We believe these efforts offer the Navy the opportunity for substantial cost savings in the nuclear fleet maintenance arena.

Also in the fiscal year 1998 budget process, we, along with our New Attack Submarine construction teammate Electric Boat, presented the Navy and the Congress an acquisition strategy called “block buy”, which brought a degree of long term stability to that program along with an opportunity for Navy cost avoidance, while maintaining two nuclear shipyards.  This block buy approach has worked well, and I urge the Congress to extend this block buy authority to the next five of the Virginia class submarines.  This action would not require additional funding in the shipbuilding program, but could bring long term stability to this program – one of the most important elements in containing shipbuilding costs. 

A couple of other thoughts about submarines.  The Navy has requested almost $350 million for continuing research and development of submarine design and advanced technology.  I know this effort is especially important to you, Mr. Chairman, and I urge the Committee to authorize this funding.

 Also, the  Navy has requested $283 million to begin the refueling and overhaul of up to four additional Los Angeles class submarines that were scheduled to be decommissioned, and $35 million in R&D funds to continue to study the possibility of converting four Trident submarines to cruise missile subs.  While it remains unclear whether Newport News Shipbuilding will participate directly in either of these programs, we do support them as potential cost-effective ways to meet the requirement of 68 attack submarines by 2015.  At the same time, the cornerstone of the attack submarine program must remain the stable production of Virginia Class submarines, increasing to a rate of at least 2 a year by fiscal year 04 or 05, in order to meet the JCS requirement of 18 Virginia- class subs by 2015.

Likewise, I commend to the Congress the proposal in the budget request to fund the nuclear refueling and complex overhaul of the USS Eisenhower over the two year period of fiscal years 2001 and 2002.  We have worked with the Navy on this approach, and urge Congress to specifically authorize the signing of a contract in fiscal year 2001 to go forward with this proposed funding approach.  We believe this incremental approach, which is consistent with the nature of work involved with overhauls and makes better use of scare SCN dollars, provides a potentially attractive alternative for the remainder of the Nimitz class carrier refueling / overhauls.

With respect to carrier construction programs, we have worked closely with the Navy in defining its three-ship transition approach to the next class of carriers. The first element of that transition plan is CVN-77.  The remaining necessary funds for CVN-77 are requested in fiscal year 2001, and we ask this Committee to support the authorization and appropriation of these funds.

Working with the Navy, we will be defining new technology for CVN-77 while instituting new contracting practices.  We will design and build many spaces in that ship to hold technology that has not yet been defined.  This design-budget approach offers the Navy the opportunity for substantial cost avoidance by delaying decisions about specific components to be included in the ship until much later in the process.  This avoids the cost of installing technology only to have it become obsolete during the construction period of the ship.

For the first time on CVN-77, we will be overseeing the development of a state of the art combat system in conjunction with our lead subcontractor, Lockheed Martin, so that system will be fully integrated early into the ship’s design and construction plan.  In the past, the Navy would deliver a completed combat system to us, with substantial amounts of system integration and testing not occurring until late in the ship construction plan. While this new approach means that our company assumes greater responsibility for the performance of the combat system, we believe this much more fully integrated approach offers the Navy substantial cost avoidance.

Mr. Chairman, the fiscal year 2001 budget request contains $22 million dollars for the advance procurement of long lead nuclear items for CVNX-1 and a total of $276 million dollars for research and development applicable to CVN-77, CVNX-1 and CVNX-2.   Mr. Chairman, as I noted earlier, one of the most important aspects of controlling costs in shipbuilding programs is an early commitment by the Navy and the Congress to a ship’s construction, thereby giving that ship program the stability needed to plan and execute the ship design and construction in the most cost-effective manner.  This year’s authorization and appropriation of the requested SCN funds for CVNX-1, accompanied by Congressional authority to proceed with the CVNX-1 program, will go a long way to bringing such stability to the future carriers program.

Finally, Mr. Chairman, I can not say enough about the importance of the R&D request for carriers.  During the 1970’s, 1980’s, and most of the 1990’s, there was virtually no research and development funding for the carrier program. Carrier R&D began modestly in fiscal year 1998 and has been ongoing since then.  A substantial portion of the fiscal year 2001 request is for design work for a new reactor for the CVNX class, which is necessary to meet future electrical needs for this class.  The other R&D funding is for advanced systems like the electro-magnetic aircraft launch systems (EMALS) and other future technologies designed to enhance the capability and reduce the life cycle costs of carriers.  I urge the committee to support this funding for carrier research and development. 

In summary, Mr. Chairman, Congress must act to address the overall funding shortfall for the Navy’s shipbuilding account to ensure that our national security requirements are met.  I applaud your efforts, and those of this Committee, in that regard.  The shipbuilding industry is trying to help by increasing public awareness of the facts about the shrinking fleet size.

Additionally, Congress can assist in avoiding unnecessary costs in shipbuilding programs by authorizing new and innovative financing methods to be used in various ship programs, and by bringing some measure of stability to those programs by early Congressional commitment to these programs.

Our industry and its individual shipyards are ready, willing and able to work with the Congress and the Navy to ensure the adoption of best business practices and the incorporation of the right technologies in our ships to enhance their capabilities while reducing their overall costs of ownership. 

Working together, I am sure we can continue to help ensure we have the Navy that our Nation needs in the 21st century.