SPEAKERS       CONTENTS       INSERTS    
 Page 1       TOP OF DOC
64–885
2000
  
[H.A.S.C. No. 106–38]

HEARINGS

ON

NATIONAL DEFENSE AUTHORIZATION ACT
FOR FISCAL YEAR 2001—H.R. 4205

AND

OVERSIGHT OF PREVIOUSLY AUTHORIZED PROGRAMS

BEFORE THE

COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

 Page 2       PREV PAGE       TOP OF DOC
MILITARY PROCUREMENT SUBCOMMITTEE HEARINGS
ON
TITLE I—PROCURMENT

HEARING HELD
FEBRUARY 29, 2000

  

MILITARY PROCUREMENT SUBCOMMITTEE

DUNCAN HUNTER, California, Chairman
FLOYD D. SPENCE, South Carolina
BOB STUMP, Arizona
JAMES V. HANSEN, Utah
JIM SAXTON, New Jersey
JAMES TALENT, Missouri
TERRY EVERETT, Alabama
J.C. WATTS, Jr., Oklahoma
MAC THORNBERRY, Texas
LINDSEY GRAHAM, South Carolina
JIM RYUN, Kansas
JIM GIBBONS, Nevada
MARY BONO, California
JOSEPH PITTS, Pennsylvania
 Page 3       PREV PAGE       TOP OF DOC
ROBIN HAYES, North Carolina

NORMAN SISISKY, Virginia
IKE SKELTON, Missouri
JOHN M. SPRATT, Jr., South Carolina
LANE EVANS, Illinois
ROD R. BLAGOJEVICH, Illinois
TOM ALLEN, Maine
JIM TURNER, Texas
ADAM SMITH, Washington
JAMES H. MALONEY, Connecticut
MIKE McINTYRE, North Carolina
CYNTHIA A. McKINNEY, Georgia
ELLEN O. TAUSCHER, California
ROBERT BRADY, Pennsylvania

Steve Thompson, Professional Staff Member
Dino Aviles, Professional Staff Member
J.J. Gertler, Professional Staff Member
Jesse Tolleson, Staff Assistant
(ii)  

C O N T E N T S

HEARING:
 Page 4       PREV PAGE       TOP OF DOC
    Tuesday, February 29, 2000, Fiscal Year 2001 National Defense Authorization Act—Navy Shipbuilding Programs

APPENDIX:
    Tuesday, February 29, 2000

TUESDAY, FEBRUARY 29, 2000
FISCAL YEAR 2001 NATIONAL DEFENSE AUTHORIZATION ACT—NAVY SHIPBUILDING PROGRAMS

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

    Hunter, Hon. Duncan, a Representative from California, Chairman, Military Procurement Subcommittee

    Sisisky, Hon. Norman, a Representative from Virginia, Ranking Member, Military Procurement Subcommittee

WITNESSES

    Brown, Cynthia L., President, American Shipbuilding Association

    Cavaiola, Dr. Lawrence J., Vice President for Strategic and Business Development, Litton Ship Systems

    Fricks, William P., President and CEO, Newport News Shipbuilding
 Page 5       PREV PAGE       TOP OF DOC

    Lautenbacher, Vice Adm. Conrad C., U.S. Navy, Deputy Chief of Naval Operations for Resources, Warfare Requirements and Assessments; accompanied by Vice Adm. Charles W. Moore, Jr., U.S. Navy, Commander, Fifth Fleet; and Vice Adm. Dennis V. McGinn, U.S. Navy, Commander, Third Fleet

    O'Rourke, Ronald, Specialist in National Defense, Congressional Research Service

    Welch, John K., Senior Vice President, General Dynamics

APPENDIX

PREPARED STATEMENTS:
[The Prepared Statements submitted can be viewed in the hard copy.]
Brown, Cynthia L.
Cavaiola, Dr. Lawrence J.
Fricks, William P.
Hunter, Hon. Duncan
Lautenbacher, Vice Adm. Conrad C.
McGinn, Vice Adm. Dennis V.
Moore, Vice Adm. Charles W.
O'Rourke, Ronald
Sisisky, Hon. Norman
Welch, John K.
 Page 6       PREV PAGE       TOP OF DOC

DOCUMENTS SUBMITTED FOR THE RECORD:
[There were no Documents submitted for the Record.]

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD:
[The Questions and Answers are pending.]

FISCAL YEAR 2001 NATIONAL DEFENSE AUTHORIZATION ACT—NAVY SHIPBUILDING PROGRAMS

House of Representatives,
Committee on Armed Services,
Military Procurement Subcommittee,
Washington, DC, Tuesday, February 29, 2000.

    The Subcommittee met, pursuant to call, at 2:01 p.m., in room 2118, Rayburn House Office Building, Hon. Duncan Hunter (Chairman of the Subcommittee) presiding.

OPENING STATEMENT OF HON. DUNCAN HUNTER, A REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, MILITARY PROCUREMENT SUBCOMMITTEE

    Mr. HUNTER. The Subcommittee will come to order.

    This afternoon, we're going to receive testimony from three panels consisting of witnesses from the U.S. Navy, the Congressional Research Service, and the shipbuilding industry on the Navy's shipbuilding plans, as set forth in the recently released President's Budget for Fiscal Year 2001.
 Page 7       PREV PAGE       TOP OF DOC

    This format is intended to provide three perspectives on the Navy's plans. First, from the senior officer responsible for the development of the Navy's requirements and fleet commanders, his internal Navy customers. Second, from a recognized and unbiased expert in Navy force structure and shipbuilding issues at the Congressional Research Service. And, third, from CEOs and senior executives within the shipbuilding industry.

    The U.S. Navy now operates a fleet of 316 surface ships and submarines that is expected to decline to a Quadrennial Defense Review (QDR) recommended level of 305 ships. This fleet is only a little larger than half the size of the Navy of the 1980s that comprised almost 600 ships at its peak.

    While some argue that the end of the Cold War and the improved combat capabilities of today's modern warships permit a much smaller Navy than would have been required only a decade ago, they ignore the fact that the peacetime forward presence requirements for the Navy have not changed significantly since the end of the Cold War. Indeed, in some respects, those presence requirements for today's smaller Navy have increased as illustrated by continuing large-scale presence missions in the Persian Gulf and the Adriatic.

    Since today's Navy and that planned for the near future is so much smaller than that of the Cold War era, it is imperative that the ships and submarines we procure are platforms that maximize both combat and cost effectiveness. These ships should incorporate the technology and design flexibility to significantly reduce manning and maintenance requirements and permit the insertion of new technologies as they mature over the service lives of the vessels.

 Page 8       PREV PAGE       TOP OF DOC
    While the Navy's new DD–21 land attack destroyer, the Virginia class attack submarine, and the San Antonio class amphibious assault ship are representative of the advanced ship types the Navy will need in the 21st century, I am concerned that the relatively slow production profiles for these ship classes will necessarily mean that the Navy will be operating older ships and submarines for a longer time than may be desirable.

    The latest President's budget request has the navy building on 39 ships over the five-year period from fiscal year 2001 through 2005. This is a decrease of two ships from last year's shipbuilding plan for the same five-year period. The trend seems to be moving in the wrong direction and raises questions about the Navy's ability to sustain the higher shipbuilding rates necessary to support a fleet size of 305 modern ships over the long term.

    By the Navy's own estimate, that required annual rate is an average of between eight to ten ships a year. Over the five-year period ending in fiscal year 2005, the Navy will average a procurement rate of only 7.4 ships per year, well short of the lower end of the required range.

    Furthermore, for certain classes of ships, that average rate may not tell the whole story. For example, even when using the relatively modest QDR goal of 50 attack submarines, the Navy may have difficulty maintaining and SSN force of that size beyond 2015. The Navy is taking steps to address this issue by lengthening the expected service lives of existing SSNs through operating restrictions to preserve reactor core lives and reviewing options to refuel ships previously scheduled for decommissioning and to convert ballistic missile submarines to conventional missions.

 Page 9       PREV PAGE       TOP OF DOC
    While these measures may provide some relief in the short-term, the Navy cannot avoid the inescapable requirement to build more, relatively expensive, SSNs at a rate greater than a single ship per year, which is what we have on the blueprint right now.

    This situation for SSNs may be worse than I have just highlighted. The requirement for a force of 50 SSNs is a QDR number. The Joint Staff just recently transmitted a classified report to the Congress that defines its requirements for the Navy's SSN force. If the witnesses can discuss unclassified elements of this report in today's forum, it would be most helpful in understanding the Navy's actual requirements for SSNs.

    To the extent that the Navy's long-range shipbuilding plans require large sustained increases in funding to maintain a 305-ship fleet, there is risk. We are facing serious modernization challenges across the spectrum of military systems and in all the services, to include: tactical aviation, precision-guided munitions, ground combat vehicles, support equipment, and telecommunications that will require significantly increased funding over a sustained period of time to rectify. We in this situation because of a failure to commit the resources necessary to address growing problems in these areas for too long. In short, ladies and gentlemen, we are underfunded in almost every major area.

    Before we proceed, I would like to address a frequently heard criticism that too much is spent on buying unneeded hardware while shortchanging readiness and quality of life. It's something the late CNO Admiral Mike Borda once said about trade-offs between modernization and the quality of life. He said that modernization is a quality of life issue if you intend to go in harm's way.

 Page 10       PREV PAGE       TOP OF DOC
    With that, I would like to welcome our first panel of witnesses to discuss the Navy's shipbuilding plan. We have with us Vice Admiral Conrad C. Lautenbacher, United States Navy Deputy Chief of Naval Operations, Resources, Warfare Requirements, and Assessments; Vice Admiral Charles W. Moore, United States Navy Commander, Fifth Fleet; and Vice Admiral Dennis V. McGinn, United States Navy Commander, Third Fleet.

    Our second panel will provide an independent analysis and critique of the Navy's shipbuilding plan and its adequacy of supporting the QDR goal of a fleet of 305 ships. And the panel consists of single witness from the Congressional Research Service, a place we've always saved money by simply having literally the best in the world, Ron O'Rourke, working with us. He has appeared before this Subcommittee a number of times and been a member of several blue ribbon panels that we've had on submarines and other elements of the Navy.

    And we always want to welcome Ron, a national defense specialist for the Congressional Research Service. And you won't have to share any time with anybody else on your panel, Ron. That's always the good thing about being the Lone Ranger.

    Our final panel will provide an industry perspective on the Navy's shipbuilding plan. There is concern that the procurement levels projected may be insufficient to support a robust shipbuilding industrial base over the long-term. Of particular concern is that a weak industrial base may lead to the gradual erosion of both real competition and innovation that is necessary to ensure that the Navy will continue to maintain its technological edge over any potential adversaries.

    There are only, currently, six major shipyards engaged in new construction of ships for the U.S. Navy. One of these facilities is an independent corporation and others are divisions of two corporations. It has become increasingly difficult to support these facilities with the low level of Navy shipbuilding of the past decade. The consolidation that the industry has experienced to date has been in response to this lack of Navy orders.
 Page 11       PREV PAGE       TOP OF DOC

    Navy shipbuilding will continue to account for the commanding majority of the new construction of large, technically complex ships in this country for the foreseeable future. The sufficiency of the Navy's shipbuilding plan is of a paramount concern to the industry. A failure to keep the major entities in shipbuilding industry adequately engaged in the design and construction of modern naval vessels may severely restrict the Navy's ability to procure advanced designs far into the future.

    Given that the Navy's shipbuilding plan is so critical to the health of the industry, it is only appropriate that we have representatives of the shipbuilding industry here today to provide their perspective. I look forward to a frank and open discussion of the adequacy of the Navy's shipbuilding plan and the state of the U.S. shipbuilding industry.

    Our third panel today will be comprised of industry witnesses. And we are pleased to welcome Ms. Cindy Brown, president of the American Shipbuilding Association; Mr. William Fricks, president and chief executive officer, Newport News; Mr. John K. Welch, senior vice president, General Dynamics; and Dr. Larry Cavaiola, and they spelled that out phonetically for me, as if I didn't realize that you used to work for us here, vice president for strategic and business development, Litton Ship Systems. Larry, thank you for being with us today.

    And before we begin the first panel, let me call on the gentleman from Virginia, the ranking Democrat on the Subcommittee, Mr. Sisisky, a gentleman who is a real expert in this area of sea power and the construction of naval vessels, for any remarks he'd like to make.

 Page 12       PREV PAGE       TOP OF DOC
    Norman.

    [The prepared statement of Mr. Hunter can be found in the Appendix.]

STATEMENT OF HON. NORMAN SISISKY, A REPRESENTATIVE FROM VIRGINIA, RANKING MEMBER, MILITARY PROCUREMENT SUBCOMMITTEE

    Mr. SISISKY. Thank you, Mr. Chairman. I wonder if my name is in phonetics also.

    America really is blessed by two broad oceans and it's our job and that of our witnesses today to keep those oceans secure. Let me thank the admirals here and the men and women they represent for doing just that. Thanks also go to the men and women who build and maintain our strong and capable ships. As you know, while I have a certain affinity for ships built in Virginia, I am told that folks in other areas make passably seaworthy vessels as well, and I'm sure you would testify to that.

    It seems to me that we have three main questions that drive our shipbuilding. One is: what is the military requirement for surface ships and submarines? Two, realistically, how many ships can we operate, given recruiting trends? And, three, how many new hulls do we need each year to keep shipyards sufficient and to maintain the instrength we need?

    We've always asked questions like these in the context of individual ships and individual yards, but I think, today, we also need to look at the big picture. The budget does fund many of the individual programs that many of us have supported in the past. CVN–77 is fully funded. The submarine program is funded. DDG–51s; LPD–17s; and a lot more are present and accounted for. But we need to ask whether these ships are present in the right mix and in sufficient numbers to protect our national security. That worries me.
 Page 13       PREV PAGE       TOP OF DOC

    And I will confess that I started to say, ''the submarine program, such as it is, is funded.'' And the phrase, ''such as it is'' could apply to other programs as well. Our ships and our submarines are undoubtedly the most sophisticated in the world, but if there simply is not enough force structure to provide a forward presence and protected sea lanes, in my opinion, we're in trouble.

    And I was very concerned when I read the statement in today's testimony, and I quote, ''Today, there is just barely enough force structure to carry out the national security strategy.'' And, I'm still quoting, ''With current force structure, maintenance funding, and operational commitments, we've been able to provide forces to meet major requirements, but this is not to say that simply reshuffling of schedules provided the solutions,'' unquote. Admiral McGinn, I look forward to your elaborating, if you will, on these points.

    This certainly seems to be a case where the operational side may have some issues with the budgeteers. But, myself, I'm very, very concerned. And my concern is based on the fact that, the way things are going, we have to ask if we're not on the way to a great big 200-ship Navy. And I don't say that to be a joke. If you do the math, you could come out that way. And I've said before that the only way the Navy can make the numbers come out right is by arbitrarily extending the number of years in the life of a ship. But when you multiply the number of ships we build times 30-year life of ship, I think we're in big trouble.

    Yet, the Navy seems determined to meet worldwide commitments with a much smaller fleet. And, as far as Congress is concerned, that may or may not be our fault. The Navy isn't always willing to ask, and I will admit that Congress isn't willing to pay the bill, for the Navy we really need. But I and many other members of this Committee on both sides of the aisles have called for more ships for years.
 Page 14       PREV PAGE       TOP OF DOC

    And we took our cue, believe it or not, from concerns that the QDR was budget-driven, rather than threat-driven, and didn't provide the force structure to meet the real requirements. And I hate saying I told you so, but I did tell you so and a lot of other people have said it up here, too. We thought the end of the Cold War meant fewer missions and fewer deployments, but the seas haven't shrunk a bit and the world is just as wide. And deployments seem to be more frequent than ever.

    And I don't doubt that building more capable ships enhances effectiveness in battle. And I'll repeat that, Mr. Chairman, because I think this is an important part. I don't doubt that building more capable ships enhances effectiveness in battle, but I'm not entirely convinced our technology is sophisticated enough to enable a smaller fleet to cover more water. I worry that requirements may have outstripped both our budget and our technology. And I look forward to hearing from today's witnesses about whether the shipbuilding program we have today will meet their needs.

    I should advise them that, yes, there's a perfectly legitimate answer. But this Subcommittee is also interested in the consequences of a ''no.''

    Again, I thank all of you for being here today and for all that you do for our country. Thank you, Mr. Chairman.

    [The prepared statement of Mr. Sisisky can be found in the Appendix.]

    Mr. HUNTER. I thank you. You're very articulate, the gentleman from Virginia, and he makes a great point when he points out that, in some cases, there is a substitute for quantity, in other cases there isn't. And it takes a long time to move a ship from Norfolk or San Diego or other U.S. ports to trouble spots around the world. And we have a very thin force, by all the testimony that is presented here.
 Page 15       PREV PAGE       TOP OF DOC

    Admiral Lautenbacher, we'll start with you and then go to Admiral Moore and then Admiral McGinn. And, Admiral Lautenbacher, thank you for being with us today. The floor is yours.

STATEMENT OF VICE ADM. CONRAD C. LAUTENBACHER, U.S. NAVY, DEPUTY CHIEF OF NAVAL OPERATIONS FOR RESOURCES, WARFARE REQUIREMENTS, AND ASSESSMENTS; ACCOMPANIED BY VICE ADM. CHARLES W. MOORE, JR., U.S. NAVY, COMMANDER, FIFTH FLEET; AND VICE ADM. DENNIS V. MCGINN, U.S. NAVY, COMMANDER, THIRD FLEET

    Admiral LAUTENBACHER. Thank you very much, Mr. Chairman, Mr. Sisisky, distinguished Members of the Committee. Mr. Chairman, Mr. Sisisky, distinguished Members of the Subcommittee, and staff members, it's indeed a great privilege and honor to be able to testify before you today in support of our fiscal year 2001 shipbuilding plan for the Navy.

    I would like, first of all, to request that my statement be entered for the record.

    Mr. HUNTER. Without objection, all statements will be entered into the record.

    Admiral LAUTENBACHER. Thank you, sir. And just be afforded the opportunity for just a couple of opening comments. Based on your comments, Mr. Chairman and Mr. Sisisky, there's not a lot more for me to say. You've covered a great deal of the things that I would like to say as well.
 Page 16       PREV PAGE       TOP OF DOC

    But let me iterate that our Navy is working hard today. It's working harder than it has been for the last three or four years. Naval forces are on station today around the world shaping and responding to crises. We find it difficult to meet those requirements by moving ships from one area to another as they're needed. There have been several instances this year where theaters have been left uncovered while we have covered crises in other parts of the world. And the two distinguished gentlemen on my right and left can describe more of those directly, so I will let them respond in that area.

    Our requirement, as you know, stems from the last QDR, as mentioned. That is a requirement that results in a Navy of approximately 300 ships. It's a 12-carrier battle group, 12 Amphibious Ready Group Navy with the requisite surface combatant submarines and support ships to fill that out.

    We ask, today, for your support for our fiscal year 2001 shipbuilding plan. It has good new in it. The good news is it's two more ships than we had last year and it is starting to get to the edge of adequacy for the long term of eight to ten ships. There are eight new ships in this year's program. They're all important to us. As mentioned, our carrier, this is the CVN–77, represents an advance over what we've had in the past and it will include an integrated combat system, a reduction in operating costs by lowering the people it will need to operate that ship, and it will represent an important advance in a key piece of our future battle force.

    The DD–21 is the critical cornerstone of the future. This is a program that's going to give us the leap-ahead technologies to allow us to meet the missions in the future in the littoral, as well as to reduce operating costs and add automation that will allow us to reduce the number of people onboard and also be more effective in projecting power across the land.
 Page 17       PREV PAGE       TOP OF DOC

    The submarine force, as you've mentioned, we have the next of our Virginia class in this budget. We're pleased to note that we're at least getting to the point where we can have one per year in our program. At some point, if we're going to maintain the future levels, it will have to go much higher to two or to three.

    The LPD–17, there are two in this budget. That's important for the recapitalization of our Amphibious Ready Groups. It represents a significant decrease in the cost of operations and will allow us to modernize our Amphibious Ready Groups, each of which will have three ships, one of which in each Amphibious Ready Group (ARG) will be an LPD–17.

    And the TACDX, which represents the modernization of our combat logistics force at sea. Our supply ships and our ammunition ships are aging. Our station ships for our battle groups are aging and requiring more maintenance. This class will maintain the United States Navy in the condition it should be and this is what makes the difference between a blue water Navy and a brown water Navy. We need your support on the TACDX program as well.

    With that, I would like to end my statement and pass on to my colleagues here. Thank you.

    [The prepared statement of Admiral Lautenbacher can be found in the Appendix.]

    Admiral MOORE. Mr. Chairman, Mr. Sisisky, distinguished Members, staff, I am Vice Admiral Charles W. Moore, Jr. I'm the commander of U.S. Naval Forces Central Command, General Zinni's naval component commander in the Middle East, and I'm the commander of the United States Fifth Fleet. On behalf of the 20,000 men and women who serve with me out in the Middle East, it's an honor and a pleasure for me to be here with you today and participate in this hearing.
 Page 18       PREV PAGE       TOP OF DOC

    I, too, would like to submit my prepared statement for the record and I would just like to make four points before turning over to Admiral McGinn. The first point is that I am proud and I am sure you are, as well, of the record of performance of our naval forces in the Middle East. We've been there for 51 years. We believe we have been a force for peace, stability, and economic prosperity in the region. And we work hard each and every day to ensure that we stay there for another 51 years doing the important work serving the vital national interests of our nation.

    We've been tested in combat in a variety of real-world operations over the last several years and, in my view, we have executed to near-perfection in every single one of those operations. We appreciate the support of the United States Congress in providing for the forces that we have in the region. And, as I said, I'm very, very proud to serve out there with these fine men and women and I hope you are, as well.

    The next three points I would make, I would characterize as concerns. The first concern I have is that, as I said in my prepared statement, I believe we have adequate forces present in the region. However, I'm concerned that we frequently, in many instances, are not able to be as flexible and responsive as we need to be as we are faced with a number of important missions that have to be executed nearly simultaneously.

    My second concern is that, and it's not really my issue, but I'm aware of it, I have concerns about the effect we have on our adjacent theaters, the European command and the Pacific command. To maintain the force structure that we require in the Middle East, we frequently drawdown the forces in the European command and Pacific command and this is a concern for me.
 Page 19       PREV PAGE       TOP OF DOC

    My fourth point and my last concern, as I characterized it, is that we are also aware of the impact that maintaining our force structure, maintaining our readiness in the region, has on our forces stateside. It is clear, as we observe Admiral McGinn and Admiral Fallon in the Second Fleet make their preparations to deploy forces to our region, that they have to struggle significantly to develop the readiness, maintain the manning to push those ready forces forward to our theater.

    Those are the four points I'd like to make and let me now turn it over to Admiral McGinn.

    [The prepared statement of Admiral Moore can be found in the Appendix.]

    Mr. HUNTER. Thank you, Admiral.

    Admiral MCGINN. Mr. Chairman, Mr. Sisisky, distinguished Members. I'm Dennis McGinn, the commander of the U.S. Third Fleet. My area of responsibility is Eastern Pacific. I am principally responsible for preparing to deploy the carrier battle groups and Amphibious Readiness Groups of the Pacific Fleet to go to the Western Pacific in support of Seventh Fleet operations in that part of the Pacific Command and to continue on across the Indian Ocean to the Fifth Fleet area where they work for Admiral Moore and the Command in Chief (CINC) Central Command, General Zinni.

    On behalf of the fine sailors and Marines in the pacific, I want to thank the Committee and add my comments that it is an honor to be here. I want to thank you for the tremendous support, in particular, the wonderful things that you did for our sailors and marines last year in the pay triad and your continuing concerns on the readiness of the fleet, on the size of the fleet, and on the operational tempo.
 Page 20       PREV PAGE       TOP OF DOC

    I want to address in my opening statement, Mr. Sisisky, the comment that you quoted from my written remarks. I believe that we are able to carry out the national security strategy, but we don't have a lot of flexibility to do other things, other things that could and should be done: increase the presence; increase the bilateral and multilateral operations; increase support in the counternarcotics mission; better interoperability training with other services; support from our carrier battle groups for our Amphibious Readiness Groups in the form of cruiser, destroyer type combatants.

    If I had to rack and stack some of the key components of our ability out in the fleet, I would say that our force structure is even and I would describe it as barely adequate. The combat capability of that force structure is absolutely superb, principally due to the tremendous professionalism and dedication and talent of the great sailors and marines that man our fleet.

    Our readiness I would have said a year ago was flat or perhaps even declined, but, as a direct result of the investments that this Committee and the Congress have made in readiness accounts, I can report that we are seeing upward trends, but still have a ways to go in ship repair. We have a ways to go in spares accounts, but we are seeing very positive signs of an upturn in readiness.

    Recapitalization: At the rate at which we're replacing units of the fleet, I would describe as inadequate to maintain the force structure we have and the kind of combat capability that we have. The ships we are buying, as Mr. Sisisky said, are good ships, we're just buying them at the rate that we in the Navy would like to see bought, given the demands on our talents and on our relevance to the national security strategy.
 Page 21       PREV PAGE       TOP OF DOC

    Our modernization investment in the fleet I would describe as very, very positive. The kinds of capabilities, precision weapons that we are putting on our ships, the sensors, for the most part, are absolutely superb and are reflective of the kind of information technology that really makes us a world-class Navy.

    Last, I would have to give a double-thumbs-up to the sailors and marines that man our fleet. While we continue to work, very hard to recruit and retain these fine young Americans, their performance is absolutely superb. Whether it's in home port or in the far reaches of the world in support of the national security strategy, these fine young Americans are absolutely superb and they make our Navy and our Marine Corps team work.

    With that, I'd close my opening statement and I look forward to your questions.

    [The prepared statement of Admiral McGinn can be found in the Appendix.]

    Mr. HUNTER. Thank you, Admiral, and I'm going to hold off on my questions until we have a chance for everybody to ask questions. Mr. Sisisky.

    Mr. SISISKY. Thank you, Mr. Chairman. Admiral Moore, in your testimony and what you just gave right now, I think you basically said we have adequate forces in the region. I remember when you were with the Seventh Fleet and you were called to leave for a good deal of time. I think, what it, USS Constellation? What was the ship?

 Page 22       PREV PAGE       TOP OF DOC
    Admiral MOORE. No, sir. I was the commander of the USS Independence battle group.

    Mr. SISISKY. Independence battle group. Independence was called to go out. And what worries me—and I asked the question then in an open meeting. Of course, I got an explanation in a closed meeting—the next most dangerous spot in the world is what you left. And that's what's scary to me.

    Now, you know, every time I say that, somebody says, well, you probably want some more battle groups, carrier battle groups with destroyers and everything. And you're right. I think what's happening is—and not only did it happen that time. All right, but it happened last year again. I think you were off station for 89 days, if I'm not wrong about that. But that's kind of scary to do that, to leave the second most dangerous spot in the world, and maybe the most dangerous spot in the world, bare. The word ''adequate'' doesn't fit in there.

    Admiral MOORE. This is the point I tried to make. I said we have adequate forces for our region in the central region, but I'm concerned about the effect it has on the theaters adjacent to our region. And, as you point out, on two occasions in the last two years, we've had to deploy our four deployed aircraft carrier battle group in Japan to the Arabian Gulf in response to crisis there, resulting in leaving the Pacific Command without an aircraft carrier battle group. And, as you know, the aircraft carrier in the Pacific is key and critical to our ability to respond in the event we have a Korean contingency.

    So this is a major issue. This is, when it comes to our ability to provide naval forces around the world, the aircraft carrier and the battle group are the central centerpiece of our naval forces. This is where we have the most difficulty. This is where the hard choices have to be made by the Secretary of Defense and the Chairman of the Joint Chiefs and CINCs.
 Page 23       PREV PAGE       TOP OF DOC

    But we made those decisions because we did not have enough aircraft carrier battle groups to cover the regions. It's clear that the CINCs have all stated for many years, that they all would require an aircraft carrier in their region to deal with the potential threats, the threats that they face day in and day out. And we just have not had the force structure in the U.S. Navy to provide the CINCs with what they need.

    Mr. SISISKY. I just did now that the QDR, you know, that there was some doubt that it wasn't budget-driven. But this Committee, in the conference, insisted, you know, and they never report it, insisted that the next QDR be threat-driven rather than budget-driven. What do we need then? We make the decision, as Members of Congress, do we take the chance of that happening?

    Admiral McGinn and Admiral Moore—either one can answer the question—one of my problems, I hang around a lot of Navy people and I hear a lot of talk. And both from the Secretary's office, other people. And I used the expression about, you know, a lot of people think now that, with this high technology, that we just don't need a real large Navy. Now I also used the words that the seas haven't shrunk and you still have to get a ship someplace for it to be active. What are your thoughts on that? Do you think the high technology is sophisticated enough to demand a smaller fleet?

    Admiral MCGINN. I think it actually helps us a great deal. If you compared the 600-ship Navy, or nearly 600-ship Navy, of the late 1980s to the Navy of today, our Navy of today is far more capable because of the technology investments and the platform investments that we've made. However, quantity has a quality all of its own. And you can't be where you're not.
 Page 24       PREV PAGE       TOP OF DOC

    In the Pacific, we have a term called ''the tyranny of distance.'' It's a tremendously large ocean, as you know, and in terms of response to crisis and response to the places that we would like to be for a stability presence, for international exercises, if you don't have adequate numbers, no matter how capable they may be, if they're so far over the horizon, back in Continental United States (CONUS) or wherever, they're not going to be as relevant to the national security demands.

    But I must say that the technology we have invested in and the technology plan that we have in our future contained in this budget and in the Future Years Defense Program (FYDP) I think is exactly the right thing to do. To try to leverage as much capability, no matter how large or small a Navy may be, in terms of force structure, those technology investments are absolutely critical to meet the demands for precision and speed and accuracy that we all expect.

    Mr. SISISKY. Mr. Chairman, I also remind people all the time that we're dealing with ships that are fairly new. The big shipbuilding uplift in the 1980s and the late 1970s, but in ten years—and that's why the worry is—how many ships can you add on? We're going to be in trouble in 2010 or 2050. In my opinion, that is going to happen. And I think this, Mr. Chairman, this is going to be the debate of whether technology is going to be uplifting for the numbers or what. And I think that'll probably be—I'm predicting the debate in the next year or two—what will happen. Thank you.

    Mr. HUNTER. I thank the gentleman. Mr. Saxton.

    Mr. SAXTON. Thank you, Mr. Chairman. Admiral Lautenbacher, you've heard both the Chairman and Mr. Sisisky ask questions, I guess in a rhetorical sense at least, relative to the adequacy of the 305-ship force. I noted in your budget request this year that the projection in order to maintain that sized questionable force, and I think it was interesting that Admiral Moore pointed out the dangers of moving our carrier group from the Pacific to other trouble spots and leaving us with a potential problem in the Pacific.
 Page 25       PREV PAGE       TOP OF DOC

    But my question is this: Even if we accept the viability of a 305-ship force, the project eight to ten ships that we would acquire each year in order to maintain that level, once we get to the point where we're retiring the ships that came online in the 1970s and early 1980s, don't we run into a problem even sustaining the 305-ship force?

    Admiral LAUTENBACHER. Yes, sir. We will have to increase above the eight to ten level. And eight to ten, remember, is an average calculated over 30 years or so. There will be spikes in places where you will have to go substantially above that in order to replace the ships. And it depends on the classes of ships we're talking about. We talked about the submarine force. We bought a large number of submarines in a relatively short period of time and they will go out of commission starting beyond the 2015 point. So if you're going to replace those boats properly, you will have to then spike up to a certain extent, otherwise you will drop below the levels that are there.

    So it's not a perfect system, saying eight to ten every year. It will spike in peaks and valleys.

    Mr. SAXTON. Thank you. Let me turn to another subject. Earlier the Ranking Member, Mr. Sisisky, said words to this effect, that building more effective and efficient ships is desirable in that it enhances our mission capability. I think we can all agree with that. And earlier this year at a hearing, Congressman Kasich noted with some concern the rise of O&M accounts and the inefficiencies that seem to be inherent in those rises.

    Now I learned recently that the LPD–17 class of 12 ships replaces 41 obsolete ships and requires roughly 9,000 fewer officers and enlisted men to operate. That's quite a drop in force. If we assume that it costs $100,000 per average person on board these ships, including indirect costs like health and training, we would save approximately $900 million, if I'm doing my math right. And I suspect that there are some fuel savings and other things beyond that that could push the savings up closer to $1 billion.
 Page 26       PREV PAGE       TOP OF DOC

    And, if that's true, it seems to me that maybe we ought to put more emphasis on this program and other programs like it. Would you agree?

    Admiral LAUTENBACHER. I agree. Each of the new classes of ships that we are building, we have calculations for reduction in operating costs that we can share and show you that, by reducing the number of people onboard the ship and by automating some of our functions, we are going to be able to, and providing equipment that operates more efficiently, we are going to have significant savings.

    The DD–21 is a program, for instance, that will do that. The LPD–17 and our carrier programs, the development from the CVN–77 to the CVX–1, CVX–2 will lead to substantial savings and personnel costs. And that's why it's important to get on with recapitalization.

    Mr. SAXTON. And the LPD–17 program is working out well in regard to these efficiencies? Is that correct?

    Admiral LAUTENBACHER. We believe it is. We're at the front end of it. We're asking for authorization for the fifth and sixth ships. That class is just beginning construction at this point.

    Mr. SAXTON. Okay. Let me turn to one other subject. The budget request is $3.1 billion this year for three DDG–51s. These ships represent the last four-a-year, 12-ship, multi-procurement authorized in fiscal year 1997. This multi-year procurement authority was extended to 2003 to cover the remaining six ships.
 Page 27       PREV PAGE       TOP OF DOC

    Now I notice that there is a stretch of the buy, if you will, from six ships in two years to two ships each year with one added on at the end. So that we're buying, instead of six ships in two years, you're proposing to buy seven ships over four years. Is that correct?

    Admiral LAUTENBACHER. Yes, sir. That's the change that's been added this year.

    Mr. SAXTON. And does that give us the capability to bring enough ships online to do what is necessary, in your opinion? And how does that tie in with the DD–21 start-up? And when does the DD–21 begin to come online? There's actually two parts to that question.

    Admiral LAUTENBACHER. Sure. And that's a very good question. That's the future of our surface combatant line.

    We had originally intended that the DD–21 would be authorized in the first year, in fiscal year 2004. We had a requirement for 57 DDG–51s in which those last three that were three per year would fill out that requirement. As we've gone down the road and looked at the proposals that are coming in and have more of an understanding of the technology needed and the time needed and, from affordability points of view, we've rephrased this transition from the DDG–51 line to the DD–21 line.

    We still would like to continue to buy, if possible, in either multi-year procurement or block-buys of some sort if that will save us money. Obviously, we want to be efficient with taxpayer funds.
 Page 28       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Does the cost—excuse me—does the cost of acquiring two a year jump per unit, when we decrease from buying three a year?

    Admiral LAUTENBACHER. It does. The cost does increase, as you reduce the number of units.

    Also inherent in that surface combatant line is a need to maintain the industrial base. So we are trying to maintain enough, with the money that we have, enough work in there to keep the industrial base at the levels necessary to support the size of the Navy. Obviously, it would be more efficient to buy at three per year.

    Mr. SAXTON. Presumably, that high-tech industrial base will be absolutely essential—I know it's essential—for the DD–21, as well.

    So this is my final question, Mr. Chairman. I'm sorry. I know I'm over my limit, but is there a danger of losing some crucial aspect of that industrial base? I mean, those folks are highly trained, engineering type people who put these systems together and make them operate. And have you—obviously you have looked, apparently, at the effects of these kinds of actions on taking down that industrial base.

    Admiral LAUTENBACHER. Obviously, this would not be our choice to do it this way. If we could maintain the level that we had, we would. We believe, after looking at it, that we are on the acceptable edge of maintaining that industrial base. And I would defer those questions to our shipbuilding experts here today. But our look at it is we're trying our darnedest to make sure that we keep that industrial base intact. We believe we're on the lower fringes of it, at this point.
 Page 29       PREV PAGE       TOP OF DOC

    Mr. SAXTON. Thank you, Admiral. Thank you, Mr. Chairman.

    Mr. HUNTER. Thank the gentleman. Mr. Allen.

    Mr. ALLEN. I thank the Chairman very much. I'm going to pursue that line you just finished, Admiral Lautenbacher. I want to thank you all for being here today. This is a subject of enormous importance to the military and to the country as a whole.

    I want to mention a couple of things that have been said in the past and will be said later today by Mr. O'Rourke. In his testimony, Mr. O'Rourke notes his 1994 CRS report and he says, in his current testimony, ''Although six years have passed, the basic thrust of the 1994 report would appear to remain broadly true: Reducing the DDG–51 procurement rate to two ships per year could place the two yards under financial pressure unless substantial,'' and I underline substantial, ''amounts of non-DDG–51 were added to the workloads of the two yards.''

    In August of 1996, when the Deputy Assistant Secretary of the Navy for Ships briefed the industry on the DDG–51 program and said, again, ''It is critical to stabilize the industry at three DDGs per year.'' And he went on. And, in 1993, a Navy Arleigh Burke class industrial base study said, ''Reducing the sustained annual buy to less than three ships per year could result in the closure of one yard if no other work is available, damage to the vendor base and erosion of the combat system engineering base.''

    If I just contrast, I want to look at six years and the fiscal years 2002 through 2007, contrast what was in the plan last year with what's in the plan this year. Last year, the plan was, in fiscal year 2002, for three DDG–51s, now it's two. Fiscal year 2003, three DDG–51s, now it's two. Fiscal year 2004, there were zero DDG–51s, now there are two, but there was one DD–21, now there's zero. So in each of those three years, we've gone from three ships to two.
 Page 30       PREV PAGE       TOP OF DOC

    Then we go to fiscal year 2005. We now plan one DDG–51 and one DD–21. So, again, where we had three DD–21s, now you've got two ships.

    Then you go to fiscal year 2006, you had three ships before, now, at least so far, there are no ships in that budget.

    Then you go to fiscal year 2007, you've got two DD–21s instead of three.

    So we have six years where, instead of three surface combatants, you're down to two.

    I have enormous concerns, and I guess I would like to hear—let me say one more thing. I might as well put both my questions at once. One question is can you react in more detail to these warnings about the risks of dropping below three surface combatants a year? That's one question.

    But the second point is this: The LPD–17, some of that work is going to go to the two yards. But there's a great difference in the work. It's my understanding that a DDG–51 is about 70 percent complex outfitting; about 30 percent structural. Whereas an LPD is about 30 percent complex outfitting and 70 percent structural.

    The skills the workforce needs are quite different for those ships. And I am very worried, that to go to a level of two surface combatants a year for six years is more, as you put it, you said, ''We're on the acceptable edge of our industrial base, the lower fringes.'' Why shouldn't I conclude that we're actually below the line? That we really—this is the kind of risk that we shouldn't tolerate as a country? A risk to our industrial base and a risk to this entire program. It seems to me that there's no room to maneuver and that we have to, at some point within those six years, get back to a higher rate.
 Page 31       PREV PAGE       TOP OF DOC

    And if I could have your comment on the three ships per year and then on the difference in workload required or the difference in skill sets between the LPD and the destroyers, that would be helpful.

    Admiral LAUTENBACHER. Yes, sir. Obviously, we would prefer to buy them at three per year, because that's the requirement. The bottom edge of the requirement to replenish our force at 116 surface combatants, if you believe that the 300-ship Navy is roughly right. So you need at least three, from a requirements point of view, and, remember, I'm the requirements guy and not the acquisition guy, so you're getting comments that are maybe not totally authoritative when I talk about the acquisition side of this issue.

    But from a requirements point of view, we absolutely need the three a year, otherwise we will have to, as suggested earlier, extend the lives of ships to retain our force at the proper levels.

    We would prefer to buy three a year. The reviews that have done, conducted by our acquisition folks, and they have told me that they believe that we are, as I said before right on the border, but that we can't execute this for a few years.

    Now, as regarding to the six years, as I said earlier, we're very happy with eight ships in fiscal year 2001, because it's more than two more than we had last year. But our program for the whole long-range is really not adequate at this point. The outyears, as we say, are not at the levels that are needed if we are going to continue to have a force of at least the size that the last Quadrennial Defense Review (QDR) reported.
 Page 32       PREV PAGE       TOP OF DOC

    Now, as far as fiscal year 2006 and fiscal year 2007, really, they're not in the program yet, so it's somewhat speculative to argue as to exactly what will be in those years, but I can tell you that we'll have to put more money in those two years if we are going to increase above the levels which you suggested may be part of that program or could be part of that program.

    Mr. ALLEN. Have you taken into account the difference in requirements between an LPD and a destroyer?

    Admiral LAUTENBACHER. Our acquisition folks have looked at that and, of course, we agree with you. There's a different skill set, a different mix of skills that you would put to work in building those platforms. And, again, I defer to our shipbuilding representatives here today to give you more details on that.

    And it does make a big difference, I mean, whether you're working on a DDG or an LPD–17. I have no issue with that.

    Mr. ALLEN. Thank you.

    Mr. HUNTER. I thank the gentleman. Mr. Thornberry.

    Mr. THORNBERRY. Thank you, Mr. Chairman. Admiral Lautenbaucher, I would like to visit for a second about Trident conversion. There is concern among some observers that when a new idea floats in the Navy, if it is perceived to be some threat to some existing system, that it gets shot down. And some people would cite the Arsenal Ship and some other examples for when that has actually happened. And there is some concern of that nature that may apply to this idea of converting some of the Tridents to carrying Tomahawks and for other purposes.
 Page 33       PREV PAGE       TOP OF DOC

    I know in last year's Defense Authorization bill, we expressed, House and Senate, enormous frustration about getting the analysis and the information from the Pentagon at what was being looked at. And we see this week, as a matter of fact, press reports that the Office of Program Analysis and Evaluation has come out and said it looks like a pretty good idea. That core missile is actually cheaper than the DD–21 when you look at Tomahawks and it also frees the destroyers to go do other missions.

    So I guess, first, I would like to know what the status of this is. I understand maybe the Joint Requirements Oversight Council (JROC) will be looking at this. Press reports indicate a decision will be made in the next six months. Where are we with this? Will the Congress be able to look at this study and other analysis trying to see whether this is something that makes sense and how much it's going to cost?

    Admiral LAUTENBACHER. Yes, sir. I would like to think that we do not discourage new ideas and innovation. We're always looking for new ways to do things better. And, as I've testified before, the Trident Conversion is a very promising idea. And the Secretary of the Navy has testified of his personal support for this program. It has been included, the option to continue with the conversion, has been included within our budget. There is money specifically set aside to continue the design of the conversion program.

    In terms of finishing where we go and where we make the decision in terms of how many and when will be done in this next year. Because we will start running out of the time that we have to determine what to do with these four Trident submarines.

 Page 34       PREV PAGE       TOP OF DOC
    In our long-range planning, there has been inserted, I won't call it a positive wedge, of money which can be applied either to refueling—it's suggested that it can be applied to either refueling Los Angeles class submarines or to the beginning of the conversion of the SSGNs. This is an improvement over last year's position because this represents resources that could be used and applied in that direction.

    During this year, we are working on a mission element needs statement, which will go to the JROC. As you suggested, the Program Analysis and Evaluation (PA&E) has done some work and, obviously, we will answer any questions that Congress has regarding efficiencies, costs that you need to know.

    Mr. THORNBERRY. Well, it's not really—is it a choice, necessarily, between refueling the Los Angeles class subs and converting the Tridents? Is that an either/or situation?

    Admiral LAUTENBACHER. It may not be. The money that has been earmarked in the outyears that's there right now is not sufficient to do everything. So we would have to make some choices or we would have to allocate more resources to do that. There are obviously a number of people who think that both of those programs would be quite beneficial to the country.

    Mr. THORNBERRY. Is it true that the PA&E analysis says that it's cheaper per missile to put these Tomahawks on a converted Trident rather than the DD–21?

    Admiral LAUTENBACHER. Well, there's different interpretations of that analysis. It depends on the presence and the use of the ship. And I would offer to you that there are other analytical results which could give you a different answer, let's put it that way.
 Page 35       PREV PAGE       TOP OF DOC

    Mr. THORNBERRY. Well, it is a matter of some concern that the budget would ask for $35 million and we're not seeing the analysis that's going on and looking at the various options.

    But let me ask you this. I understood last year that the design work needed to begin in earnest in 2001 in order to be ready to do it when these ships come offline in 2003, 2004. Is that the timeframe, basically?

    Admiral LAUTENBACHER. I personally believe, and, again, we have been gradually pushing this, that, at this point, we need to make this decision before we submit the fiscal year 2002 budget. I mean, we will have to come to grips with this and decide exactly what it is that we're going to do with these boats. Our flexibility for deciding that option starts to get pretty tight.

    Mr. THORNBERRY. Let me ask you one brief last question. Obviously, arms control gets to be an issue here. Do you know of any discussions with the Russians about a waiver dealing with the possible conversion?

    Admiral LAUTENBACHER. I do not know of any ongoing discussions with the Russians. I know that our folks have discussed it internally as to how they would approach the issue. It is a very difficult issue to bring online at this point.

    Mr. THORNBERRY. Thank you, Mr. Chairman.

 Page 36       PREV PAGE       TOP OF DOC
    Mr. HUNTER. Thank you. Mr. Maloney.

    Mr. MALONEY. I have no questions.

    Mr. HUNTER. Mr. Pitts. He's out too? Okay. Mr. Taylor.

    Mr. TAYLOR. Thank you, Mr. Chairman. Especially since I'm not a Member of your Subcommittee, I'm very appreciative.

    Admiral, I have some questions for the record I'd like—as you know, we're on a very expedited schedule. So I hope we can get some expedited answers, since we're trying to do good things for the Navy.

     Admiral LAUTENBACHER. Yes, sir.

    Mr. TAYLOR. In particular, what I'd like to focus on is I'm very much aware of the DD–21 program and the incredible investment decisions you're making in trying to make that a worthwhile project. I'm also familiar with the fleet shortages and all the other problems that have been thrown out at you.

    To what degree of certainty do you and the other senior decisionmakers of the United States Navy have that we are going to be able to have a seamless transition from the DDG–51 program to the next DD–21 program? In particular, I'm talking about keeping the industrial base together, the suppliers and the skilled people that a lot of other people around the country are trying to hire those skills away. They've got families; they've got mortgages to pay kids to send to college. And they, quite frankly, can't sit around and twiddle their thumbs for a year or two if the Navy quits building 51s one year and waits a little while to get into the next program.
 Page 37       PREV PAGE       TOP OF DOC

     What are the Navy's plans and how quickly can the Navy shift funds around should there be some sort of a delay in shifting from one to the other?

    Admiral LAUTENBACHER. What I would like to say is we are, obviously, very committed to trying to make this transition as smooth as possible, because we're very concerned about the surface combatant industrial base and we want to maintain it at the right levels for our country. And I would point to the fact that the extra DDG was added in so that we could at least have two per year. That may be at the edges of satisfactory procurement, but it, at least, is an indicator of our desire to try to maintain that industrial base.

    So, to the best of our ability, we are trying to match up the completion of the DDG–51 line with the start up of the DD–21 line. It's always a difficult time when we switch from one production run to another and I remain concerned, as I said, because our outyear projections for Shipbuilding and Conversion, Navy (SCN) are very tight at this point, but we remain committed to doing our best to maintain that industrial base.

    Mr. TAYLOR. What did the Navy ask for as far as 401 funds for LHD–8 this year?

    Admiral LAUTENBACHER. We have requested $1.2 billion in our submission to Congress, our Over Core Submission COO testified to that as well.

    Mr. TAYLOR. But for number eight?

 Page 38       PREV PAGE       TOP OF DOC
    Admiral LAUTENBACHER. For number eight.

    Mr. TAYLOR. Okay.

    Admiral LAUTENBACHER. We view that as a requirement. We need to build that ship. We're very appreciative of the appropriations and the authorization by Congress to begin that ship. We've requested release of the money. We have a plan to start the design and buying the long-lead and advanced components for the next, for LHD–8. And we are very hopeful that we can continue with that in a timely manner.

    Mr. TAYLOR. Well, as I said, Mr. Chairman, you've been very generous to give me any time at all, so I will supply my questions for the record and I do hope that since we only have a few weeks until markup that you could expedite your reply to them.

    Admiral LAUTENBACHER. We'll do that, Mr. Taylor.

    [The information referred to can be found in the Appendix.]

    Mr. TAYLOR. Thank you, sir.

    Mr. HUNTER. Mr. Evans.

    Lane, you didn't have any questions? Okay, thanks.

    Admiral McGinn and Admiral Moore, you obviously have a firsthand look at the stretching effect of this relatively low number of naval ships on your operational requirements. We're talking about ship numbers today. In your estimation, Admiral McGinn, do we have enough ships in the U.S. Navy?
 Page 39       PREV PAGE       TOP OF DOC

    Admiral MCGINN. To do all of the things that we could and, in my view, should do to support the national security strategy, no.

    Mr. HUNTER. What do we need? From your personal perspective, where do you place the number?

    Admiral MCGINN. In the big picture, I would refer back to Admiral Moore's comments about numbers of battle groups and numbers of Amphibious Readiness Groups. If we were to meet the requirements of the three major geographical CINCs, we need 15 carrier battle groups and 14 Amphibious Readiness Groups. The QDR number, as Admiral Lautenbacher said, was 12 of each of those essential elements of naval war fighting power.

    So if you—

    Mr. HUNTER. So you don't think the QDR is accurate? Is sufficient?

    Admiral MCGINN. It is not adequate to meet the requirements, as they are stated by the geographical CINCs, no, sir.

    Mr. HUNTER. Okay. What numbers are you looking at, if you translate those battle groups into numbers?

    Admiral MCGINN. I would say that the number would approach 350.
 Page 40       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Okay. Admiral Moore, What do you think? Do we have enough ships? And, if not, where do you think we should be? I need a picture of your personal observation.

    Admiral MOORE. I agree completely with Admiral McGinn. I would just add that I think that, you know, when the QDR was developed, we couldn't see into the future. And if you look at our practical experience, day in and day out, we're being tasked at a level beyond what was envisioned at that point. And in our theater, we see this happen day in and day out. I've already cited the example of the aircraft carrier battle groups and our Amphibious Groups.

    For instance, I have a requirement for an Amphibious Readiness Group 365 days a year. I am provided one 180 days a year. When we have, for instance, right now, as we speak, we have a war going on in Eritrea and Ethiopia where we have Americans in our embassies. We have Americans there in both those nations and we're struggling to figure out how we would conduct a non-combatant evacuation operation without the presence of an Amphibious Readiness Group. That's just one example.

    Mr. HUNTER. Okay. Would you, if you were trying to peg a number, big picture, do you agree with Admiral McGinn's 350 number?

    Admiral MCGINN. I agree with 15 aircraft carrier battle groups, 14 Amphibious Readiness Groups. And I think that'll come out around, if you do all of the support ships, I think that'll come out about 350.
 Page 41       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Okay. Attack submarines, gentlemen. Where should we be?

    Admiral MCGINN. We're really, as we are in other classes of ships, Mr. Chairman, stretched on attack submarines. We have a requirement to work up the Amphibious Readiness Groups and carrier battle groups. And we do that by using opposing forces, or simulated opposing forces, some of these in the area of critical naval mission area of anti-submarine warfare. We use our SSNs to do that. We find, of late, over the past couple of years, that we're really having to stretch to get the kind of exposure we need to get to the level of Anti-Submarine Warfare (ASW) proficiency because of the high demands made on our attack submarines, so I would describe our situation in terms of SSN force rationale as very tight and, if we continue to decommission our Los Angeles class submarines, to get even tighter in the future.

    Mr. HUNTER. Okay. Well, the QDR's down to 50. There have been a number of studies, as you know, over the years, some classified, some not, but ranging upwards of 70, in recent years close to 70 and abouts. What do you think?

    Admiral MCGINN. I would, not being familiar with all of the studies, classified and unclassified—

    Mr. HUNTER. But just looking at it from your own perspective.

    Admiral MCGINN. From my own perspective, I would say that it would be in the area of 60 submarines that I would put as a floor.
 Page 42       PREV PAGE       TOP OF DOC

    Mr. HUNTER. A floor of 60. Admiral Moore.

    Admiral MOORE. Well, with the number of submarines we have today, the system only allocates me one in my region. And I can tell that, day in and day out, I need at least two. I think we make a strong case for four. The submarine is an excellent platform, stealthy platform, to fire Tomahawk missiles from. We use the submarines extensively for indications and warning and intelligence gathering. And, of course, we see the threat developing in our region. The submarine threat is developing significantly in the region.

    So I believe we need more submarines. I don't know what the top-line number is. We need enough to give me more than one in my region, I guess would be the way I would put it.

    Mr. HUNTER. Okay. Admiral Lautenbacher, you've listened to the gentlemen that are using the equipment that place the number of ships around 350, which I think is a reasonable number. I think that's been—a number of experts in this area have come in with the same number. And attack boats, Admiral McGinn says 60.

    What does that require in terms of annual shipbuilding, if we were going to put 350 as a number?

    Admiral LAUTENBACHER. You would have to—

    Mr. HUNTER. A 16 fleet number.
 Page 43       PREV PAGE       TOP OF DOC

    Admiral LAUTENBACHER. You would have to increase the SCN budget to about $16 billion to $18 billion a year to do that.

    Mr. HUNTER. Okay. And what would that, in terms of ships per year, what would we have to build?

    Admiral LAUTENBACHER. You would have to have about 14 ships a year, something like that. It would depend. Because you would have to build up to that. You know, again, it depends on the spikes and ups and downs, but you would have to have significant numbers more than we have now. It's certainly not eight to ten. It's 12 to 14, something like that.

    Mr. HUNTER. Okay. When you say 12 to 14 boats: attack boats.

    Admiral LAUTENBACHER. No, I'm talking overall, the ships.

    Mr. HUNTER. I understand.

    Admiral LAUTENBACHER. Okay.

    Mr. HUNTER. Drop down to the subset of attack submarines. What do you think, production per year?

    Admiral LAUTENBACHER. I support the studies that have come out and, obviously, if you want to go back up to something like 68 or 70, you have to have about three per year to do that.
 Page 44       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Okay. How about to maintain 60?

    Admiral LAUTENBACHER. Well, between two to three, if you want—

    Mr. HUNTER. So, basically, we've got, we've blueprinted one per year.

    Admiral LAUTENBACHER. We have one per year, yes, sir. That's what we've got.

    Mr. HUNTER. Okay.

    Admiral LAUTENBACHER. And we'll have to increase it to 2 just to maintain the 50 and maybe to 3 for at least several years to keep that up.

    Mr. HUNTER. Okay. Admiral Lautenbacher, then would it be fair to say that this shipbuilding budget is inadequate to maintain the required naval forces?

    Admiral LAUTENBACHER. I'd like to caveat my answer just a little bit. The fiscal year 2001 budget that we're supporting today is adequate for today. We are going to need a lot more as we go into the outyears. In other words, we have eight ships in today's budget—

 Page 45       PREV PAGE       TOP OF DOC
    Mr. HUNTER. But if we want a steady-state, maintain a 350—build to and maintain a 350-ship Navy?

    Admiral LAUTENBACHER. Then it's inadequate.

    Mr. HUNTER. Then it's inadequate.

    Admiral LAUTENBACHER. For a 350-ship Navy.

    Mr. HUNTER. Do you agree that a 350-ship Navy is required?

    Admiral LAUTENBACHER. I have testified for the past two years and I'll testify again that 15 carrier battle groups and 14 ARGs meets the requirement and that the size of the Navy that balances that is about 360 ships.

    Mr. HUNTER. Then this budget fails to maintain the steady-state requirement in building to a 350-ship Navy. Is that accurate?

    Admiral LAUTENBACHER. It does not build to that requirement. It builds to the QDR requirement of approximately 300.

    Mr. HUNTER. Now, do you think it even builds to the 300? 39 ships over five years?

    Admiral LAUTENBACHER. In fiscal year 2001, it is okay. In the outyears, it needs to be increased.
 Page 46       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Okay. Have you made recommendations to increase this budget to your superiors?

    Admiral LAUTENBACHER. Yes, sir.

    Mr. HUNTER. What's the answer?

    Admiral LAUTENBACHER. The answer is there's only so much money and you do the best with what you have.

    Mr. HUNTER. Okay.

    Admiral LAUTENBACHER. But we make difficult decisions between today's readiness and tomorrow's readiness.

    Mr. HUNTER. Okay.

    Admiral MCGINN. Mr. Chairman, if I could add a comment to Admiral Lautenbacher's. I think that, given the top-line that we have, I think the investments in terms of the investment decisions are balanced, based on what I'm seeing out in the fleet. We have to take care of the people. We have to take care of the readiness of the ships and aircraft and submarines we have out there to do the missions today. But that comes in direct tension with our need to recapitalize and invest in the future.

 Page 47       PREV PAGE       TOP OF DOC
    Mr. HUNTER. So what you're saying is the top-line is too low.

    Admiral MCGINN. Yes, sir.

    Mr. HUNTER. Okay. Where do you think the top-line should be, Admiral McGinn?

    Admiral MCGINN. I think it's a start. The above-core requirements list that the Chief of Naval Operations sent over would be a good start.

    Mr. HUNTER. That's the unfunded requirements?

    Admiral MCGINN. Yes, sir.

    Mr. HUNTER. Well, that's $16 billion a year. I mean, that's overall; that's DOD-wide. And it's, what, it's about—

    Admiral MCGINN. For 2001, I think it's about $5.7 billion.

    Mr. HUNTER. $5.7 billion for the Navy.

    Admiral LAUTENBACHER. It's $32 billion for the rest of the program.

    Mr. HUNTER. But that still, Admiral McGinn, doesn't increase your shipbuilding requirements to what it would take to maintain a 300-ship Navy, much less a 350, does it?
 Page 48       PREV PAGE       TOP OF DOC

    Admiral MCGINN. I believe it would maintain a 300-ship Navy, Mr. Chairman.

    Mr. HUNTER. But not a 350.

    Admiral MCGINN. No, sir.

    Mr. HUNTER. Okay. Admiral McGinn, I've gone over your statement and yours too, Admiral Moore and Admiral Lautenbacher. But I thought, Admiral McGinn, your statement is, I mean, if you read this thing, this thing is a cry for help. You've got every page is filled with some fairly profound inadequacies. You've got, you say, guidance from a chief—third page—guidance from the Chief of Naval Operations states that, ''Each carrier battle group should contain six surface combatants, however, due to limitations, because of limited force structure, we only deploy with four.''

    You go to page number five. You say there are critical shortfalls. ''There are shortfalls in numbers of critical systems that inhibit our ability to train effectively.''

    You go to number seven. You say, ''There is no longer a sufficient number of Tomahawk missiles to fully load every deploying ship.'' You further say, ''Training missile and weapon expenditures are also underfunded. Naval aviation squadrons don't have sufficient numbers of precision-guided weapons with which to train. As the demand for precision and speed grows, we must provide air crews with an adequate number and we don't have them.''

 Page 49       PREV PAGE       TOP OF DOC
    Number eight. You say that, because of encroachment, it's getting much more difficult for naval forces to conduct full-spectrum mission training.

    I mean, this thing goes on and on. ''We don't have an ability to stretch forces,''—you talked about that a little bit—''in support of major theater of war contingencies.''

    I mean, I think, gentlemen, I think, nationally, I think the debate has gained some visibility and the major problems that the military has now have been placed on American television screens and before some pretty wide audiences. But I think we've gotten almost to the point where you gentlemen need to be pounding the tables with your leadership and with the Commander-in-Chief. And I think we in Congress should be doing exactly the same thing. I mean, this idea that we're moving, slowly sinking, into this morass of inadequacies, across the spectrum, the most visible of which, I guess, the most dramatic of which is the lack of a sufficient shipbuilding rate.

    And we all understand it and we all acknowledge it. And yet we're executing this plan, which we all agree is inadequate. And, correct me if I'm wrong, but this is going to translate or could translate into significant American casualties in time of war. Is that accurate?

    Admiral MCGINN. In all of the things that you highlighted, Mr. Chairman, from my statement, the way we deal with all of those is through operational list management. That's what the big phrase is, ''operational risk management.''

 Page 50       PREV PAGE       TOP OF DOC
    Mr. HUNTER. That means more casualties, if times get tough.

    Admiral MCGINN. Yes, sir. We're trying to make the best judgments with the resources that we have available, both in terms of assets out there in the fleet that are used by Admiral Moore and I and Admiral Doran out in the Western Pacific, as well as the investments for the future that Admiral Lautenbacher is making, as well. But, clearly, there is a risk entailed, whether it's the risk of losing an opportunity to contribute to the stability of a region or the risk in wartime of casualties if you're not in the right place at the right time.

    Mr. HUNTER. Okay. Let me just ask, then, a last question for the record, gentlemen. And I'll start with you, Admiral Lautenbacher. In your personal opinion, you're looking at the big picture, where should we be in terms of shipbuilding numbers on an annual basis?

    Admiral LAUTENBACHER. From a personal opinion, I think we need to go back to a level of 10 to 14 ships per year. I think that would help meet the national needs and the threat that's out there today.

    Mr. HUNTER. Okay. 10 to 14. Okay. Admiral Moore.

    Admiral MOORE. I believe we should strive to satisfy the requirements that have been stated by our unified commander-in-chiefs for decades and those translate into the numbers we talked about earlier: 15 aircraft carrier battle groups, 14 Amphibious Groups, and 350 to 360 total ships in our force. This is what the CINCs have asked for. We've not been able to provide that for the several years and I think that's what we should attempt to accomplish.
 Page 51       PREV PAGE       TOP OF DOC

    Mr. HUNTER. And that would require?

    Admiral MOORE. That would require the numbers—I would defer to Admiral Lautenbacher as our expert on—

    Mr. HUNTER. But that would require—but that's the basis, Admiral Lautenbacher, for your 10 to 14 ships a year? Admiral McGinn.

    Admiral MCGINN. I agree with Admiral Lautenbacher and Admiral Moore, Mr. Chairman. I would also add that the kinds of numbers in that increased recapitalization rate, if we could afford it, will have the added benefits of reducing the exposure of people by a lower manning profile out there in harm's way and it will reduce the operating costs significantly as we invest in more smart ship technology in our existing ships, as well as design them like we are DD–21 from the keel up as smarter ships.

    Mr. HUNTER. Okay. Thank you very much. Gentlemen, thank you for your participation today and all of your statements will be I think pretty carefully read by the Subcommittee and the Full Committee.

    Mr. SISISKY. Mr. Chairman, before you—

    Mr. HUNTER. Yes, sir.

    Mr. SISISKY. I would like to thank you, particularly, for your appraisal of this. When I quoted you, Admiral McGinn, in the opening thing, I said that it certainly seems to be a case where the operational side may have some issues with the budgeteers. And we don't usually hear the kind of expression that you made today. And I just want you to know that I appreciate it. I'm sure that you'll be reading about this somewhere. [Laughter.]
 Page 52       PREV PAGE       TOP OF DOC

    Admiral MCGINN. Yes, sir. I can't wait to get back to sea.

    Mr. SISISKY. I'll bet. [Laughter.]

    Mr. HUNTER. It may be sooner than you think, Admiral. [Laughter.]

    But, thank you. No, we do appreciate your candor, gentlemen, but I think the whole country does. I think one reason we respect the uniformed services is because you tell it like it is and we need that, I think, more than ever. Thank you for being with us today.

    You know, we were going to go to our second large panel, which was Mr. Ron O'Rourke, but I know we have, of our shipbuilding panel, I understand several of them have schedule problems. So, Ron, with your indulgence, could we go to the third panel and then we'll have you back, clean up, here. How is that? Is that okay? Okay.

    So Ms. Cynthia Brown and Mr. William Fricks and Mr. John Welch and Dr. Larry Cavaiola. Okay and, Cindy, did you want to lead off? You are often our lead-off hitter, you know, in these things, but however, ladies and gentlemen, however you want to go, we'll accommodate that.

STATEMENT OF CYNTHIA L. BROWN, PRESIDENT, AMERICAN SHIPBUILDING ASSOCIATION

 Page 53       PREV PAGE       TOP OF DOC
    Ms. BROWN. I think so. Thank you, Mr. Chairman, Mr. Sisisky, Members of the Committee.

    Mr. HUNTER. You might pull that mike up just a touch here, Cindy.

    Ms. BROWN. The American Shipbuilding Association (ASA) represents the six largest shipbuilding in the United States. You both know we are Avondale Industries of Louisiana, Bath Iron Works of Maine, Electric Boat of Connecticut, Ingalls Shipbuilding of Mississippi, National Steel and Shipbuilding Company of California, and Newport News Shipbuilding of Virginia. These shipbuilders build all of the capital ships for the United States Navy. And we build large oceangoing commercial ships.

    During the 1980s, as you said, the Navy ordered, on average, 19 ships per year. In the 1990s, the average rate of Navy ship production dropped to six per year. As a result, our industry has been forced to lay off its workforce by more than 33 percent, falling from over 82,000 in 1991 to 54,000 today. We've also had to reengineer our companies in order to reduce our costs and continue to provide the most sophisticated ships in the world at an affordable price.

    The most important cost saving in ship reduction is stability. Large swings in the number of ships ordered is extremely costly to ship builders, to the Navy, 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 try to later recruit, hire, retrain new workers when production rates increase. 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 produce stable shipbuilding programs.
 Page 54       PREV PAGE       TOP OF DOC

     The Navy's fiscal year 2001 budget is based on a force structure levels of the May Quadrennial Defense Review, as we've heard today, of 1997. This assessment determined that the Navy could not afford to allow the fleet to fall below a minimum of 300 ships and still meet the nation's security requirement. However, shipbuilding budgets have not been providing a 300-ship fleet. For the past seven years, an average of only six ships have been procured. This is four ships, as this chart shows over here to my left, below the stable rate of ten ships per year, which is required to sustain a 300-ship Navy.

    Today, the Navy faces a shortfall of 32 ships less than the 300 ships required. And if the Navy's future year defense plan is followed, by 2005 that shortfall will grow to 43 ships. And the fleet will continue to shrink well below 300.

    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 of 300 ships. Should Congress and the Administration decide to increase naval shipbuilding, industry urges the 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 few quantities. 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 support's for multi-year procurement contracting on the DDG–51 class of destroyers and encourage extending this type of contracting to other ship classes, like submarines. This type of contracting method allows the shipbuilder to buy materials in quantity and systems for multiple ships of the class. This produces significant savings versus the one-off type of buy that we currently do.
 Page 55       PREV PAGE       TOP OF DOC

    For other ship classes, such as the LHD class of large-deck amphibious ships and the next class of aircraft carriers, the CVNX, 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 ship types is bought 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 lines of other ship classes could be prevented.

    For noncombatant ships, ASA applauds this Committee for your support of giving the Navy long-term lease authority for noncombatant or commercial-like ships. However, the Navy will not be able to use this authority until Congress defines these as operating leases to allow the annual budgeting for the actual lease payment of the ship. Currently, these leases are defined as capital leases. This requires the Department to budget and seek the budget authority for the entire 25-year period of the lease in the first year. This nullifies the benefits of leasing.

    Mr. HUNTER. It's basically like a purchase.

    Ms. BROWN. Exactly. Exactly. Long-term leasing is used extensively by the commercial shipping sector and the Navy should be able to use the same practice in leasing or in acquiring the services of its commercial-type 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 to the Navy shipbuilding programs commercial technologies and manufacturing processes. These processes help to improve the quality of Navy ships and to reduce the costs.
 Page 56       PREV PAGE       TOP OF DOC

    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 costs and improved quality naval ships. To this end, we ask this Committee to authorize and to support adding $48 million to the Maritime Administration's Title XI Ship Loan Guarantee Program to provide for $50 million a year. This would generate $1 billion in commercial ship construction in the United States.

    Among other important legislation before this Congress, and, Mr. Chairman, I commend you for your vision in recognizing the importance of the cruise ship market in the United States, is H.R. 3392, your bill, the All American Cruise Ship Act of 1999. If enacted, this legislation, your bill, would give American builders and American owners of cruise ships tax parity with foreign cruise ship companies that operate from our shores. 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 will strengthen and support our national security.

    In closing, a 300-ship Navy will not be sustained without more than ten ships per 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.

 Page 57       PREV PAGE       TOP OF DOC
    Thank you very much.

    [The prepared statement of Ms. Brown can be found in the Appendix.]

    Mr. HUNTER. Thank you very much, Ms. Brown. And you have been a very articulate and forceful spokesman for your industry and we appreciate you. And, Mr. Fricks, are you the gentleman who had to move out shortly I think at, what, at 3:45 or 4:00? So why don't you go next, unless you have another designated order you'd like to go to.

STATEMENT OF WILLIAM P. FRICKS, PRESIDENT AND CEO, NEWPORT NEWS SHIPBUILDING

    Mr. FRICKS. No, that's fine, Mr. Chairman. I appreciate that. We shouldn't let Cindy go first. She does such a good job of covering our industry and all of the points.

    Clearly our job, obviously, is to build the ships for the Navy and build them in the cost-efficient way possible. And a couple of things that Cindy mentions are basically almost immutable facts in our industry because of the high fixed costs of shipyards and the capital investments in it and it's a higher goal rate is going to result in lower costs per ship and stability is going to result in lower costs per ship.

    Now, keeping those two things in mind, let me talk a little bit about the general health of our industry. It just so happened the last few days I've been in New York talking to new investors and defense analysts and their views on our industry. And it's not that good.
 Page 58       PREV PAGE       TOP OF DOC

    First of all, why should we care what people in New York think about our industry? Well, for starters, they provide the cash and investments to us so we can buy the technology and equipment to lower the costs to the Navy. So, for that reason, it's important.

    I mean today Wall Street sees companies in two major categories. One is growth companies, the dotcoms that we've all invested in and have skyrocketed in value companies and those the predictable companies with predictable earnings and stability that they can count on. And you've got to be in one of the two of those categories or you're in the water and you're in trouble and you don't get the investments.

    Their concern with our industry is the stability of it. The things we heard today from the Navy: How many ships are you going to build; the requirements; and why don't they build the requirements? We invest in these companies and then it never happens. Well, without stability and a reasonable build rate, we can't even hire and maintain the workers that we need. And we certainly can't attract the technology that we need and to put in the equipment, because we don't have the investments from the Wall Street area. And we can't deliver the most cost-efficient ships to the Navy if we don't have stability and a reasonable build rate.

    Now you asked at the start of this, you know, are we building enough to suffice for our industry? I guess my quick answer is absolutely not. We're barely getting by, as Admiral Lautenbacher said. If we built to the level of the requirements of what we said here, the answer would be yes. But we're not doing that. It's very frustrating from our standpoint. It's almost like we all agree the Navy and the Congress all agrees that we're going to go to vacation in Florida and we go out I–95 and take a left and go North. And we don't wind up there, obviously. So that's our frustration. But the answer is no, we're not building to a cost-efficient build rate, but we talk about doing it and the requirements would be sufficient.
 Page 59       PREV PAGE       TOP OF DOC

    We certainly support all the different funding profiles and full-funding techniques such as incremental funding, block-buys, and all the things that would get us to that rate. But we have got to find some way for stability and a reasonable build rate to suffice for this industry so we can deliver cost-efficient products.

    Thank you.

    [The prepared statement of Mr. Fricks can be found in the Appendix.]

    Mr. HUNTER. Okay. Thank you.

    Mr. Welch.

STATEMENT OF JOHN K. WELCH, SENIOR VICE PRESIDENT, GENERAL DYNAMICS

    Mr. WELCH. Thank you, Mr. Chairman and distinguished Members of the Committee, for allowing me the opportunity to testify before the Committee on behalf of General Dynamics Marine. I think you know General Dynamics Marine Systems is a lead supplier of naval vessels and that includes Electric Boat, Bath Iron Works, and National Steel and Shipbuilding Company in San Diego, California.

    The challenge confronting the Navy industry team today and in the future of sustaining and growing an integrated ship design and construction capability for a new millennium, albeit at an affordable price that can meet the future demands of the service. Our response to this challenge is a commitment to provide best value. And much of what we've had to go through in the 1990s has been focused on reengineering our businesses towards that best value, albeit at a much lower rate of production than what we saw in the 1980s.
 Page 60       PREV PAGE       TOP OF DOC

    We provide best value by continuously striving to balance affordability and capability. Let me first address affordability, which is what most of us have talked about already on this panel. Increased ship procurement rates are absolutely essential to achieving the Navy's force level requirements and achieving stability so essential to affordability and a healthy industrial base. I think, in the near-term, what that means is we need to achieve a procurement rate of two ships per year for submarines as fast as possible. It supports the long-term requirements. It'll have a huge impact on the affordability of the submarines that we've built.

    For surface combatants, this means maintaining a procurement level equivalent to three DDGs per year, especially as we transition to the DD–21 program. The profile that exists today will drive the cost of those individual DDG–51s up, not to mention what it will do for the early DD–21s, as we're trying to rebuild that workforce to deal with a new ship.

    For auxiliaries, this means achieving a stable procurement rate such as a shipyard, such as NASSCO can plan the correct mix of commercial and naval vessels to maximize efficiencies. However, it is equally important that the Navy and industry continue to work together to reduce the costs of future ships through aggressive process improvement and by continuing to pursue new models for ship acquisition contracts and opportunities to reduce total ownership cost. And I think the block buy for the Virginia class is representative of that, as well as the multi-year procurements for DDG–51. And we need to continue that multi-year procurement and take advantage of the authorization authority given to us by Congress last year in fiscal year 2002 and fiscal year 2003, but it should be at the level of three ships per year.
 Page 61       PREV PAGE       TOP OF DOC

    Let me talk a little bit about capability. As the force is structured for the 21st century, it must strike a balance between near-term needs and long-term capability, i.e., recapitalization. Capability has become even more critical since we have downsized our forces considerably and will be operating our ships and submarines longer and harder than ever before. For example, the recent Joint Chiefs of Staff (JCS) study on submarine force levels mentioned not only a force level of 55 to 68 submarines, but also fielding 18 Virginia class submarines by 2015.

    Consequently, while mindful of the need to maintain force levels in the near-term, we must not lose sight of the long-term recapitalization required to maintain military superiority. We will also utilize the insertion of next-generation technology to achieve improvements in the capability offered by current and future platforms.

    We're encouraged by the progress being made on DD–21 in achieving the proper balance between technology and affordability and development and insertion of things such as common electric drive, for example, will revolutionize the capability of the ship, DD–21, and future platforms, while significantly reducing total ownership costs.

    The less capability and affordability issue revolves around our people. After years of reducing this country's shipbuilding workforce from its Cold War peak, we need to attract next-generation workers to sustain the critical human capabilities and talents for meeting the Navy's requirements. In our shipyards today, we have a workforce with an incredible depth and breadth of shipbuilding knowledge, but it is an aging workforce and a physically demanding profession. If we fail to achieve stability in our industry, we will seriously impact our ability to recruit our next-generation ship designers, engineers, and builders.
 Page 62       PREV PAGE       TOP OF DOC

    In conclusion, we must sustain a stable and predictable ship procurement plan. For the Navy, that is essential to meeting their force level goals. For industry, a stable business plan is essential to achieving optimum efficiencies and confidence to invest for the future.

    Thank you very much, Mr. Chairman.

    [The prepared statement of Mr. Welch can be found in the Appendix.]

    Mr. HUNTER. Thank you, Mr. Welch. And to Dr. Larry Cavaiola, thank you for returning to your old Committee and we look forward to your remarks.

STATEMENT OF DR. LAWRENCE J. CAVAIOLA, VICE PRESIDENT FOR STRATEGIC AND BUSINESS DEVELOPMENT, LITTON SHIP SYSTEMS

    Dr. CAVAIOLA. Thank you very much, Mr. Chairman. I appreciate the very kind welcome back. Mr. Sisisky, as well, distinguished Members of the Subcommittee.

    I appreciate the opportunity you've given me to testify on behalf of the 17,000 men and women of the newly formed Litton Ships Systems organization regarding key programs and issues that are important to Litton's two shipyards.

    Litton Ship Systems, as you may know, is a new corporate group within Litton Industries that was formed coincident with the August 1999 merger of Ingalls Ship Building and Avondale Industries. The primary missions of Litton Ship Systems are to focus on customer service and on increasing shareholder value. And let me echo the remarks that my colleague, Mr. Fricks, made, certainly, regarding shareholder value. It's something that we can't lose sight of in today's environment. It's very, very important.
 Page 63       PREV PAGE       TOP OF DOC

    We're accomplishing this by successfully coordinating the consolidation of Ingalls and Avondale, mining all possible synergy savings resulting from the merger, managing the operations of the two shipyards, bringing them together into a seamless operation, and clearly representing the interests of the two yards here in Washington with one voice.

    The consolidation of Ingalls and Avondale clearly makes good business sense at a time when rapid industry consolidation was and still is underway. And also in an environment where the way in which the Navy procures its ships is changing significantly. Many of these changes result from various actions related to acquisition reform, including such things as early industry involvement in shipbuilding programs, requirements for teaming, encouragement of the use of commercial practices and commercial off-the-shelf equipment, innovation, and best value as selection criteria versus low price, and, certainly, the advent of full-service contracting.

    Clearly, new skills are needed in our shipyards and critical mass are needed in our shipyards to respond successfully in such a changing environment. We have a number of programs underway that are important to our customers, our employees, and our shareholders in both of our yards. At Ingalls, these include the DDG–51 guided missile destroyer program, where, clearly, we are in the final year of a multi-year buy, three per year. Three surface combatants per year, in our opinion, is the minimum necessary to sustain the industrial base and we would invite your attention to that point.

    The LHD amphibious assault ship program. We are completing work on LHD–7. We would like to begin as soon as possible on a new LHD that would incorporate many new features in terms of both efficiency and war fighting to serve as a transition ship to the next step, if you will, in terms of the big deck amphibs. There's a real opportunity here to save considerable money, preserve the industrial base at Ingalls by moving ahead with another LHD very, very soon.
 Page 64       PREV PAGE       TOP OF DOC

    We also have a new contract that we signed back in March to build cruise ships for the Hawaiian trade. These are the first cruise ships that will be built in this country in over 40 years. The last ones that were built in this country were also built by Ingalls. Let me echo Cindy's thanks to you, Mr. Chairman, for your sponsorship of the All American Cruise Ship Act. That piece of legislation will be very, very important to sustaining the momentum that we hope to be building here in getting started with a cruise ship program here in the United States.

    At Avondale, we have a very, very important program that's underway, the LPD–17 program, where we're designing and preparing to build the first ship of the class and we hope to lay the keel here later this year for LPD–17, the San Antonio. We're also building sea lift ships for the Navy that will carry both Army and Marine Corps cargo. And, at Avondale, we're also involved in building commercial tankers for ARCO, a very, very important program and a program that we would like to see sustained, if not for that customer, for other customers who are in need of new tonnage coming up as a result of the requirements of the OPA–90.

    New programs on the horizon in each yard: The DD–21 destroyer program, which you've heard about. A very, very important program. A program that we have some concerns about the dovetailing of the DDG program with the DD–21 program to ensure that that is done exactly right so that we do not lose skills, we do not unnecessarily increase costs on the new program or the program that's winding down. We're also looking at a new class of dry cargo ships and the potential for a new joint commander control ship.

    Both yards, both Avondale and Ingalls, are pursuing independent efforts to win the Coast Guard's deep water modernization program, another program that's very important to Litton Ship Systems. And, obviously, in today's environment, the environment that you've heard about with uncertainty in the Navy's plan, we are continuously pursuing new programs in both the government and commercial arenas to ensure that our shipyards are filled.
 Page 65       PREV PAGE       TOP OF DOC

    We appreciate very, very much the unwavering support of this Committee over the years for a strong U.S. shipbuilding industry, both commercial and military. And, as I think you've heard here this afternoon, regardless of the competitions in which we all, each of us, engage in with each other every day, that is clearly something on which all of us sitting here can agree. I thank you, Mr. Chairman and Members of the Subcommittee, for the opportunity, again. And I look forward to taking your questions.

    [The prepared statement of Dr. Cavaiola can be found in the Appendix.]

    Mr. HUNTER. Thank you very much, Larry. Mr. Sisisky.

    Mr. SISISKY. Thank you. A few of you talked about Wall Street. By the way, I don't own any stock in any of these companies. I just want you to know.

    Mr. FRICKS. I have some shares here if you want to invest. [Laughter.]

    Mr. SISISKY. No, thank you. [Laughter.]

    No, I don't mean that in a bad way. But it just dawned on me, after the testimony by the three admirals today, I can see the headline, ''Navy needs 350 ships,'' ought to be good for a couple of points bump. The way the market's going today, too. Before I came in, it looked very good.

 Page 66       PREV PAGE       TOP OF DOC
    And, Cindy, what you basically said, you know, we've talked about this and I've talked to people here. It just makes so much sense in long-term reasoning, but I think we forget something when we, you know, say we ought to do it. If you could draw up what the savings would be, to me that's the important element. Somewhere along the line, we misconnect with the appropriators who do not want to give up that, clearly. But we have a better argument if we know what we could say here. That it seems to me one of the savings, and you may comment on this, any of you, what's happened to your subcontractor base in all of this? This is where I worry that the real costs are going to accelerate, if we even go into more shipbuilding. Has that dwindled a lot?

    Ms. BROWN. Our subcontracting base has been devastated over the years, just as our shipbuilding base has contracted to where we have only six shipbuilders today. Our supplier base is at the point to many times we only have one supplier of a system. Many times, we don't even have a domestic supplier of a system. And we saw it really, essentially, in the commercial business when our commercial business collapsed in the 1980s and the Navy was the only place in our Navy business for those subcontractors with low rates. And they take it in the shins very hard.

    Can I make one comment on your charter? The long-term lease savings?

    Mr. SISISKY. Sure.

    Ms. BROWN. The problem with that is, in trying to show the savings that you achieve in a long-term lease versus an acquisition, is we have a problem that a ship that is built under commercial business practices that we would manage and oversee, the commercial sector would actually, to remove the Navy from oversight program management is that that ship is going to be designed and cost less than the ship that the Navy itself would design and have us build or work with us to design and build and oversee.
 Page 67       PREV PAGE       TOP OF DOC

    The best example that I can give you is from years earlier the cost of a TAO versus the T–5 tankers. The T–5 tankers that were built under a long-term lease program were $65 million, in the mid-1980s. The TAO ship, yes, it has a couple of features and capabilities that the T–5 does not have, but we're looking at a ship that exceeded $100 million. So that is one of the difficulties in showing side-by-side.

    But there is one other thing that we could help and, I think, do a better job on and, Mr. Sisisky, is showing the fact that I know in the ADCX earlier analysis, the savings in the maintenance cost on those old ships that need to be replaced would cover the lease payment, in many cases, of the newly built ships. So it's not, there's no net loss or gain in the budget, but, yet, at the same time, take all that pressure off the SCN account that's there.

    And then I will work on that. I promise.

    Mr. HUNTER. Do we have any analysis on that right now in terms of how much it's costing us to keep the old 1956 Chevys running?

    Ms. BROWN. We can produce that in an expeditious manner.

    [The information referred to can be found in the Appendix.]

    Mr. HUNTER. I think that's worthwhile.

    Mr. SISISKY. I'll tell you one thing, Mr. Chairman, we don't have enough money to repair the ships. That's one of the problems we have right now. We're looking at getting more money for that, though.
 Page 68       PREV PAGE       TOP OF DOC

    You know, it dawned on me. I was in a subcontractor's place five years ago. They made lockers, I think, for aircraft carriers. Usual lockers. And I'm looking over there and I'd just dropped in and I looked over and there were three guys with micrometers and I said what are they? They said, that's the government inspectors. I said, what are they doing? They said, well, they're checking to see that we're doing these things right. I said, well, how often do they come. They said, every week. That seems to me, when I bought something in my business, I checked it when it came in. You know, you take it back or get it fixed right. And I guess that's part of the trouble.

    To the shipbuilders, now, if you had to change just one regulation or business practice, what, in your opinion, would save the most money?

    Mr. FRICKS. Well, I'm not sure, quite frankly, as we sit here today, one regulation that I can think of that would actually would do it. What is important to us, and I think your next panel of one, Ron O'Rourke, would verify, when we can get a stable program and stabilize the design of the product, the cost comes down dramatically. We've seen that happen at Newport News, we've seen it happen at Litton, and we've seen it happen at GD. We've seen the cost of the product come down in half, in some cases, once you stabilize the design and the build rate. If we can have that, we can bring the cost of ships down; we can buy more ships with less money.

    But we don't do that. We haven't been able to do that in recent years. We move ships around. Even the projections in the outyears changes. So we do need that. That's the watchword I think you heard across the board here is stability.
 Page 69       PREV PAGE       TOP OF DOC

    Mr. SISISKY. But that doesn't have an effect on the hull? You keep the hull, don't you?

    Mr. FRICKS. Well, I said, keep a stable design. Don't change the hull appreciably, and let us build. You've seen it in submarines. We saw it in the 688 program. We've seen it, I'm sure, in the DDG–51 program. It works. It works also in Korea and Japan. That's what they do. They stabilize the workforce; they stabilize the design; the cost comes down. That's the biggest thing you could do for us, the Navy could do for us, to let us help them is stabilize those two factors.

    Mr. SISISKY. Larry, I'll just ask you. How are you doing with the tankers? Is that a profitable business, yet?

    Dr. CAVAIOLA. It is. It is profitable.

    Mr. SISISKY. It is?

    Dr. CAVAIOLA. It is, indeed. And, yes, we are actively pursuing other operators there, other owners for orders. There's no question about that.

    Mr. SISISKY. And that's a set set of plans? Is that what you—

    Dr. CAVAIOLA. That's correct. Yes, we're building those, as Mr. Fricks just said, Bill just said, that the beauty of that is that it is a commercial program. There's not a lot of excessive micromanagement or oversight there. And it basically is one plan and you build them. And it really does make a significant difference.
 Page 70       PREV PAGE       TOP OF DOC

    Let me just echo, also, the thought here about stability because, on a couple of other points. One is that, as we pass the subcontracts down to others, here, as changes continually are made, that has a tremendous ripple effect down through that subcontractor base. Everybody sees changes. New oversight has to be made of that equipment. All kinds of requalifications have to be done of suppliers, in certain cases, or their equipment. All of that costs money. All of that takes time. And it adds a tremendous burden to the system.

    I might also add that I think we're beginning to understand a little bit more about the impact of continuously changing the design of ships on the maintenance of those ships. That is, the configuration of those ships is different. So when you go to plan for an overhaul or plan for some kind of an availability, you're really not sure what's in there sometimes. And that causes some problems in terms of budgeting and then actually carrying out the overhaul.

    Mr. WELCH. I'd like to make a couple of comments on Mr. Sisisky's questions. I would echo what Bill said relative to stability and the vendor base. And, when you look at it through the view of what happened to the submarine suppliers in the 1990s, they've been through tremendous change and in that whole process of consolidation, people went out of business, were gobbled up by bigger businesses, et cetera. And the whole focus on that was to maintain the critical skill and capability in that vendor base, albeit at a much lower rate of production.

    And the Navy was very supportive of going at the underlying criteria that was driving a lot of additional inspection. And, where we could, we would relax that and move more towards commercial-type of procurement specifications. And I think, as an industry, we pursued that fairly aggressively in order to both control the costs and maintain an adequate vendor base.
 Page 71       PREV PAGE       TOP OF DOC

    It then becomes critical, if we're going to crank up the rate of production, that they are ready to respond to that. And I think we have an adequate vendor base. On the submarine side, I would tell you, we still have about 35 to 45 single or sole-source vendors. The only people that do it. And it really becomes, it's a range over the kinds of suppliers that you have and the complexity that they're dealing with.

    The areas such as whole mechanic and electrical that don't change that much over the 30- or 40-year life, that's a vendor base that's shrunk and yet it's not going through a huge amount of change. But you have to keep a very close eye on them, because that's about all they do, especially those in the area of nuclear. On the electronics side of the house, other than the major systems integrators, which are doing most of the hosting of the critical software, much of the electronics equipment has become commodities, such as computers, processors, things like that. So there's much less of worry on that side of it.

    So I think we have a pretty good handle on what exists in the vendor base, where the critical links are, and what needs to be done to hold them up. And I think that's been a real focus in trying to control the overall costs through the low production rate of the 1990s. And I really think that we're, in many ways, in a much better condition from understanding that supplier base and what we need to do to keep it healthy than we may have been during the high rates of production.

    And I welcome the opportunity to deal with the higher rates of production and deal with the supplier base. I'm convinced that there are people out there that'll meet the demand, but they're looking for that stable environment for the same reasons we are, from an investment standpoint, et cetera.
 Page 72       PREV PAGE       TOP OF DOC

    Mr. HUNTER. I thank the gentleman from Virginia. Mr. Saxton.

    Mr. SAXTON. Thank you, Mr. Chairman. This is a very interesting discussion. It takes me back to 1984 and I'll tell you why in a minute. But the search for stability in your programs is a very interesting subject to think about. It seems to me that there are two separate components of it, Mr. Chairman. And interesting the reaction of these folks to this.

    There's the component that our institution represents and that instability, I suppose, is caused by various factors which change from time to time. For example, hopefully, our ability to act depends to some degree on what threat exists at any given time and what threat we see existing down the road. Undoubtedly, decisions that we make that create instability depend on economic conditions, which, in turn, affect the number of dollars that we have to deal with. And that certainly is a component. I suppose the make up of the Congress in terms of ideology also creates some reason for instability. And, in terms of those things and maybe some others, I don't see much hope ever that they're going to go away because they're kind of an ingrained part of our system.

    And so I guess the second set of thoughts are how do you change the system within which these folks work and the Navy works and we work to create a situation where changes don't take place in big dips and dives, but on a more gradual basis, being affected by various external factors?

    And I suspect that some of the things that I started to look at, and I said I would talk about 1984 in a minute, because one of the first things that happened to me when I got here was that I got assigned to the Merchant Marine and Fisheries Committee and about six months into that experience, I said the way we operate in terms of ship acquisition is arcane.
 Page 73       PREV PAGE       TOP OF DOC

    There's no other segment of our economy that pays cash up front for capital goods. I came out of the real estate business. I don't know anybody—I guess I know somebody—but I hardly know anybody who ever paid cash for a house, for example. And I don't anybody that's in business, in the trucking business, that pays cash for trucks. And I don't know anybody that's in the computer business nowadays that pays cash for a major acquisition of computers.

    So, as we, as you and I, actually, started to look at the housing needs in the military and we said, gee, whiz, our housing needs are dramatic. And one of the thoughts I had was, well, can't we do a build and lease program? That's what some of the folks in the military advocated at the time and, of course, couldn't do that because it wasn't part of the way that we do business.

    So it seems to me that that first set of things that we can't control are always going to be there and, therefore, we ought to build a system that lets us react to those things in a slower fashion rather than going up one year and down the next. Because these folks say that they have adequately explained, and I'm sure the Navy agrees, too, that it makes a very difficult set of circumstances with which to deal in terms of labor force and expertise in the labor force and cost projections and all the things that they have to deal with.

    So I guess my question is this, after that long speech, specifically, how would you go about suggesting to us that we begin to look at those kinds of changes that ought to be implemented into the system in order to make the system more stable?

 Page 74       PREV PAGE       TOP OF DOC
    Ms. BROWN. I think that that's a very good question. And I wish the answer was very simple. Since you are in the business of making laws, you do make the laws governing how defense systems are procured. And that is why we have emphasized new ways in buying and financing ships and it probably requires more than legislative authority, it requires legislative direction. That is, on extended leases for noncombatants. We get back to the multi-year procurements or block buy, if we're going to use the same type of procurement for submarines. The same thing with the benefits of incremental funding for our large capital ships, like the LHDs and CVNX, to spread that funding over multiple years.

    Just giving the Pentagon the authority is not going to result in them embracing those procedures. It's going to require direction.

    And, Bill, do you want to add to that?

    Mr. FRICKS. Well, I think we have sort of covered this several times today, but if we're going to work together and develop a requirement that the country needs, we're going to have to have a strategic plan to get there. We can't just say we need 350 ships and build to 200. I mean, obviously, there's a huge disconnect there. And, in doing so, we could employ techniques like block buy and multi-year procurement that basically shows the industry that we can go out and buy materials for five ships and not just one at a time and get the savings.

    But it requires sort of a paradigm thought shift in the way we do business. We can't look at 2001. We can't look to see if that's sufficient. Because one year might be sufficient, if you ran that out. But that's not what we're doing. We need a steady build rate of 12, 14 ships every year. We need a funding profile that looks that way. It's got to come to Congress with a budget that looks that way. And it has to approve it and agree with it.
 Page 75       PREV PAGE       TOP OF DOC

    And I think we've all said here that's the cheapest way to go. It's a requirement that has been made time and time again. And there is supposed to be a real partnership between the legislative group and the Pentagon and the builders of the ship to get it down. And somehow we've got to forge it. And it maybe several different ways. It may be a funding profile for how we fund the ships. It may be just an agreement between like this group and the Navy to bring a budget to you that makes sense to the requirements they have. But it's going to take all of the above. But we agree with you.

    Dr. CAVAIOLA. Mr. Saxton, I would agree that it's going to take multiple techniques here to deal with the phenomenon that you just described, I think very well. What we have is a mismatch, a fundamental mismatch, between the time constants, if you will, under which our industry operates and the uncertainties that you outlined.

    And I would include on that not just the government side, but also the commercial side. The uncertainties that are placed into the financial community that invests in commercial ships as a result of the frequent assaults on things like the Jones Act, Title XI, the Passenger Vessels Services Act, and so on, don't do any good in terms of eliciting from that financial community the money it takes to build those ships. So that's what's going on on the commercial side.

    On the military side, certainly, we respond and we operate over fairly extended periods of time. And we, like the ships that we build, we don't turn on dime. And this is one of the reasons that Mr. Sisisky was mentioning earlier about Wall Street and so on. This is one of the reasons that we're getting hurt, I think, out there, because there's this tremendous focus on quarterly earnings but, you know, our programs take years to build and years to bring to fruition.
 Page 76       PREV PAGE       TOP OF DOC

    So a recognition of stable budgets, stable financing mechanisms, using some new approaches to financing, and so on, I think, are essential elements to dealing with these fundamental uncertainties that you're talking about.

    Mr. HUNTER. The other very distinguished gentleman from Virginia, who has been a leader in this area and a great pleasure to serve with, Mr. Bateman.

    Mr. BATEMAN. Thank you very much, Mr. Chairman. I sent a signal that I had a question and then Jim Saxton asked the question. It's really the very question that is at the very heart of what we've got to try to do. As you all have pointed out, I think very, very cogently, it's easy to lay out a goal and a national requirement for 350 ships. But if you're budgeting and doing nothing other than will create at best a fleet of 200 ships, there is the disconnect about which you spoke. And we've got to find a way to get around that disconnect. And one of the ways that we're going to have to do it is more innovation in the budgeting processes here in the Congress.

    And I would hope that we would soon have an Administration that would recognize the dimensions of this problem and was able to work with the Congress. But whatever the Administration, the Congress, ultimately, is going to have to come to grips with this and it's going to have to do it and do it soon.

    The question is clearly one of how can we improve upon the stability of the industry in a way that guarantees us the goals that seems to have become a consensus? QDR is saying 300-ship Navy, 50 submarines. Clearly, today, I don't know of anybody who thinks that 12 carriers is enough. There's no one who says 50 submarines is enough. They're saying a minimum of 68. Ron O'Rourke, unless he's dramatically changed his mind, has pointed the way to ask if we were in great difficulty in sustaining the submarine forces that have been recognized as being the minimum.
 Page 77       PREV PAGE       TOP OF DOC

    So, thank you, Mr. Chairman, and I'm glad that Jim asked the question. And I hope that we're going to see a great deal of thought and, hopefully, productive thought put into this question. And let me compliment you for having this hearing and for having amassed the amount of talent that you've amassed at this witness table today on matters of shipbuilding in the United States.

    Mr. HUNTER. I thank my friend. And, Mr. Taylor, did you have any questions?

    Mr. TAYLOR. Yes, sir. Mr. Chairman.

    I'd like to ask the panel, a few years back, I had the opportunity to visit David Taylor just outside of town and was really impressed with the work that he had done to come up with a double-hulled tanker. A modular concept going back to what was used in World War II. Long continuous welds, the sort of things that lead themselves to mechanical welding to try to minimize the amount of labor. And the ability to make saw a bow in one place, a mid-body section in another, make the stern in another place. And it did seem to have a great deal of potential. And, obviously, the Navy had invested a substantial amount of money in that program.

    I'm curious if it was ever put to use in the private sector? Or if it's ever been incorporated into any of your plans?

    And since we're on limited time, the second question is going to be I hear your pitch, but it's almost like going to Bible study. You talk about the need for more Bible study. And you've got the true believers in this room.
 Page 78       PREV PAGE       TOP OF DOC

    I would draw on an analogy, each of your yards has a credit union. When the credit unions felt like they were going to subject to taxation, in my congressional district alone, they sent me approximately 30,000 postcards. I haven't received 30,000 letters from my district saying let's do something about shipbuilding. And so, if they felt that strongly about their credit union, what can you, I'm going to toss it back, what can the shipbuilders of America do to get all of those people in the related shipbuilding industries concerned about this, since it is a democracy and it's certainly going to take more than the four guys in this room to change that.

    And I'd love to hear what programs you have underway in order to express this. Because, as you know, the Admirals are hamstrung. They can only go out and make a pitch for what the President has asked for.

    Ms. BROWN. Congressman Taylor, these shipbuilders, all Members of the American Shipbuilding Association, have embarked on a number of programs to try to educate the American people across the country. Granted, we have not asked all the employees to inundate your office with a mailing because we know you know the problem and you know they have the need. But to try to have, it's called our Sea Power Ambassador's Program, where these member shipyards have paid an extra amount and, in fact, are financing a program over two years that is actually running about $425,000 to have retired Admirals, Captains, concerned citizens across the country volunteer to be American Sea Power Ambassadors.

     They have done that. They're speaking in their local community organizations. They're speaking before the media, interviewing and writing letters to the editor. We have 300 ambassadors in 40 States. Is it enough? No. It's never going to be enough. Can we ever do enough? Probably not.
 Page 79       PREV PAGE       TOP OF DOC

    But we are continuing, as an industry, to do everything we can to help tell the story. And it's not the industry story. It is the Navy's story that we're telling.

    And I will say, to give you some examples of the progress, the Iowa State legislature passed a joint resolution calling for increasing the Navy's build rate to 10 to 12 ships to sustain a bare-bones minimum 300-ship fleet. Now for the Iowa State legislature to do it, I think that's a pretty significant point that we're making some progress.

    Mr. TAYLOR. Did you straighten them out on the Jones Act as well?

    Ms. BROWN. He said Merchant Marine Fleet as well. But we need to keep—the other problem is that if we talk about too many things, sometimes the focus is lost and the message is not fully heard, but we continue to work on the Jones Act and maybe that's our next campaign we'll have to go after.

    Mr. TAYLOR. How about all the work that was done at David Taylor?

    Mr. WELCH. If I remember correctly, all six of the major shipyards were involved in that work, so we had access to the final product, which came out of that study that David Taylor did and those conceptual designs. As to whether that specific design is being used for any of the tankers being built, I don't know. But I'm certain that a lot of the modular approaches and a lot of the lessons that came out of that study were accessed by all of the six shipyards. I know that.
 Page 80       PREV PAGE       TOP OF DOC

    Ms. BROWN. I don't know. We can look into that.

    [The information referred to can be found in the Appendix.]

    Mr. TAYLOR. Okay. That was it, Mr. Chairman. Thank you.

    Mr. HUNTER. And I thank the gentleman. And, you know, folks, Ronald Reagan laid out a goal for the country, the 600-ship Navy. I think that was the vision. It became clear that he was committed to that. And we subsequently put together the blueprint that carried us, if not to 600 ships, pretty close to it.

    I think that's going to be required. We've gone into a period of free fall, following the end of the Cold War. And I think at least, politically, there has been no consensus on how big the Navy should be. And you're not going to, because your Navy is something that lends itself to a national leadership, meaning the leadership of the Commander-in-Chief, it would be very difficult, I think, for this nation to commence a construction program that would lead to a 350-ship Navy unless you've got a Commander-in-Chief that endorses that and says this is what you've got to have and this is what I'm going to build to.

    Until you have that, we're going to be treated probably like the paper towel supply. When you get down to the end of the budget and you've got enough money for some paper towels, you buy as many as you can until the money runs out. And that's basically what we're doing with ships right now.

 Page 81       PREV PAGE       TOP OF DOC
    You mentioned the stabilization of design. And I think, Mr. Welch, you mentioned that, Mr. Fricks, you mentioned it, too. The implication that I got is that this is not simply a numbers problem, that is a blueprint for how many ships we're going to build, but there has been, to some degree, we haven't adequately stabilized our designs and there's been a problem. Is it that that's something above and beyond the top-line problems and the shipbuilding account problems that you've spoken of? Is that right? Is there a problem there?

    Mr. FRICKS. I think the point there is that there's a trade-off and you have to be careful about how much innovation you do in the ship. Obviously, in a warship with changing threats, that you need to innovate. We've talked about innovation and technology insertion. How you do it and how much you do has an impact on the cost of the ship. So, sure, you have to do some, but you have to make that trade-off if you want the numbers to be up in the category we're talking about.

    Mr. HUNTER. Are you talking about a current problem you have where you think we're changing the design too much?

    Mr. FRICKS. I'm really talking about future designs, future ships. Also with most of the ships we're building today have pretty well settled down the designs.

    Mr. WELCH. Yes. I think one of the big differences going forward, and it's reflected in the Virginia class today and will be with DD–21 as well, is that, with the tools that we have today and what the technologies are allowing us to do is to design these ships much more modular than they've ever been designed before. So when it's time to upgrade, whether it's in a forfeit for the next flight of submarines or destroyers or whether it's an upgrade you're going to do in the next couple of years, the ship is much more able to deal with that change and not end up changing 70 to 80 percent of all of the drawings on that ship.
 Page 82       PREV PAGE       TOP OF DOC

    And I think that's where, as we've tried, it's been a problem in modernizing the older ships that we have today, is that it's usually pretty expensive to go in and do a major rip-down and, say, put in a piece of electronics. But now, as we deal in much more, say, a Commercial-off-the-Shelf (COTs)-type of environment, those upgrades are a lot more cost-effective and a lot easier to do.

    So I think that that's been one of the goals in trying to get to a stable design so you can drive down the learning curve. And when it's time to make an upgrade or make a change, you do that in specific areas of the ship so you can keep the rest of it on that learning curve and make it much more of a cost-effective introduction. I think that's something that we've worked real hard on and that we've worked very closely with the Navy for doing a lot of what I would call pre-plan product improvements in packaging and bundling those things so that you can do it a lot more cost-effectively.

    Because you clearly want to upgrade these ships over their 30-year life to get that capability. But you want to do it in a very careful manner.

    Mr. HUNTER. Okay. With respect to that and changing the designs, you know that when I came here in 1980 and Mel Price was Chairman of the Committee, I remember the Chief of Naval Operations and the Secretary appearing before us and telling us in words to the effect that in their lifetimes and our lifetimes, we would never see the day when the Russians would have submarines that were even close to as quiet as our submarines. Great emphasis was put on that. And I can remember, then, in the 1990s, Admiral Borda appearing before us and telling us, somewhat ominously, the quietest submarine in the water today is not made by America. It's made by Russia. And so what had been promised and was considered to be a cornerstone of America's sea power security, in fact, had failed.
 Page 83       PREV PAGE       TOP OF DOC

    And one thing that we learned when we looked back and looked at what the Russians have done is that they built—they did the same thing we did in the 1950s—they built a series of short classes of submarines. And so instead of staying with one design for a long time, they innovated a lot. It cost them a lot of money, but they achieved a lot. They drew upon areas of performance that they hadn't been able to draw upon if they'd stayed with one long class.

    But we attempted, as you know, to have a hiatus in the new attack submarine line and to build prototypes with both the boat builders and, at some point, then, settle on a design and come out with a new attack submarine. And the Navy was anxious, concluding the government's divorce with Sea Wolf, they wanted to rebound quickly into a new marriage with what became the Virginia class submarine. They got this baby off the drawing board almost before Sea Wolf went down. And, ultimately, the Navy prevailed by coming up with the teaming arrangement.

    But the one thing that they guaranteed us was that there would be large degree of innovation in the new attack submarine and that there would be, still, a modicum of competition between the yards with respect to new innovations.

    And I still remember talking to a Chief of Naval Operations (CNO) after we made our—and we had everybody involved in this idea of having them building some submarine prototypes during this breathing spell that we got after the breakup of the Soviet Union. We had the Speaker of the House involved in this, Senator Lott, CINC–NAV. I mean, we had the biggest House-Senate conferences you've ever seen with a lot of players.

 Page 84       PREV PAGE       TOP OF DOC
    But I just want you to comment on whether or not you think that we've actually maintained a modicum of competition or whether or not, in fact, we've lost some innovation as a result of this teaming arrangement? What do you think? Teaming is going well?

    Mr. WELCH. Well, maybe I'll start with the last one is that I think, and, Bill, feel free to comment, but I think the teaming, as far as building those first four ships and, actually, we have two of them appropriated and a third one coming up this year, is probably going better than we anticipated. And I think that Bill and I set the tone for that when I was at Electric Boat and we set the tone and we continue to reinforce that on a regular basis.

    The competition for ideas is lively. And my view is there is no lack of good ideas. And I think that the two Defense Advanced Research Projects Agency (DARPA) payload and sensor studies continued to look at some very innovative ideas there and the two teams that are running out of the DARPA approach, which includes much more than just EB and Newport News, a lot of aerospace companies as well.

    My view is we're not hurting for the lack of good ideas. And some of those ideas have been proposed by both of the shipyards. They go through a design improvement proposal and then the Navy selects where to go from that. And some of those have been incorporated, then, and there's a plan to incorporate those, I think, over the first eight submarines, there's a plan.

    If you had asked me, do you think we could get more of it off to sea faster? Absolutely. It's a matter of money and I know that's where the Navy gets trying to do the trade-offs.

 Page 85       PREV PAGE       TOP OF DOC
    But the lack of good ideas is not the issue. And having a goal to go drive the ship, whether it's from a stealth standpoint or improved weapons, I think there are a lot of good ideas out there and that's why I think, you know, the balance on the construction side is a very robust and continuous research and development side, whether it's with submarines or any of the platforms, to continue that innovation. But then we ultimately have got to field some of that innovation into the planning forums.

    Mr. HUNTER. Well, that's why we called the statement when we had the summary, now the agreement, in the House and the conference. And we survived for a while until the Navy got back and came up with teaming. And I remember one of the former CNOs who, you know, was observing this and came in to talk to me. And you know what he said? He said, I wanted to build some short classes and I wanted to do some prototyping, but he said we couldn't. He said we were short on money and they were just continuing to build 688s was the only game in town. That's what we did.

    So you mentioned this stabilization that came about as a function of building 688s for a long time. On the other hand, the Russians, by building short classes, caught up with 688 in some aspects and surpassed it. And that's just a fact of life.

    So you do have, in some areas, I think, you have a trade-off that you have to look at. I just hope that this teaming arrangement provides us with a forum in which we actually understand that you can't redesign these babies every day. But I hope that that gives us a forum in which we actually make some real innovation.

    You gentlemen think that we are proceeding down the right track with respect to that?
 Page 86       PREV PAGE       TOP OF DOC

    Mr. FRICKS. Yes, Mr. Chairman. I would add to what Mr. Welch just said. The teaming is going very well. I remember all the discussions that we had regarding prototypes and what we were doing and the teaming agreements.

    You know, we're still pursuing things like electric drives separately, different types of designs, different type of technology. We're working together in some areas, but we're also competing in some areas. You know, we've got the large-scale vehicle that we're developing to put prototype techniques on that submarine that'll be less costly than trying to build individual parts—I mean, full-scale prototypes. So I think we're in the right direction. We'll continue that.

    And we'll continue to compete. We have a lot of professional competition just even within ourselves. And I think, as Mr. Welch pointed out, that there are other people outside just the shipbuilding that are competing with us for technology and getting onboard the ships.

    Mr. HUNTER. Okay. Well, thank you very much for your presentations. And thanks for hanging in there on a very difficult—oh, just one last thing. I know you've got to take off here, but you mentioned that this lack of stability and perhaps a lack of a blueprint is a good way to, from the standpoint of the markets, has prevented investors from investing in your industry, because they don't know where it's going. It looks like it's slowly dissolving, if you look at the shipbuilding numbers.

    Has that resulted in, and the implication I got was that's resulted in, a lack of what might be optimum retooling in some areas? Is that right? If you had a lot of fresh money coming in, you'd be able to do some things you can't do now?
 Page 87       PREV PAGE       TOP OF DOC

    Mr. FRICKS. I think there's no question that, if we had a better response on the capital markets and we had a stable plan, that we could produce the type of technology, whether it be computers or robotics or things that we see over in Japan and Korea that we could apply those tools to a more stable work plan, that we could reduce the cost of shipbuilding.

    Mr. HUNTER. Okay. Okay. Is that across-the-board? Do you pretty much agree with that?

    Thank you very much, ladies and gentlemen. We really appreciate your testimony. Thanks for your service to our country.

    And now that big panel is going to come up here: Mr. Ron O'Rourke. And, Ron, are you—I think this has been good that you've had a chance to listen to the operators and also to the producers, to the builders. And you've looked at the numbers. And you've looked at the budget. What's wrong and what do we do about it?

STATEMENT OF RONALD O'ROURKE, SPECIALIST IN NATIONAL DEFENSE, CONGRESSIONAL RESEARCH SERVICE

    Mr. O'ROURKE. Okay, well, thank you, Mr. Chairman and also Members of the Subcommittee, for the chance to come up here once again and address these issues. It's always an honor to assist the Committee in its work at looking at the budget. My testimony will, in fact, address some of the questions that have come up during the course of the hearing on quantities of ships and funding levels. And I hope that I'll be able to give you some answers to some of those questions that you and the other Members posed earlier.
 Page 88       PREV PAGE       TOP OF DOC

    With your permission, I'll submit my formal statement for the record and then go ahead to summarize some of my key points.

    As you requested, I'm going to look at three things, all of which have come up today at one point or another. One is the required size of the Navy for now and for the future. The second is the overall rate of Navy ship procurement. And the third is the planned rates of procurement for certain specific ship types.

    I'm going to look now at the first of those topics, which is the planned size of the Navy. And I think the key thing to bear in mind in regards to that question is that Department of the Navy officials within the last year have begun to openly call into question the long-term sufficiency of the 300-ship fleet that was called for in the 1997 QDR and I think we saw some of that earlier today with the first panel.

    In particular, within the overall 300-ship plan, three categories of ships have emerged as candidates for having the force level goals increased and those are attack submarines, surface combatants, and amphibious ships. And if you simply add up the three proposals for increasing those parts of the fleet, you would arrive at a new total for the size of the Navy that was similar in total, although different in composition, to the 346-ship fleet that came out of the bottom-up review back in 1993.

    Moreover, if you actually acted on all of those increases together, they would have some cross effects and would lead, in my view to a combined requirement for a fleet of more than 360 ships, which, again, is a figure that came up earlier in the hearing.
 Page 89       PREV PAGE       TOP OF DOC

    These proposed increases in the required size of the fleet are significant because they help set the stage for the debate that will be held next year on the required size of the Navy as part of the QDR that's going to happen next year.

    Now whether a fleet of 300 ships or some other number is going to be sufficient to meet our needs for the future is going to depend on technology and it's going to depend on how the international security environment evolves over the next quarter century or so. And, with regard to the latter, it can be noted that the Navy, down the road, in that time period, could be confronted with a variety of potential challenges such as a large and modernized Chinese navy, a rejuvenated Russian navy, or improved military maritime capabilities in other countries in different regions around the world.

    I want to turn now to the second topic, which is one that we've discussed quite a lot here today, which is the overall rate of Navy ship procurement and how it relates to the planned size of the Navy. Assuming that the 300-ship goal remains in place, at least for the time being, the challenge in maintaining a fleet of this size is not going to be in the shorter run, between now and about 2010. It's going to be in the longer run, after 2010 and especially after 2020 when the large numbers of ships that we procured in the 1970s and 1980s reach their retirement ages and begin to retire in large numbers.

    If ships are not procured in sufficient numbers between now and then to offset those retirements, then, at that point, the fleet would drop below 300 ships.

    Now, in assessing the Administration's proposed plan rate of ship procurement against the goal of maintaining 300 ships both now and in the longer run future, a good place to begin is with what you might call the steady-state procurement rate, which has been mentioned a few times already. I just finished a new examination of this issue and for the 308-ship Navy that I see as resulting from the various force level requirements that have been set forth, I come out with a steady state build requirement of about 8.7 ships per year. If you'd asked me last year, I would have said 8.6 and the new number I came up with is 8.7.
 Page 90       PREV PAGE       TOP OF DOC

    The Administration's amended shipbuilding plan would procure ships, in contrast, at an average rate of 7.5 ships per year, which is about 86 percent of the steady state rate. And if you maintain that rate of 7.5 ships over the long-run, then you'll put the Navy on a direction toward eventually moving toward a fleet of about 260 ships.

    Now it's important to remember, and I think Admiral Lautenbacher mentioned it during part of his presentation, that the steady state rate is an average rate that needs to be maintained over the long run, in this case, for a period of 35 years. You've got to do that over and over, year after year, for that long a period. And if there are some years during this 35-year period when you're below 8.7 ships, then you've got to have other years when you're above 8.7 so that the average for the entire 35-year period works our to that steady state rate.

    We first fell below the steady state rate back in fiscal year 1993 and we have programmed to remain below that rate through fiscal year 2005. During that 13-year period, we're going to get, under current plans, a total of 83 ships. If we had instead built ships during that 13-year period at the steady state rate, we would have procured a total of 113. On that basis, we are on a path right now to create a backlog in deferred ship procurement of a total of 30 ships. About 7 ships of that 30 ship backlog will accrue during the current FYDP and the other 23 have already accrued prior to this FYDP.

    This 30 ship deficit in ship procurement is not immediately apparent because of the large numbers of ships we bought during the 1970s and 1980s, but when those older ships begin to retire, that 30 ship backlog, if not by then redressed, will be unmasked and the size of the fleet will fall below the planned size of 308 ships.
 Page 91       PREV PAGE       TOP OF DOC

    Mr. HUNTER. How far below?

    Mr. O'ROURKE. Well, it depends on how much of that backlog you've worked off by then. And if you haven't worked off any of it, then the implication is that you'd go down to 260, 270 ships, which is where the current rate would take you in the long run.

    Eliminating the 30 ship backlog is going to require a procurement rate in future years that is greater than the steady state procurement rate. And we began to touch on that topic early in the hearing, but I don't think we quite closed the loop in terms of getting to some more precise answers to what that other higher rate needs to be. But if we are going to work off this 30 ship backlog in a gradual manner, that is, by the end of the 35-year period that began in 1993, then you are going to require a steady state rate, starting in 2006, of about 10.2 ships per year for that year and for the next 21 years after that.

    This higher rate of 10.2 ships per year can be called the catch-up rate, if you want to, because it's the rate that will allow you to catch up with the number of ships that would be prepared if you had been doing the steady state rate all along. Now it should be emphasized that the numbers I just gave you assume a fleetwide average service life of 35 years. If the average turns out to be closer to 30 years, rather than 35, as some observers argue that it could, then all these numbers are going to go up. The steady state rate would go to 10.2 ships per year. The backlog of deferred procurements would rise to 50 ships. And the catch-up rate would go to 13.2 ships per year.

    Now in recent years, as it became clear that we were on a path to remain below the steady state rate for an extended period of time, CRS analyses of this topic had begun to place attention not only on the steady state rate, but on this catch-up rate. And the Administration, for its part, is now beginning in its own presentations of the budget to talk more often about steady state rates of procurement. They weren't doing that, earlier in the 1990s, but they've begun to do it within the last year or two. And the Administration is also acknowledging that, during the period of the 1990s, they fell short of the steady state rates for a number of years.
 Page 92       PREV PAGE       TOP OF DOC

    But, with a few exceptions, the Administration's presentations of the budget have not yet begun to place much emphasis on the catch-up rate that results from having fallen below the steady state rate for a period of years. And it's becoming more and more important, from an analytical point of view, to place the focus on these catch-up rates so that we can understand the consequences of our decisions in prior years.

    Now, in addition to simply looking at the numbers of ships to be procured each year, it's important to examine the mix of ships that we're getting and the total amount of funding that would be required to get them. Now, I looked at this issue also and my examination of it suggests that procuring an average of 8.7 ships per year in the proper mix would require an average of roughly $10 billion a year in the shipbuilding account for actual procurement of new ships. Not for the other stuff that's in the shipbuilding, but just for procurement of new ships, about $10 billion a year. This compares with about $8 billion a year that is currently in the FYDP for that purpose, on average.

    So, while the Administration's plan calls for getting about 86 percent of the steady state rate in terms of numbers of ships, it provides an average level of funding which is about 80 percent of what would be required to procure the ships in the proportionate mix that we're looking at. And so, in this sense, the ship procurement plan procures a mix of ships that is somewhat inexpensive, relative to the mix that you would need for the steady state rate. And that's due, apparently, to the fact that expensive ships, like submarines, are underrepresented in the plan while less expensive ships, like the auxiliaries, are temporarily overrepresented.

    And that's important, because what that suggests is that, in the future, getting back to the steady state rate of 8.7 ships per year or to this catch-up rate of 10.2 ships per year, is going to require, for some years at least, even more funding than would be required simply by looking at those total numbers of ships. As the mix of ships that we procure shifts to include a higher proportion of the more expensive types and a smaller proportion of the less expensive types, then procuring 8.7 ships per year is going to require, possibly, for some years at least, more than $10 billion a year in new ship procurement funding. And procuring 10.2 ships per year, this catch-up rate, would require more than something like $11.7 billion.
 Page 93       PREV PAGE       TOP OF DOC

    I'm going to shift now to the third topic, which is to look at certain specific ship categories. And I'm going to start with the attack submarines and I'm going to spend the most time on them.

    The downturn in attack submarine procurement started earlier and was proportionately deeper than for other kinds of ships. And, as a result, the backlog in attack submarine procurement is particularly acute and the projected force structure situation for attack submarines is particularly challenging.

    Current plans, if implemented, would get a total of 10 attack submarines over the 16-year period of fiscal year 1990 through fiscal year 2005. That's five-eighths of a boat per year, on average, over a 16-year period, which is almost one-half of the 33-year replacement period for the attack submarine fleet. In contrast, a steady state rate of procurement for submarines would have procured a total of 26 or 27 attack boats. So the result is that the backlog in attack submarine procurement since fiscal year 1990 is 16 or 17 boats, which is equivalent to about 30 percent of the total force structure requirement of 55 boats.

    Or, if you want to look at it differently, and just calculate it from fiscal year 1993 forward, attack submarines will constitute almost half of the 30 ship backlog that I mentioned earlier.

    Now this deficit in attack submarines, like the larger deficit for all ship types, is being masked right now by the large number of submarines that we got back in the 1980s. But when those 1980s-era boats begin to retire, if we have not addressed that backlog by then, it will be unmasked and the size of the attack submarine force could fall well below 55 boats and stay there for a number of years, from the mid-20s well into the 20s, 30s. And I've included a chart in my testimony that shows that in picture form.
 Page 94       PREV PAGE       TOP OF DOC

    There's been some mention here of the new JCS study on attack submarine force levels and I think that study deserves some attention for a couple of reasons. First, it's a joint study, not just a Navy study. And second, the Administration has, in fact, put some funding into its plan to support the JCS's 55 boat benchmark for the near-term. The JCS study established benchmarks for both 2015 and for 2025. These benchmarks call for 55 to 60 eight boats, including 18 Virginia class boats, in the year 2015 and 62 to 76 boats ten years later in 2025.

    Adopting these benchmarks as official programming goals would have very significant implications for future attack submarine procurement requirements. My own analysis shows that if we stay with the current plan to get attack boats at a rate of one per year through the end of the FYDP, then meeting these JCS benchmarks would require an increase in the attack submarine procurement rate, starting in 2006, for a sustained rate of three to four boats per year. And that's obviously a huge increase over a rate of one per year.

    You can ease that situation a little bit by starting an increase in the rate sooner than 2006 and then the sustained rate doesn't have to be quite as high. But, either way, we're talking about a very large increase from the rate that we've maintained in recent years.

    Such an increase in the proposed procurement rate would pose at least three potential issues for Congress. The first, obviously, is funding. With attack submarines costing somewhere between $1.5 billion and $2 billion per ship, moving from one boat per year to something like three or more boats per year would require billions of dollars more than annual funding for ship procurement. And on this basis alone, attack submarine procurement, to my eye, could be a major Defense policy issue for the next Administration.
 Page 95       PREV PAGE       TOP OF DOC

    The second potential issue that arises concerns the industrial base. And we heard a little bit about that from our industry panelists. Expanding production very rapidly from one boat per year to three or more boats per year could strain the submarine construction industrial base during that transitional period at both the supply level and the shipyard level. I'm sure the shipyards and the suppliers would love to take on that challenge, but that's not going to mean they're not going to be strained by it, especially if the transition from the lower rate to the higher rate is made within a very short period of time.

    At the supplier level, some of these firms may face challenges in expanding both their facilities and their workforces. And, at the shipyard level, the two submarine builders would need to hire and train thousands of new workers in a relatively short period of time, which could prove to be a challenge.

    And the third potential issue raised by the increased attack submarine procurement rate concerns our production arrangements for producing these boats at the two yards. The current arrangement arose out of the need to find a way to get through a period of very low submarine procurement rates. If we're going to go back up to higher rates, then it does create the question of whether we should reexamine our arrangement.

    And then, very briefly, now, I want to talk about three other categories of ships, to finish up. Those are carriers, surface combatants, and large-deck amphibious ships.

    First, carriers. Because of their cost, funding carriers in accordance with the full-funding policy can place a strain on the Navy's overall budget. In the past, budget spikes have been allowed in the Navy's overall top-line to help accommodate the cost of the carrier without placing too much pressure on other Navy programs. That's what we did back in fiscal year 1983 and back in fiscal year 1988 when they procured two carriers per year in each of those year. In fiscal year 1995, however, we did not have a budget spike to accommodate the cost of the carrier that was procured that year.
 Page 96       PREV PAGE       TOP OF DOC

    There is a budget spike that's programmed in the 2001 budget to pay a portion of the cost of the carrier, CVN–77, that's in this year's budget, but it's smaller compared to the spikes in fiscal year 1983 and fiscal year 1988. And so that creates a potential issue as to whether the fiscal year 2001 budget spike is about the right size and whether other Navy programs had to be reduced or displaced to accommodate the portion of the carrier's cost that was not taken care of by the program spike in fiscal year 2001.

    Another potential issue for the future is whether there is another way to do this, a way that would avoid the need for having to have a spike in the Navy's budget to fund future carriers. And one possibility, which has already been mentioned, would be to move towards something like incremental funding for carriers. That would obviously represent a shift away from the full-funding policy, but, as I testified last year to this Committee, several ships have now been procured in recent years with funding profiles that depart in one way or another from the full-funding policy.

    On surface combatants, the Administration's amended plan would procure surface combatants at an average rate through the six years of the FYDP at two and one-third boats per year, which is about 70 percent of the steady state rate. If you implement this plan, then a surface combatant ship procurement backlog of about six ships will accumulate during the course of the FYDP. And if you maintain this rate over the long-run, then, over the long-run, the surface combatant force would be reduced toward a figure of about 80 ships, as opposed to 116 called for in the 1997 QDR.

    In the latter four years of the FYDP, the Administration's plan, as has already been discussed, calls for going to a surface combatant rate of two boats per year. And that's potentially significant because, as we heard earlier, the two surface yards and other observers have maintained, since the early 1990s, that a rate of three boats per year is at or near the minimum economic rate for producing surface combatants at both yards. In large part for this reason, both the Navy and Congress have worked for the past several years to stabilize the surface combatant rate at about three ships per year.
 Page 97       PREV PAGE       TOP OF DOC

    Now the last time that Department of Defense (DOD) and others seriously discussed the issue of reducing the surface combatant rate to something less than three ships per year was back in 1993 and 1994 and, in response to that discussion, Congressional Research Service (CRS) came out with this report, which was mentioned earlier by one of the other members, that looked at that issue, including its industrial base implication. And, as was mentioned earlier, that report stated, based on a Navy industrial base examination of the issue, that reducing the procurement rate for these ships to two ships per year could place these yards under financial pressure unless substantial amounts of other non-DDG–51 work could be added to the workloads of those two yards.

    Now, since that report came out, these two yards have, in fact, secured new forms of non-DDG–51 work. Bath Iron Works, for example, is participating in the LPD–17 program. And Ingalls has secured, among other things, as was mentioned earlier, a contract to build two new cruise ships.

    But whether these forms of additional work are going to be sufficient in terms of both volume and in terms of skill preservation is something that may need to be examined. And I think especially the skill preservation issue is something that's going to need to be looked into.

    The last thing I want to mention, to finish up, are large-deck amphibious ships. There are two potential issues regarding procurement of these large-deck ships that arise out of the Administration's plan. The first concerns the funding profile for LHD–8. Congress included bill language in last year's Defense Appropriations bill stating that this ship shall be funded incrementally. The Administration, however, did not request any additional funding for LHD–8 in fiscal year 2001 or in any other year prior to the year in which LHD–8 is to be procured, which is fiscal year 2005.
 Page 98       PREV PAGE       TOP OF DOC

    Accordingly, one question for Congress this year is whether to provide additional funding for LHD–8 in fiscal year 2001 or in any of those other years prior to fiscal year 2005. And another issue for Congress is whether there is a need to elaborate on the language that was included in last year's Defense Appropriation Act to clarify whether Congress actually expects future DOD budget submissions to contain requests for additional increments of funding for the ship during this period.

    And the second issue regarding big deck ships and the last thing that I'll talk about here today concerns the schedule for procuring not just LHD–8, but for all five of the big deck ships that will be needed to replace the five older big deck ships, the five LHAs. This issue is beginning to take on some urgency and I don't believe that it has received as much attention until now as it might deserve.

    If we wanted to replace all five of the older big deck ships in a timely manner, that is by age 35, and if we also wanted to procure their replacement ships at a rate of one every three years, then the first of the five replacement ships, LHD–8, should have been procured back in fiscal year 1998, three years ago. So if that was your preferred plan, we're already behind that schedule.

    If procurement of the five replacement ships doesn't begin until fiscal year 2005, as now planned, then replacing all five of the older big deck ships by age 35 would require the other four replacement ships to be procured at a rate of almost one ship per year. And, given the cost of these ships, a procurement profile like that of getting five replacement ships in six years could lead to the reduction or displacement of other Navy shipbuilding programs during this period.
 Page 99       PREV PAGE       TOP OF DOC

    If, on the other hand, procurement of the five replacement ships begins sooner than fiscal year 2005, then their procurement could be spread out over a larger number of years, while still replacing most of the five older big deck ships by about age 35 or soon thereafter.

    And one final point to bear in mind concerns the production line for these ships. The previous big deck ship, LHD–7, was procured in fiscal year 1996. If you procure the next one, LHD–8, in fiscal year 2001, you'd have a five-year gap between the procurement of these two ships. That's somewhat longer than the optimum gap for these two ships from the standpoint of maintaining efficient heel-to-toe production at that shipyard.

    But from a shipyard production perspective, it would be much preferable to the nine-year gap that would result if you waited until fiscal year 2005 to procure LHD–8. A nine-year gap would likely cause a complete break in the production line, making the ship more expensive to build due to the costs associated with restarting that line out there in the 2005 timeframe.

    Mr. Chairman and Members of the Subcommittee, that completes my testimony and I'll be happy to respond to any questions you might have.

    [The prepared statement of Mr. O'Rourke can be found in the Appendix.]

    Mr. HUNTER. Mr. Bateman.

 Page 100       PREV PAGE       TOP OF DOC
    Mr. BATEMAN. Thank you, Mr. Chairman. I certainly appreciate the testimony that Mr. O'Rourke has brought to us. I wish it were a happier story that you had been able to lay out for us. Your analysis I think is something that's extremely valuable and which I hope appropriate attention is going to be paid to it by decisionmakers.

    The overriding comment or thought that comes to my mind, listening to your testimony, is that we are on a path to having a theoretical Navy that at some time in the next five-year Defense plan we're going to begin building the ships to be able to deploy that theoretical Navy. But just from where we are and where we say we are supposed to be, we can't get there from here and the longer we delay, the more difficult a passage it's going to be.

    So I just want to thank Ron. As usual, he's been extremely helpful.

    Mr. HUNTER. Thank you, Herb. And, Mr. O'Rourke, thank you very much. I think you've given a very concise picture here of the lay of the land.

    I was struck by the shortfall in the submarines that you say will be unmasked when you have, basically, a drop off the cliff with this fairly large number of ships that will age, come to maturity, in a fairly short period of time. If you were going to try to pinpoint what you think is the most critical inadequacy in shipbuilding, across the classes, would you say it's the submarines at this point?

    Mr. O'ROURKE. I think I've said in the past in other settings that the most broken part of the shipbuilding budget is the submarine account. When you look at the planned procurement rate for submarines and compare it to the steady state rate for that kind of ship, then the divergence between the two is the greatest for submarines.
 Page 101       PREV PAGE       TOP OF DOC

    That's not to say that other parts of the shipbuilding account don't also need attention, but the divergence between the planned and required building rates for ships is greater for submarines than it is really for any other kind.

    And I also think it merits attention because of the very substantial costs of getting these boats. At $1.5 billion or $2 billion a boat, if you build up a backlog in these boats, you're creating a very big financial requirement downstream if you want to work it off.

    Mr. HUNTER. Have you had a chance to look at the boat building costs, submarine costs?

    Mr. O'ROURKE. I knew quite a little bit about that, in part with industry and at least in terms of understanding what might happen to the cost of those ships if we did increase the procurement rate up to three or more boats per year. I don't have any precise figures. I do think it's fair to say that the unit cost of these ships is going to come down.

    Right now in the FYDP at a rate of one per year, these ships are between $1.9 billion and $2 billion a copy. They might be a little bit less in the future if you kept it at one per year, due to learning curve effects.

    If you went to higher rates of three or more boats per year, then you might get the cost of those ships down to somewhere in the $1.7 billion range, but that rate-induced reduction in the cost of the ships is not going to completely solve the issue of being able to afford a procurement rate of three or more ships per year. That is still going to require a lot more money for submarine procurement then we have programmed in the current FYDP.
 Page 102       PREV PAGE       TOP OF DOC

    Mr. HUNTER. And what are the partial fixes in terms of extending 688s, the conversion of the missile boats, what part of that problem, of that shortfall, will that solve?

    Mr. O'ROURKE. Measures like the ones you just mentioned are going to help the attack submarine force structure situation in the near- to mid-term, between now—in the case of refueling additional 688s, it will help between now and about the year 2018. In the case of extending the lives of all of the 688s to 33 years, it will help a little bit, not just between now and 2018, but for a period extending into the 2020s. And if you do the Trident conversions, then you will get a boost in the force level between 2006 or so and for the next 20 years thereafter, until about the mid-2020s.

    And so these are measures that could help you in the near- to mid-term, but eventually they will exhaust themselves and you're still going to have a bathtub out there, beyond that time period when your force level's going to drop below what you may have set as your requirement at that time, whether it's 55 or some higher number. Extending the lives of the 688s will push the bathtub out a little bit further, about three years further into the future. And it will make the bathtub a little bit less severe because you've had three extra years to build new subs in the meantime.

    But it's still there and so, while these measures will help your situation in the near- to mid-term, they do not get you out of the general problem that you face. The consequences of not having built very many submarines for more than a decade and a half are going to be with us in one form or another.
 Page 103       PREV PAGE       TOP OF DOC

    Mr. HUNTER. Personnel and industrial capacity. I think you mentioned that you think the yards will be stretched to produce, for example, three submarines a year.

    Mr. O'ROURKE. I think that the transitional period of moving from the low rate to the high rate could be a strain for the yards if that transitional period is short. If it's moved from a rate of per year to something like three or more boats per year over a one- or two- or three-year period, then those yards and the supplier firms are going to face a challenge in ginning up to that very rapid increase.

    Now once they get up to it, then they'll stabilize. But it will be a strain during that transition.

    Mr. HUNTER. We'll plan for one boat a year for the next five years.

    Mr. O'ROURKE. That's right and we've been doing less than one boat a year, on average, for the last ten years. So at the point when you are increasing the rate, you are dealing with an industrial base that has done an average of less than a boat per year for about a decade and a half.

    Mr. HUNTER. Okay. Going to two boats a year.

    Mr. O'ROURKE. Two boats a year I think would be much more manageable and, for both industrial base reasons and in terms of easing your downstream funding requirements, one option to be considered is moving to the higher submarine procurement rate sooner than 2006, until waiting until 2006 and then trying to climb very steeply. That was the problem that Representative Bateman mentioned earlier.
 Page 104       PREV PAGE       TOP OF DOC

    This is like a crop duster that's moving along the field and there's a barn down there and you know you have to get over the barn and you're too lazy to get over it right now. You can do it two ways. You can sort of ease up gradually so that you clear the barn without straining the airplane or you can wait until later and then pull back on the stick and hope that the plane climbs at a rate that's sufficient to get over the barn.

    And what Representative Bateman said is just the mathematically inevitable. The longer you wait to increase the rate, the higher the rate must be once you increase it. And if you do that increase over a short period of time, you're going to put a strain on the industrial base.

    Mr. HUNTER. The practicability of incremental funding. What do you see in terms of larger ships? I mean, we've had to arm wrestle the appropriators in this area a number of times, but do you see it as being a practical program in terms of meeting this problem?

    Mr. O'ROURKE. For certain kinds of ships that have a relatively high procurement cost and which occur infrequently in the shipbuilding budget, incremental funding can be one way of helping to reduce the impact of funding that ship on programs and other Navy programs in that specific year. And so, in that sense, it's a measure that you can look at when you have ships that fit that kind of description. And the two ships that fit it most of all are aircraft carriers and large deck amphibious ships.

    Now if you start getting ships, even expensive ones, at a procurement rate that's more like one per year, then incremental funding doesn't do very much, because you're just shifting parts of the cost of each ship into its neighboring years where it runs into the other ships of that kind anyway. But if you have ships that are expensive and are spaced apart, it's an option you can look at.
 Page 105       PREV PAGE       TOP OF DOC

    Now the full-funding policy has been in place since the 1950s. It's a policy that Congress imposed on the Defense Departments, so it's something that Congress did long ago for reasons that were very strongly felt at the time. And you can get into a very vigorous debate among reasonable people about whether it would make sense to allow, in a more official way, a relaxation of the application of that policy to ship procurement. And I'm not here to take a position on that, one way or another, because this is a congressional policy even more than it is a DOD policy.

    But what I can tell is that, in a practical sense, there have now been several ships procured in recent years with funding profiles that departed from the full-funding policies. So if people want to know whether there are precedents for doing this, the shipbuilding budgets over the last five or so years, in fact, have created ships that people can point to as precedents in that regard.

    Mr. HUNTER. Jim, did you have any questions here? Okay, Herb? Any other questions you wanted to—

    Mr. BATEMAN. No.

    Mr. HUNTER. Okay. Mr. O'Rourke, thank you very much. And for everybody that participated in all of our panels, thanks for being with us today. And we may have some follow-up questions on the record, if we could.

    One question for the Navy, what's our operational number of boats right now? Submarines.
 Page 106       PREV PAGE       TOP OF DOC

    Admiral LAUTENBACHER. Fifty-six.

    Mr. HUNTER. Fifty-six?

    Admiral LAUTENBACHER. For the fiscal year 2001 budget has 56 submarines.

    Mr. HUNTER. Fifty-six. Okay. Thank you very much. A great deal of good information, I think, was offered up today and there's no substitute for money.

    The Subcommittee is adjourned.

    [Whereupon, at 5:00 p.m., the Subcommittee was adjourned.]

A P P E N D I X

February 29, 2000
[The Appendix is pending.]