Thank you, Mr. Chairman, Members of the Committee, for this
opportunity to testify on behalf of the American Shipbuilding Association
on the state of the industry.
The American Shipbuilding Association is the national trade
association that represents the six largest shipbuilders in the United
States. They are:
Avondale Industries of Louisiana; Bath Iron Works of Maine;
Electric Boat of Connecticut; Ingalls Shipbuilding of Mississippi;
National Steel and Shipbuilding of California; and Newport News
Shipbuilding of Virginia. These
shipyards build all of the capital ships for the U.S. Navy and large
oceangoing commercial ships.
During the 1980's, the U.S. Navy was ordering an average of 19
ships per year. Throughout
most of the 1990's, the Navy ordered an average of only six ships per
year. As a result of this
historically low rate of ship production, the industry has re-engineered
the way in which we design and build ships to reduce costs.
Between 1991 and 1997, the industry was forced to cut its workforce
by 33 percent while simultaneously making tremendous investments in
technology, in facilities, and in training our people to use the latest
technology in the design and manufacturing process.
We continually strive to improve our products and manufacturing
processes through greater use of commercial technologies and practices in
order to deliver the most sophisticated ships in the world at an
In spite of our on-going achievements in reducing costs, the full
benefit of these investments will not be fully realized until stable,
higher rates of ship production are achieved.
The most important cost saver in ship production is stability.
Large swings in the number of ships ordered is extremely costly to
shipbuilders, and to the taxpayer. It
takes years to train our highly skilled employees. When production rates decrease, shipbuilding companies must
lay off thousands of workers, only to later recruit, hire, and train new
workers when production rates increase.
Not an easy task. These
contractions and expansions have a costly multiplier effect throughout the
entire shipbuilding supplier base. Stable,
higher rates of ship production produce cost savings, and stable, higher
budgets equate to stable shipbuilding programs.
The Navy's fiscal year 2001 budget is based on the force structure
levels of the May 1997 Quadrennial Defense Review.
This assessment determined that the Nation could not afford to fall
below a minimum of 300 naval ships and still meet the Nation's security
shipbuilding budgets have not been providing for a 300-ship fleet.
For the past seven years, an average of only six ships have been
procured -- which is four ships below the required stable build rate of 10
ships per year. This has left the Nation with a shortfall of 32 ships.
The Navy's fiscal year 2001 budget request and five-year plan calls
for the construction of only eight ships in each of the next four years
and seven ships in 2005. As a
result, the Nation's naval fleet will continue to shrink and fall below
Mr. Chairman, as you have stated on many occasions, Navy
shipbuilding budgets will have to be increased if the Nation is to rebuild
and maintain a bare bones minimum fleet of 300 ships.
Should Congress and the Administration decide to increase naval
shipbuilding, industry urges that increased budgets be combined with the
best commercial business practices in the acquisition and financing of
ships to maximize stability and cost savings.
Ships are very different from any other defense system.
They take three to seven years to build, and they are bought in
very few quantities. Aircraft
and missiles are bought in the hundreds of units -- ship classes can be
counted on your fingers and toes. The
uniqueness of naval ships dictates the need for different acquisition
approaches if stable production rates and greater cost savings are to be
We applaud this Committee's support of Multi-Year Procurement
contracting for the DDG-51 class of destroyers and encourage extending
this type of contracting to other ship classes, like submarines, where a
quantity in "Ship-Terms" is planned to be procured.
This type of contracting method allows the shipbuilder to buy
materials and systems for multiple ships of the class.
The savings in a quantity material and system buy is substantial
versus a one-off buy under current shipbuilding practices.
For other ship classes - such as the LHD class of large deck
amphibious ships and the next class of aircraft carriers (CVN(X)) - it
would make sense to spread the funding for these ships over several years,
rather than budget the full amount in one-year.
Only one of these types of ship is bought once every three to five
years. They are high cost
systems, and they take four to seven years to build.
If the Department were directed to fund these ships on an
incremental basis, they would be more affordable, shipbuilding budgets
would be much more stable, and breaks in production of other ship classes
would be prevented.
For noncombatant ships, ASA applauds this committee for its support
and leadership in working to give the Navy the authority to enter into
long-term leases for the services of these commercial-like ships.
Last year, you gave the Navy 25-year lease authority for
noncombatants. However, the
Navy will not be able to use this authority until Congress defines these
leases as "Operating Leases" to allow for the annual budgeting
of the actual lease payment. Because
these leases are presently defined as "Capital Leases", the
Department would have to seek budget authority in the first year for the
total amount of the 25-year lease -- thus, nullifying the benefit of
leasing. Long-term leasing is a financing method used extensively by
the commercial shipping sector. If
the Navy could do the same for its commercial type vessels, it would
relieve budgetary pressures on the combatant ships in the Shipbuilding and
Conversion account and give the Department the means to acquire the
services of equally critical noncombatant ships for sealift,
prepositioning, and other support missions.
The noncombatant fleet of the Navy is aging.
Many ships have, or will soon reach the end of their service life.
In many cases, the annual savings that would be realized in
maintenance from the older ships would be sufficient to cover the lease
payment of new ships.
On the commercial front, I would like to stress how important
commercial shipbuilding is to our national security, and thank this
committee for its leadership in this area.
When we build commercial ships, the Navy benefits in a number of
ways. Commercial ship
construction enables us to introduce into Navy shipbuilding programs
commercial technologies and manufacturing processes that improve the
quality of naval ships and enhance our productivity in Navy programs. Our commercial business also helps us to stabilize our
skilled workforce levels and reduce our overhead costs. The Navy is the beneficiary of our commercial work in the
form of lower cost naval ships and improved quality.
To this end, we ask for your support in providing $50 million a
year for the Title XI Ship Loan Guarantee Program to assist ship buyers
secure financing for the construction of commercial ships in our
shipyards. $50 million would
guarantee $1 billion in ship construction loans.
Another important bill before this Congress is, H.R. 3392, The All
American Cruise Act of 1999 sponsored by you Mr. Chairman.
We applaud your vision in this important market.
If enacted, this bill would give American builders and American
owners of cruise ships tax parity with foreign cruise ship companies that
operate from American ports. Your
legislation would create a new industry in the United States and generate
significant economic activity that in turn would generate more tax income
for the treasury.
Title XI and The All American Cruise Act of 1999 will stimulate
commercial shipbuilding which supports and strengthens our national
Let me close by saying that a 300-ship Navy will require a steady
build rate of more than 10 ships a year.
We urge Congress to do everything in its power to meet the Nation's
fleet requirements, and we recommend that the best commercial business
practices be used in the acquisition of naval ships to ensure the Nation's
needs are met in the most cost-effective and affordable manner possible.