you, Mr. Chairman, and distinguished members of the subcommittee for
giving me this opportunity to testify on behalf of the 17,000 men and
women of the newly-formed Litton Ship Systems (LSS) organization regarding
key programs and issues important to Litton's two shipyards.
Litton Ship Systems is a new
Corporate Group within Litton Industries formed coincident with the August
1999 merger of Ingalls Shipbuilding and Avondale Industries. The primary
mission of LSS is to focus on customer service and increase shareholder
value by successfully coordinating the consolidation of Ingalls
Shipbuilding with Avondale Industries, mining all possible synergy savings
resulting from this merger, managing the programmatic, financial,
marketing and strategic planning operations of these two shipyards, and
representing Litton's two shipyards with one voice.
consolidation of Ingalls and Avondale makes good business sense at a time
when rapid industry consolidation was, and still is, underway and in an
environment where the way in which the Navy procures ships is changing
acquisition will result in a much stronger competitor for all non-nuclear,
surface ship programs and services and will generate significant savings
for the American taxpayer.
little more than 30 weeks into this merger, Litton Ship Systems has firmly
identified tens of millions of dollars in merger synergy savings and
expects to identify much more. These
savings will be passed along to the government in the form of savings on
existing programs and lower bids on new programs, and will create
additional value for Litton shareholders.
These savings will come from myriad areas, including combined
material procurements, combined marketing, common financial and
engineering tools, shared work and a stable work force, optimal use of
geographically-close facilities, sharing of best practices, a combined
approach to capital improvements and sharing of lessons learned.
As an example, less than two months after the merger, Ingalls began
filling production requirements for Avondale by fabricating certain steel
modules for Avondale's Sealift Ship Program.
merger was also a response to a shipbuilding environment where bigger is
better; bigger engineering organizations, larger capacities, a larger
depth and breadth of skills, more combined access to capital for
efficiency improvements and strong corporate parents. And we believe that
we will be a better and stronger competitor, more efficient and with more
opportunities for growth. A significant capital improvement program is
currently underway at Ingalls that improves heavy-lift and drydock
capabilities and provides increased flexibility in production areas, all
of which will result in numerous efficiency improvements. These capital
improvements were carefully planned, taking into account complementary
capabilities at Avondale and a future, stable ship production rate.
Return on this investment will be maximized with a stable rate of
future ship production.
DDG 51 Destroyer program is a mature program, running very smoothly,
resulting in a highly capable and affordable warship being delivered by
LSS at a rate of about 1.5 ships per year.
To date, 25 DDG 51's have been awarded to Ingalls, many of these
through multi-year procurement authority granted by the Congress. The
program has been made even more affordable with the use of multi-year
procurements, shared processes and material purchasing between Ingalls and
General Dynamics, close government-industry teaming and a stable
production rate of three ships per year split evenly between Ingalls and
GD. The proposed reduction in the DDG 51 procurement rate to two ships per
year beyond fiscal year 2001 gives us cause for concern in the areas of
affordability, skill retention and optimal facility utilization.
1998, LSS has been funded and actively participating in the follow-on
destroyer program to the DDG 51, the DD 21 program.
The unique acquisition approach has Ingalls as leader of the DD 21
Gold Team -- with Raytheon Corporation as systems integrator -- and as
co-leader of the DD 21 Alliance, with GD.
The competition has been intense, and the investment of time and
people has been significant. The
result will be a revolutionary ship design produced in an affordable and
stable manner by this country's two premier surface combatant shipyards.
However, in recent years the start of lead ship production for this class
has slipped from fiscal year 2003, to fiscal year 2004 and now, in the
latest Navy budget, to fiscal year 2005 with sustained production proposed
to start in fiscal year 2007.
decisions to stretch out DDG 51 procurement and delay the start of the DD
21 program must be made with a careful eye toward impact on the industrial
base, as well Navy requirements. Extension
of multi-year procurement authority and higher, stable procurement rates
through the remainder of the DDG 51 class should be a high priority, along
with careful attention to marrying the end of the DDG 51 class with the
beginning of the DD 21 Destroyer Class.
It is critical to the affordability of these programs, to
maintaining a "hot" production line, and to maintaining a
300-ship Navy that the remainder of the DDG 51 program and the DD 21
Destroyer program be carefully planned together with an emphasis on
maintaining a stable rate of production of at least three surface
combatants per year.
On February 4th, LSS launched the
LHD 7 Amphibious Assault ship. The LHD 7 will be christened the IWO JIMA
on March 25th. In fiscal year
2000, the Congress provided $375 million to begin incrementally procuring
LHD 8, rather than conduct a major mid-life upgrade to an older LHA 1
Amphibious Assault Ship, in order to maintain the twelve Amphibious
Readiness Groups needed to meet operational commitments. This is in
addition to the $45 million approved for LHD 8 in fiscal year 1999.
Included in the LHD 8 design will be new gas turbine propulsion,
electric auxiliaries, lower manning and life-cycle costs and facilities to
accommodate the MV-22 aircraft. Procuring
LHD 8 as soon as possible and taking advantage of the "hot"
production line at Ingalls will save the taxpayers hundreds of millions of
LHD 1 ship class and the older LHA 1 ship class built at Ingalls form the
nucleus of the twelve Marine Amphibious Readiness Groups currently in
operation. Like all vessels, these ships must either be replaced on a
regular basis as they reach retirement age or face major overhauls to
accommodate new technologies and new missions.
As the U.S. Navy and U.S. Marine Corps make future procurement
decisions to maintain at least twelve operational ARGs, the choice should
be made to procure additional new large Amphibious Assault ships with new
technologies and capable of handling the new mission requirements.
It is not too soon to begin this process to help maintain the
stability in our industry, an industry that is fragile at relatively low
overall production rates.
Avondale Alliance of Avondale Industries and Bath Iron Works is also
involved in a major Amphibious Ship effort with the 12-ship LPD 17
program. These highly capable
ships replace 41 older ships and will introduce significant reductions in
life cycle costs. Indeed, over $4 billion in reductions to total ownership
costs have been identified so far. This
program is now well underway, with keel laying for the first LPD 17
scheduled for December 2000. These ships are also major components of the
ARG, and priority should be placed on procuring the remaining ships in
this class in an efficient and stable manner.
aforementioned military shipbuilding programs, and other critical future
programs such as JCC(X) and ADC(X), form the core of ship programs at LSS,
but are not sufficient to operate our facilities at optimal levels.
We have pursued successfully additional core commercial programs
that capitalize on the expertise at Ingalls and Avondale and that
contribute to stabilizing the business base, retaining skills and
generating significant commercial expertise at both facilities.
March 1999, Ingalls was awarded a contract to design and produce two
2000-passenger, 72,000 ton cruise ships for the Hawaiian trade. The first ship begins production on July 3rd of this year and
has been planned closely with the construction schedules of LHD 8 and DDG
51 destroyers. In June 1997,
Avondale was awarded a contract to design and produce three Suezmax one
million barrel tankers for the Alaskan trade. These programs could not
have happened without the contribution of the Jones Act, the Title XI Ship
Loan Guarantee program and the extraordinary efforts of the U.S. Maritime
Administration. These and
future commercial programs being pursued aggressively by LSS are critical
elements of our overall strategy to maintain stability in production,
retain skills and apply commercial lessons to improve our overall
LSS continues to pursue aggressively foreign military programs throughout
the world. The Defense Export Loan Guarantee remains a powerful potential
tool to aid in successfully winning international programs to produce
era of Acquisition Reform began officially with the signing of the Federal
Acquisition Streamlining Act of 1994 and the Federal Acquisition Reform
Act of 1996. The key tenets
of Acquisition Reform -- early industry involvement, teaming, commercial
practices, innovation, full service contracting and best value -- began
immediately and have increased with each successive program.
The impacts have been intensified by the parallel consolidations
ongoing within the Navy shipbuilding industry.
Increased requirements for competitive firewalls, significant and
early investment, teaming, innovation and new skills are the direct
results of this new acquisition environment. To help respond to this
environment, the merger of Ingalls and Avondale has provided us with a
larger repertoire of talent and skills and a larger business base for
increased emphasis on innovation as a major award criteria for new
contracts results in an increased emphasis by LSS on Research &
Development and the pursuit of both funded and independent research
programs. Funding for surface
ship R&D is important to the overall health and competitiveness of the
Finally, LSS is confident that "Full Service
Contracting" initiatives being taken by the Navy to partner more
closely with industry throughout all stages of an acquisition program will
be a win-win for government and industry. It will enable long-term
relationships to form, long-term cost-effective solutions to be developed,
a long-term balance to be struck between public and private industry and
total life cycle costs to be reduced significantly over an entire
LSS is doing its part in
aggressively responding to a changing environment, a consolidating
industry, a very tight labor market and a demand for new skills and
sophisticated and affordable ships. We are aggressively exploiting
synergies between Ingalls and Avondale. Our Strategic Plan contains
specific initiatives to respond to the changing acquisition environment,
to grow our businesses and to continue to be a strong competitor in all
non-nuclear surface ship programs and services.
We appreciate efforts by the Congress to bring new approaches to ship acquisition into the mainstream, including incremental funding and multi-year procurements. We urge the Congress to help maintain stability in ship production rates. And we look forward to playing our part in helping to sustain an affordable 300-ship navy. Thank you.