Tuesday, June 5, 2012

How long would it take the shipbuilding industry to grow capacity and throughput if the nation faced a naval crisis or conflict?

Today's guest is Mike Petters, President and Chief Executive Officer of Huntington Ingalls Industries.

How long would it take the shipbuilding industry to grow capacity and throughput if the nation faced a naval crisis or conflict?

Anticipation, Not Reaction, is Critical

The fact is the shipbuilding industry is not designed to respond rapidly to a crisis. Whatever the conflict, the nature of our business dictates that we play with the team we’ve got.

Ours is a business of anticipation, not reaction. There is nothing magical about it. To meet tomorrow’s crisis or conflict requires continuous investment today to ensure we can deliver capability critical to our nation and economic security. It requires that we have robust, stable and efficient operations and a supplier base that allow us to build ships as quickly and as affordably as possible. I know one thing for certain: Further budget cuts in defense could have a potentially devastating impact to our healthy but fragile industrial base.

The shipbuilding business operates on extended cycles. Ships take years to construct. For example, it takes eight years to build a nuclear-powered aircraft carrier. A stable, strategy-driven shipbuilding plan is crucial. We are sizing ourselves today to support the Navy's 30-year shipbuilding plan. If the Navy decided to double the numbers in the plan—for whatever reason—it wouldn’t necessarily take twice as many people or twice as long for us to build those ships, but it would take a long time (on the order of years) for us to hire and train the shipbuilders and create the infrastructure to do it.

By the same token, we can’t cut ships from the 30-year plan and expect to be able to quickly “ramp up” production years down the road when we decide we need more ships after all. That’s why maintaining the industrial base is so critical. I look at it in terms of software (hiring, training and retaining the right employees) and hardware (facilities, tools and equipment).

It’s all about the people

People are our most important resource. Building military warships today is highly specialized and complex work requiring specialized, skilled and talented workers. And retention of these skilled workers is most vulnerable during a crisis as the hiring landscape becomes more competitive.

The nature of today’s potential crises requires us to move away from commercial solutions and look to a more specialized workforce and product. That workforce must be able to create complex technology that meets the demands of the time. If we don’t maintain that workforce, we could find ourselves without the requisite skills needed to build the ships of the future.

When the Royal Navy set out in 1997 to develop a new class of nuclear attack submarines, it discovered some five to six years into the program that it did not have vital design and production skills to produce the Astute-class ships. The Royal Navy looked to the U.S. for assistance. Where would we look if we lost those skills? Newport News Shipbuilding, a division of Huntington Ingalls Industries, is one of only two remaining shipyards capable of constructing nuclear-powered vessels; it is a national asset that must be sustained and preserved. That includes sustaining and preserving the knowledge base.

Building a workforce to meet increased demand requires hiring people with the requisite skills and education, training that workforce and then retaining that workforce. These processes must be in place and robust to be able to react to a crisis. You cannot grow a highly specialized workforce overnight.

I know this from experience. Following Hurricane Katrina, HII’s Ingalls Shipbuilding division on the Gulf Coast was devastated. From that crisis we learned that you can’t rapidly recreate a shipbuilding capability. It took several years to rebuild our human capital and return to what we define as pre-storm “normal operations.”

If you wanted to create today’s shipbuilding capability from scratch, which for HII means hiring nearly 40,000 people, it would take years. In a perfect world, we might be able to hire 1,000 people a month, which equates to more than three and a half years to get to our roll numbers of today. Add to that another three to five years to train that workforce with basic skills and longer for specialized skills. Undoubtedly, it’s more challenging for us to hire qualified employees than it is for other industries because of our citizenship and security clearance eligibility requirements.

Let me share some basic facts on growing skilled shipbuilders: It takes three to five years to hire someone off the street then train and develop him or her into a journeyman-level employee; this can be significantly longer for someone to become qualified to perform nuclear work. For example, it takes an average of eight years to develop a fully certified nuclear pipefitter. Our apprentice schools at Newport News and Ingalls take four to five years to graduate a journeyman-level employee. 

Infrastructure requires investment

There are basically two shipbuilding companies (HII and General Dynamics) remaining in this country building complex and technologically advanced military ships today.

Again I think back to just after Hurricane Katrina and what it took to retool and rebuild the shipbuilding infrastructure on the Gulf Coast. If we were to start with a “green field” today, it would require a capital investment costing hundreds of millions of dollars. Where does this capital investment come from absent of a stable shipbuilding plan? Stability attracts both investment in our shipbuilding infrastructure and the critical talent. Assuming that this level of capital investment is available, you’d then have to build the facilities including steel, pipe and sheet metal lines, all of which would take two to three years due to lead time on equipment, adding buildings to house the equipment and getting the lines up and running. Like our skilled workforce, we have to look at ways of sustaining and preserving our current shipbuilding infrastructure to build the nation’s military ships.

Supply Chain is the third leg of the stool

Sustaining and preserving the supply chain is the third component of maintaining our shipbuilding capability. Each of our suppliers would face similar challenges, although they would likely be on a smaller scale and a much shorter timeline. Over the past two decades, we have witnessed a contraction of the supply chain for shipbuilding due to both decreasing shipbuilding demand and program instability. This has already impacted our nation’s ability to rapidly increase shipbuilding capacity. Some resource areas will be drivers of ship schedules due to the time it would take to get new capacity online such as foundries and major machine works.

I can tell you that more than half of HII’s 5,000 suppliers are the sole source of particular parts and services. If you step back and think about what sequestration could do to that, the more than half that are sole source, that number could go up. That can dramatically impact cost and schedule.

In recent years I have seen greater use of multiyear procurements for submarines and destroyers, and most recently, the block-buy contracts for the Littoral Combat Ship (LCS). These types of contracts enable greater economic efficiency to provide the shipbuilder and industrial base with a stable, relatively long-term business base that helps us justify maintaining a highly skilled workforce, process investment and infrastructure improvements that better position us to respond to the nation’s security requirements. The success of the Virginia-Class Submarine Program is a perfect example of the benefits of serial production. These ships are consistently delivered early and the efficiencies are greater from ship to ship to ship. I would encourage the Navy to make broadest use of multiyear contracts and block-buy contracts.

The U.S. has traditionally been sea dependent. Ninety percent of the world’s commerce moves on the water. Failure to protect our sea lanes of trade, shipbuilding industrial base and seaport infrastructure would severely damage the economy and our ability to maintain a strong national defense. To not invest today and to let this industry wither away is more than just a budget decision. I strongly believe it is a strategic decision with serious, long-term national security implications.

As I asserted earlier, shipbuilding is a business of anticipation, not reaction. Today it takes about three years to deliver a surface combatant ship, four years to deliver a large-deck amphibious ship and eight years to build an aircraft carrier. In a time of crisis or conflict, these times could possibly be condensed, but it would still be a matter of years before those currently unplanned warships went operational unless we have been leaning forward as a country, anticipating and building industrial base capacity in support of a long-range Navy strategy, and continuing to invest today to ensure the security of our country’s future.

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