LCS-4 Cancellation Leads to New FY 08 Shipbuilding Budget

There is a lot of attention being paid to the cancellation of LCS-4, the second General Dynamics Littoral Combat Ship that was about to begin construction. This announcement has added to the frustration to date over the Navy's shipbuilding plan, with the most recent announcement point ingout accurately the FFG-7s are draining the budgets. The FFG-7s are old, breaking down, and need replacement. Adding fuel to the fire, there is a new Maritime Strategy that even John Lehman, Sec. of the Navy during the 1986 Maritime Strategy, takes a shot at in the November Proceedings rightfully pointing out that the writers punted the shipbuilding priorities is a glaring mistake of the new "Cooperative Maritime Strategy."

In dealing with the specifics, the media examines the real effects of the cancellation and other aspects of shipbuilding woes.

Although Austal Chief Executive Officer Bob Browning worked "very closely with the Navy to achieve a positive outcome, the company had no control over the prime contractor, General Dynamics, who ultimately controlled negotiations on price with the Navy," the company said in the statement released late Thursday evening in the United States, Friday morning in Australia, where Austal USA's parent company is based.

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"If you looked at the stock price. we got hammered more than General Dynamics because they're a larger company," Pfister said. As of late Friday afternoon, the share price of Austal Limited, the parent company of Austal USA, had nosedived more than 15 percent since Thursday on the Australian Securities Exchange.

General Dynamics' shares closed Friday at $90.13 on the New York Stock Exchange, down slightly from two days earlier, but still close to their 52-week high.

So much for the whole "use the second tier yard" idea. When the prime contractor is still one of the big guys, using a second tier yard doesn't seem to help much, in this case it created another way for the big guy to step all over the little guy. Congress should take note, because it has been a bad week for the little guy. The Navy has exactly 1 ship that falls into the category of "Littoral Combat Ship" and it is called Sea Fighter, FSF-1. Noteworthy the builder of FSF-1, Nichols Bros., closed its doors and is out of business as of last week.

The question is, where does the Navy go from here? Well, that was decided after the cancellation announcement. The Senate and House Committee worked out some of the major shipbuilding details after LCS-4 cancellation, and while this might shock a few, the person who stepped up was none other than John Murtha. Murtha pushed through a number of items in conference.

First, the full $588 million advanced procurement for the 2nd Virginia class submarine next year passed. This means in FY09 the Navy will build 2 Virginia class submarines.

Second, somehow Murtha changed everyones mind and the FY08 budget will include funding for 2 new Littoral Combat Ships. Prior to Friday, neither the House or the Senate had approved enough funding for even 1 new LCS. This means following passage of the FY08 budget, the Navy will still have funding for 4 total. Believe it or not, that is better than the best case scenario most envisioned following cancellation of LCS-4 last week.

Third, the Senate and House agreed to fund 1 T-AKE this year at $456.1 million, and further added $300 million more for future procurement of more. This is outstanding news for the Navy, the Navy has been reducing its logistics ships and more T-AKE fills the gap of hulls soon to be retired without replacements. If the Navy wants a large fleet, it must have the logistics base to support it.

Finally, the Senate and House agreed to $50 million advanced procurement for the tenth LPD-17. This is also very important, because while the LPD-17 had early cost troubles, the 3rd-9th LPD-17 are either on or under budget. The LPD-17 hull design has a lot to offer the Navy down the line, from new command ships to new hospital ships, and the sustainment of the shipbuilder able to produce the ship is important to keeping those costs down.

While the LCS appears to still be alive, I think what is missing is a legitimate conversation regarding what the Navy should do to address littoral warfare, a FFG-7 replacement, and an honest discussion on what a high/low mix is in the 21st century while realistically addressing cost approaches for high intensity/low intensity conflicts. I think everyone agrees it is a red flag when ~9000 ton or larger ships are fighting pirates off the coast of Somalia. The Navy doesn't have a legitimate low intensity conflict solution. Where is that discussion?

I'm starting that discussion this week.