Ship reinforcements: overhauling Navy's fleet a $55 billion dilemma while budget cuts under way.

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There's a debate raging in Washington, D.C., over how to expand and modernize the U.S. Navy fleet without fleecing taxpayers.

The Navy has a 30-year goal of developing a modern 313-ship fleet, an increase from its current 280-ships, while at the same time retiring 24 ships and submarines during the next five years.

However, the Navy's recent track record of turning out new ships and collaborating with shipbuilders has been rocky. The problem was highlighted during a panel discussion by military and industry leaders at the West 2008 conference titled, "The $55 Billion Question: How Do We Fix Shipbuilding?" The conference, co-sponsored by the Armed Forces Communications and Electronics Association and the U.S. Naval Institute, was held in February at the San Diego Convention Center.

An aging Navy fleet comes at a time when the nation's shipbuilding capacity is shrinking and the U.S. Merchant Marine fleet is at a 90-year low, according to the American Shipbuilding Association.

Congress wants to reign in shipbuilding costs in the face of record deficits and two extended wars. The Navy wants its ships delivered on time for the agreed upon price. And shipbuilders want contract stability for necessary capital investments in their shipyards.

Amid the discord, San Diego's National Steel and Shipbuilding Co., owned by Falls Church, Va.-based General Dynamics Corp., finds itself in an enviable position as the steward of the successful auxiliary cargo and ammunition ship program, called T-AKE.

The Harbor Drive shipyard largest on the West Coast if not in the country, is set to launch its sixth T-AKE ship, the USNS Amelia Earhart, on April 6.

The Navy has options for 14 T-AKEs and recently awarded Nassco a $460 million contract to build a 10th ship and buy lead materials for an 11th vessel. General Dynamics Nassco President Frederick J. Harris would like to build even more of them.

He said the T-AKE could be adapted to several of the Navy's future needs such as replacing the two aging humanitarian ships, USNS Mercy in San Diego and USNS Comfort of Baltimore, and a new class of ship for the Frederick J. Harris military's Joint Command Ship program.

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"We think the T-AKE would be a great replacement," he said. "We've also offered our hull for the JCC program. With modifications, the T-AKE would meet that need and be much more affordable than other ships being considered."

Since its first T-AKE order back in October 2001, the Navy has so far awarded more than $3.27 billion in contracts to Nassco for the T-AKE program.

While material costs of steel, copper and other essentials have risen, manpower costs have gone down with each order, said Harris.

Having a proven model like T-AKE enables Nassco to implement efficiencies and lower costs with each delivery--a stark contrast to developing prototypes, which often face cost overruns, late deliveries and last-minute changes by the military.

With any new ship, Harris said, there's an 85 percent learning curve on the prototype. Each subsequent order reduces it by 15 percent.

"That's with a good program. Most are 89 to 90 percent," he said. "The T-AKE has an 82 percent learning curve, which is as good as any prototype today. On the seventh ship we are reducing man-hours by 50 percent. That's a significant accomplishment in shipbuilding."

"Some foreign navies are interested in buying T-AKEs," said retired Navy Vice Adm. Tim LaFleur, who is a defense consultant with Booz Allen Hamilton Inc. in San Diego. "That program has been a huge success. Nassco is one of the biggest employers in San Diego County. They're doing a great job of delivering quality products and taking costs out of the hull."

Harris, too, believes the T-AKE, which is a noncombatant ship, could be a good export to friendly nations.

Turning The Tide

Prior to joining Nassco, Harris directed General Dynamics' Electric Boat shipyards in New England, which builds the Virginia-class nuclear powered submarine. That program was groundbreaking, said Harris, because it put more emphasis on finalizing designs before construction--which led to fewer delays and cost overruns.

He's implemented the same philosophy at Nassco, while also convincing General Dynamics' board of directors to invest more than $100 million to modernize the San Diego shipyard. Nassco is updating equipment and relocating 400 administrative employees to Mission Valley to expand production capacity on the 83-acre site.

By taking the initiative, he said he's demonstrating that Nassco is bullish on what many see as a declining U.S. industry.

"It was hard to convince the board because of the instability in shipbuilding and the Navy's plans," he said. "You have to be bullish and have an understanding of where we can go and what we get out of this.

"I want to see shipbuilding succeed," said Harris, a 40-year industry veteran.

Nassco employs 4,700 full-time workers and about 700 to 800 contract workers, said Karl Johnson, General Dynamics Nassco communications director.

About 3,500 workers are unionized and 62 percent speak Spanish as a first language.

"We're the largest minority employer in San Diego," said Harris. "Our work force is as good as anyone's. We've got generation to generation, grandfathers to grandsons and granddaughters."

Last year, Nassco spent 300,000 man-hours toward training programs for current employees and at community colleges. Harris said there is a dire need for more skilled tradesmen.

U.S. shipbuilders are swimming against a swelling tide of competition from the governments of China, South Korea and Japan, which subsidize huge shipyards that dwarf the largest U.S. shipyards.

"In the U.S., we design a new ship every 10 years. In South Korea, they'll do 10 new designs every year," said Harris. "When you're doing that volume, those people doing the design work make sure of the ship's 'producibility.'"

Twenty years ago, the United States had 300 Merchant Marine ships, a fleet of civilian-owned commercial ships that the Navy can use during war time. Today, it has 110.

"In the '60s, we were building 75 to 80 merchant ships a year," he said. "Today, we build six ships a year in the U.S. Ten ships would be a big year."

In addition to two T-AKE ships under construction, Nassco is building a commercial tanker for U.S. Shipping Partners LP, which ordered nine.

Harris has applied efficiencies practiced abroad to the noncombatant ships that Nassco builds.

The boats slowly take shape from thousands of small metal pieces that are welded together to make bigger pieces. They eventually grow into assembled blocks of thousands of cut sheets, joints and pipes, and are welded together section by section, from bow to stern.

Congress could help Nassco and other shipyards grow by funding the Merchant Marine Act's Title XI Loan Guarantee Program, which would help shipyards get better loan terms for capital improvements to expand capacity and provide competitive prices for not only commercial ships, but also Navy ships, said Cynthia Brown, president of the American Shipbuilding Association in Washington, D.C.

"It is basically Manufacturing 101," she said. "The more through-put you have in building commercial ships and naval ships, you're producing more quantities per year and reducing costs, including Navy costs. And you get economies of scale in the quantity of your supplier base as well."

She said that in the past U.S. shipbuilders could invest in more capacity because they were bolstered by commercial orders when they weren't building military ships.

The Bush administration has never funded the Title XI Loan Guarantee Program, said Brown, whose organization is asking Congress to appropriate $60 million a year for five years, which she said would generate $1.2 billion in commercial shipbuilding orders.

"There is a pent-up demand," she said.

Budget Problems

Meanwhile, escalating costs remain a serious issue for the service's 313-ship fleet plan.

There is acrimony in Washington as new designs of Navy ships go into production with a multitude of untested technologies--destroyers with new hull designs, aircraft carriers with magnetic catapults, and combat ships designed for stealth maneuvers in shallow waters.

All of the projects have been in the works for years--more than a decade for the DDG 1000 Zumwait-class destroyer and CVN-78 aircraft carrier and about five years for the Littoral Combat Ship.

Congressional scrutiny of the cost of Navy programs is sharp. Rep. John Murtha, D-Penn., House Appropriations Defense Subcommittee chairman, recently asked Navy Secretary Donald Winter whether the new destroyer could be delayed in favor of building more auxiliary cargo ships such as the T-AKE.

And costs to build the Littoral Combat Ship, for instance, more than doubled to $471 million since 2004. Congress has placed a $460 million cost cap on future LCS's,

LaFleur, a retired vice admiral, says first-time ships typically overrun costs. It's not until the fifth delivery that costs tend to come down to target.

"LCS is the hull of the future. There's been a lot written about cost overruns on LCS, but if someone cared to look at the last five classes of ships we've built--carrier or sub or surface ship--the cost of the first hull is always huge. You never meet the cost target on the first hull," said LaFleur, who retired in 2005 as the commander of Naval Surface Forces.

"I think some people in the Navy got way over-energized that the LCS hull was costing more than estimated," he said. "They ended up canceling the second order. That set the program back a little."

But Harris says shipbuilders could help out Congress if they were given more latitude to complete the full design of the ship before embarking on construction milestones.

In South Korea, for example, construction will not begin until the entire design is completed and all work packages have been assigned and rechecked.

"That's a very, very, very big paradigm shift than in the U.S.," he said.

"Congress has to be patient," he said. "Depending on how money is budgeted, and put into a program, often you need to begin construction as a milestone so that more money is released."

Changing that paradigm would require communication and understanding from stakeholders about what it takes to build ships.

"One of the real problems in U.S. shipbuilding is the lack of stability. Plans change a number of times before you get to execution. It's hard to invest in long-term facilities," he said.

Harris is quick to add there's a difference between building commercial ships, as the shipyards in Asia are successfully doing, and building warships, which U.S. shipyards are known for.

Booz Allen Vice President Dave Karp agrees.

"No other nation is capable of building our nuclear submarines, aircraft carriers and destroyers," he said. "I agree that the Koreans and Japanese have pioneered some very efficient staging methods of ships, in turning out mass production numbers of oil tankers, commercial or merchant ships.

"I'm not sure that's relevant to the U.S. Navy when we're producing one carrier every couple of years," Karp said.