Overall inventory will reach 314 ships by FY2024 and 355 ships in FY2034. The DDG 51 class-wide extension was the principal driver of the 20-year acceleration and also provided opportunity to address higher priority readiness challenges while adjusting profiles to achieve a steady, increasing ramp to 355 (removes FY2026-2031 inventory dip).
That was the Navy’s 30-year shipbuilding plan for FY 2020. Most ship types see relatively steady inventory levels, except surface combatants, which increase from 124 in FY 2020 to 165 in FY 2034 (a net increase of one-third) and the remainder coming from Support Vessels.
The DDG-51 procurement ends in 2025, the same year a next-generation Large Surface Combatant (LSC) is due to enter procurement. In fact, almost all of the new procurement of surface combatants will be on future programs not yet designed: the FFG(X) and the LSC.
The FFG(X) is already slated to begin procurement in the upcoming fiscal year 2020, which is perhaps aggressive by Navy standards. We’ll see if they can stick to a proven design. The Navy plans to announce the outcome of the FFG(X) competition in July 2020, leaving just over 2 months of schedule margin before the fiscal year runs out. Luckily procurement funding is three-year money. But any slips in the FFG(X) and future LSC will significantly impact the Navy’s timeline for getting to 355 ships.
This is also the first shipbuilding plan in over a decade not to include the LCS, except for a brief note that some hulls will be put to the Marine Counter-Mine mission. (11 dedicated Marine Counter Mine ships will be decommissioned in the next four years, more than a third of the total ships decommissioned in that time.)
One thing you’ll note about the Navy’s shipbuilding plan is that it always shows the 30-year funding profile for the Navy’s ship construction. It always looks pretty flat. It is adjusted into some “base year” dollars, though this isn’t advertised anywhere on the chart (it just says $Millions).
Real spending only increases from about $22 billion in FY 2020 to $28 billion in FY 2031, but then it falls to back to around $20 billion for the remainder of the estimate. This drop coincides with the scheduled end of the Columbia-class procurement. It would appear, then that achieving the 355-ship Navy would not require significantly greater real spending on procurement than at current levels, save for a near-term bow wave.
In reality, the Navy uses its own price index to adjust the figures on the chart. The Navy’s index is about a one-half a percentage point above inflation to do its adjustments. Over 30 years, that translates to a 16% increase in spending compared to what the Navy shows (or $28 billion in FY2049 instead of $24 billion in constant dollars).
That deception to the uninitiated may not sound like much, just 16% over 30 years. But that may not reveal the whole picture. The Navy reports that while it estimates future cost escalation to be 0.5 percentage points above inflation, historically escalation had been 3 percentage points higher. If 3 percent real price growth were to materialize instead of 0.5%, the 2049 budget figure would be way off this chart. It would be $58 billion in constant (inflation-adjusted) dollars, or nearly 2.5 times higher than reported by the Navy. The Congressional Budget Office indicates that the cost of 47 additional ships to meet the plan would cost twice as much per ship as the Navy estimated.
Not only that, consider the program lock-in effect that this shipbuilding plan has on the acquisition community, and particularly the R&D community. There are only three new procurement happening in a 30-year timeframe. Any new program concept would face a difficult time scrapping up RDT&E funding to pursue detailed design, let alone construction. R&D funding would then
The FY 2020 shipbuilding plan is also significant because it contains the first depiction of Operating and Support costs. However, almost to confuse the reader, the dollars are quoted differently. While the procurement funding plan was in “$Million” — which we can find a footnote to suggest it was deflated by some index, which I know to be the SCN-BLS Hist price index which represents not inflation but the cost escalation of shipbuilding labor and materials prices, which only has a tenuous relationship to the prices paid for the ships themselves — the O&S costs are provided in “TY$M” or Then Year dollars (which have not been normalized by a price index, but represent the amount of funding that will be appropriated in the future years dollars).
Despite total ship inventory flat-lining in 2034, the Then Year dollars dedicated to operations and support continues to show significant increases — basically in-line with the previous trend. Yet this increase only represents 2.5 percent annualized growth, or 0.5 percent above inflation expectations. In the O&S chart, then, we see substantial increases reflecting 2.5% nominal growth, while in the procurement chart we see a rather flat funding because that 2.5% growth has been removed.
The conclusion the reader gets is that procurement funding doesn’t seem to be a problem, while O&S is spiraling out of control. That jives with the written text as well, but may not comport with reality. In fact, one of the biggest factors affecting O&S costs is the success of the design and production of ships. Cost growth and management pressure to stay on schedule often have the effect of suppressing information about errors using quick fixes that necessitate costly maintenance procedures. Whether or not problems which surfaced in the DDG-1000, CVN-78, LCS, LHA-6 and other ships will reappear in follow-on constructions as well as new ships like the SSBN, FFG(X), and future Large Combatant Ship, is still to be seen.
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