Order Code RS20643
Updated May 24June 20, 2006
CRS Report for Congress
Received through the CRS Web
Navy CVN-21 Aircraft Carrier Program:
Background and Issues for Congress
Ronald O’Rourke
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division
Summary
The Navy’s proposed FY2007 budget requests $739 million in advance
procurement funding for CVN-78, the leadfirst ship in the Navy’s proposed CVN-21 class
of aircraft carriers. The budget also requests,
and $45 million in advance procurement
funding for the aircraft carrier CVN-79, the
second ship in the class. The Navy wants to procure CVN-78
in FY2008 and CVN-79 in FY2012. The House and Senate versionsHouse version of the FY2007
defense authorization bill (H.R. 5122/S. 2766) support procurement of CVN-78 and
CVN-79 but differ on certain items relating to aircraft carrier acquisition. This report
appropriations bill
(H.R. 5631) recommends approving this request. This report will be updated as events
warrant.
Background
The Navy’s Current Carrier Force. The Navy’s current carrier force includes
two conventionally powered carriers (the Kitty Hawk [CV-63] and the John F. Kennedy
[CV-67]) and 10 nuclear-powered carriers (the one-of-a-kind Enterprise [CVN-65]) and
9 Nimitz-class ships (CVN-68 through CVN-76). The most recently commissioned
carrier, the Ronald Reagan (CVN-76), was procured in FY1995 at a cost of $4.45 billion
and entered service in July 2003 as the replacement for the Constellation (CV-64). The
next carrier, the George H. W. Bush (CVN-77), was procured in FY2001 and is scheduled
to enter service in 2008 as the replacement for the Kitty Hawk. The Navy is proposing
to retire the Kennedy in FY2007 and thereby reduce the carrier force to 11 ships.1
The Aircraft Carrier Construction Industrial Base. All U.S. aircraft carriers
procured since FY1958 have been built by Northrop Grumman Newport News
Shipbuilding (NGNN) of Newport News, VA — the only U.S. shipyard that can build
large-deck, nuclear-powered aircraft carriers. The aircraft carrier construction industrial
base also includes hundreds of subcontractors and suppliers in dozens of states.
1
For discussion of this issue, see CRS Report RL32731, Navy Aircraft Carriers: Proposed
Retirement of USS John F. Kennedy — Issues and Options for Congress, by Ronald O’Rourke.
Congressional Research Service ˜ The Library of Congress
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Navy Aircraft Carrier Acquisition Programs. Navy aircraft carrier acquisition
efforts currently revolve around CVN-77 and the CVN-21 program. Each of these is
discussed below.
CVN-77. CVN-77, which was named the George H. W. Bush on December 9, 2002,
is the Navy’s final Nimitz-class carrier. Congress approved $4,053.7 million in FY2001
procurement funding to complete the ship’s then-estimated total procurement cost of
$4,974.9 million. Section 122 of the FY1998 defense authorization act (H.R. 1119/P.L.
105-85 of November 18, 1997) limited the ship’s procurement cost to $4.6 billion, plus
adjustments for inflation and other factors. The Navy states that with these permitted
adjustments, the cost cap now stands at $5.357 billion. The Navy also states that CVN77’s estimated construction cost has increased to $6.057 billion, or $700 million above
the cost cap, and that this $700 million is due to factors not covered by the adjustments
permitted under the cost cap. The Navy consequently . The Navy this year is requesting that Congress
amend Section 122 of P.L.
105-85 to increase the cost cap to $6.057 billion.
CVN-21 Program. The Navy’s successor to the Nimitz-class aircraft carrier design
is the CVN-21 design. CVN-21 simply means nuclear-powered aircraft carrier for the 21st
Century. Compared to the Nimitz-class design, the CVN-21 design will incorporate
several improvements, including an ability to generate substantially more aircraft sorties
per day than a Nimitz-class carrier, as well as features permitting the ship to be operated
by a crew that is several
hundred sailors smaller, than a Nimitz-class crew, which will
significantly reducereducing life-cycle operating and support costs.
In August 2004, DOD began describing the CVN-21 program as a 3-ship program
encompassing a lead ship (CVN-78) and two similar follow-on ships (CVN-79 and CVN80). Each of these ships is discussed below.
CVN-78. The Navy wants to procure CVN-78 in FY2008 and have it enter service
in FY2015 as the replacement for the Enterprise, which is scheduled to retire in 2013, at
age 52. The Navy estimates CVN-78’s total acquisition (i.e., research and development
plus procurement) cost at about $13.7 billion. This figure includes about $3.2 billion in
research and development costs and about $10.5 billion in procurement costs. Of the
$10.5 billion in procurement costs,The
procurement cost figure includes about $2.4 billion is for detailed design and
nonrecurring nonrecurring
engineering (DD/NRE) work for the CVN-21 class, and about $8.1 billion
is for building
CVN-78 itself.
The Navy’s proposed FY2007 budget requests $739 million in advance procurement
funding for CVN-78. Congress has been providing advance procurement funding for
CVN-78 since FY2001. As shown in Table 1, under the Navy’s proposed funding plan,
the ship is to be funded over a total of 9 years, with 35.3% of it’s procurement cost to be
provided in the form of advance procurement funding between FY2001 and FY2007,
32.1% to be
provided in the procurement year of FY2008, and 32.6% to be provided in
FY2009.
Dividing the main portion of the ship’s procurement cost between two years
(FY2008 and FY2009) is called split funding, which is a 2-year form of incremental
funding. Although incremental funding is not consistent with the full funding policy that
normally governs defense procurement, it has gained a measure of acceptance in recent
years within DOD, the Office of Management and Budget (OMB), and Congress as a
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as a method for funding aircraft carriers and LHA/LHD-type large-deck amphibious assault
ships. Since aircraft carriers and LHA/LHD-type ships
assault ships. Since these are very expensive ships that are
typically procured once every
few years, using split funding can mitigate the budget
“spikes” that would occur if these
ships were fully funded in a single year.
Accommodating such spikes within a finite Navy
or DOD budget can require moving
other defense programs away from the year in which the carrier or LHA/LHD-type ship
is procured, which in turn Navy programs into neighboring years, which
can increase the costs of these other defense programs by
disrupting their production
schedules. Split funding, byBy mitigating budget spikes
associated with funding carriers or LHA/LHD-
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type ships, split funding can reduce the need to shift
other programs to other years, and thus avoidneighboring years,
avoiding the extra costs associated with disrupting
their production schedules.2
CVN-79. The Navy wants to procure CVN-79 in FY2012 and have it enter service
in 2019. Under earlier Navy plans, the ship was to be the replacement for the John F.
Kennedy, which was to retire in 2018 at age 50. As mentioned earlier, however, the Navy
is now proposing to retire the John F. Kennedy in FY2007. The Navy reportedly wants
the procurement cost of CVN-79 their production schedules.2
CVN-79 and CVN-80. CVN-79 and CVN-80 would be very similar to CVN-78.
The Navy wants to procure CVN-79 in FY2012 and have it enter service in 2019. The
Navy reportedly wants its procurement cost to be no more than $8.8 billion.3 The FY2007 budget
budget requests an initial increment of $45 million in advance procurement funding for CVN-79.
CVN-80
the ship. The Navy wants to procure CVN-80 in FY2016. Its procurement cost
would would
likely be similar to that of CVN-79, plus inflation.
Table 1 shows funding for CVN-78 and CVN-79 through FY2011 as reflected in the
FY2007 budget submission.
Table 1. Funding for CVN-78 and CVN-79, FY2001-FY2011
(millions of then-year dollars, rounded to nearest million; figures may not add due to rounding)
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Total
thru
FY11
Procurement (Shipbuilding and Conversion, Navy [SCN] account)
22
135
395 1163
623
619
739 3357 3407
0
0 10461
CVN-78
45
124
451
1679
541
2841aCVN-79
0
0
0
0
0
0
45
Development (Navy research and development account)
277
319
306
350
303
274
CVN-78 231
0
0
0
0
0
0
35
CVN-79
Source: U.S. Navy data provided to CRS February 16, 2006.
a. Additional funding to be provided beyond FY2011.
124
451
1679
541
2841a
196
40
174
40
141
111
95
60
2665a
286a196
40
174
40
141
111
95
60
2665a
286a
CVN-79
0
0
0
0
0
0
2
For discussion of the full funding policy and incremental funding, see CRS Report RL32776,
Navy Ship Procurement: Alternative Funding Approaches — Background and Options for
Congress, by Ronald O’Rourke.
3
Christopher P. Cavas, “U.S. Ship Plan To Cost 20% More,” Defense News, December 5, 2005:
1, 8
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Issues for Congress
CVN-21 Acquisition Strategy. One issue for Congress concerns the acquisition
strategy to be used for the CVN-21 program. Specific questions here include 2-year vs.
4-year incremental funding, economic order quantity (EOQ) of long-leadtime
components, and block-buy contracting.
2-year vs. 4-year Incremental Funding. Some observers have proposed
shifting from 2-year incremental funding (i.e., split funding) to 4-year incremental funding
for procuring carriers. Under 4-year incremental funding, the main portion of the ship’s
procurement cost would be divided between the year the ship is procured and three
subsequent years. In the case of CVN-78, shifting to 4-year incremental funding would
result in the ship being funded over a total of 11 years (FY2001-FY2011).
Supporters could argue that 4-year incremental funding would more fully mitigate
the budget spikes associated with procuring aircraft carriers, and consequently further
2
For discussion of the full funding policy and incremental funding, see CRS Report RL32776,
Navy Ship Procurement: Alternative Funding Approaches — Background and Options for
Congress, by Ronald O’Rourke.
3
Christopher P. Cavas, “U.S. Ship Plan To Cost 20% More,” Defense News, December 5, 2005:
1, 8
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reduce the need to disrupt other programs by shifting them away from the year that the
carrier is procured. Opponents could argue that the budget spike associated with
procuring a carrier is sufficiently mitigated by 2-year incremental funding, that shifting
to 4-year incremental funding would result in an 11-year funding profile for a ship with
a nominal 7-year shipyard construction period, and that shifting to 4-year incremental
funding would further weaken the full funding policy, encouraging advocates of other
defense programs to seek the use of incremental funding for their programs.
Economic Order Quantity (EOQ) of Long-Leadtime Components. Longleadtime components are components whose manufacturing time requirestimes require that they be
ordered before the end item itself (in this case, a ship) is procured. For nuclear-powered
ships, long-leadtime components include, for example, nuclear propulsion components,
which are typically ordered two years prior to the year the ship is procured. Some
observers have proposed an up-front batch procurement of long-leadtime components for
CVN-78, CVN-79, and CVN-80. An up-front batch procurement of long-leadtime items
for multiple end items is referred to as an Economic Order Quantity (EOQ).
Supporters could argue that procuring long-leadtime components for all three CVN21 class carriers through an EOQ could reduce the cost of these components by as much
as 15%, reducing the total procurement cost of the three ships. Supporters could argue
that the enduring value of aircraft carriers, the Navy’s commitment to the CVN-21 design,
and Congress’ support over the last several years for procuring CVN-78, together make
it very unlikely that DOD or a future Congress would change its mind about the need for
CVN-79 and CVN-80. Supporters could argue that although EOQs normally take place
only within programs that have been approved for multiyear procurement (MYP), for
which the CVN-21 program has not been approved, Congress can stillnevertheless choose to approve
approve the use of an EOQ for the CVN-21 program as a means of realizing cost savings.
Opponents could argue that an EOQ for all three ships would tie the hands of future
Congresses — something that Congress traditionally tries to avoid in decisions on
discretionary spending — by creating in the near term a financial commitment to fund the
procurement of CVN-80, a ship that is not scheduled to be procured until 9 years from
now, in FY2016, under the 114th Congress. In spite of the enduring value of carriers and
DOD and Congressional support for the CVN-21 design, they could argue, potential
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changes over the next 9 years in the strategic environment, budgetary conditions, or
technology make it less than certain that the Navy will still want to procure CVN-80 in
FY2016. It would be inappropriate, opponents could argue, to use an EOQ for the CVN21 program, because the program has not been approved for MYP. The program currently
would not qualify for MYP, they could argue, because it cannot meet the requirement
under the law governing MYP (10 USC 2306b) that candidate programs demonstrate
design stability — a requirement that is normally met in shipbuilding programs by
delivering at least one completed ship built to the design. Even if the CVN-21 program
were to qualify for MYP, opponents could argue, the MYP law limits MYP arrangements
to end items that are to be procured over a period of no more than 5 years, meaning that
the arrangement could cover CVN-78 and CVN-79, but not CVN-80. An EOQ covering
long-leadtime components for all three ships, they could argue, would create an MYP-like
commitment to procure end items over an unprecedented 9-year (FY2008-FY2016)
procurement period.
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Block-Buy Contract For CVN-78 and CVN-79. Another acquisition option
would be to procure CVN-78 and CVN-79 under a block-buy contract. Block-buy
contracts are similar to MYP arrangements in that they permit a single contract to be used
to contract for the construction of multiple end items that are to be procured over a
number of years. As with MYP, block-buy contracting can reduce the cost of the items
being procured by a few percent by giving the construction facility (in this case, NGNN)
the confidence about future business that is needed to justify investments that can better
optimize its workforce and production equipment for the expected work, thereby reducing
construction costs. Unlike MYP,
block-buy contracting does not require demonstration
of design stability, and it does not
include authority for using EOQ on long-leadtime items
(which is the second way that
MYP arrangements reduce the total cost of the end items
being procured).
Block-buy contracting was invented for the Virginia-class submarine program, where
it was used to contract for the first four boats in the program; these boats were procured
over the 5-year period FY1998-FY2002. Based on the Virginia-class experience, a blockbuy contract for CVN-78 and CVN-79 might reduce the cost of the ships by a few
percent. Since these two ships have a combined construction cost of about $17 billion,
a 3% reduction, for example, would equate to a savings of roughly $500 million — about
enough to procure a Navy auxiliary ship or two Littoral Combat Ships (LCSs).
Supporters of a block-buy contract for CVN-78 and CVN-79 could argue that such
an arrangement would be consistent with both past practice in the Virginia-class program
and congressional support for procuring CVN-79, as reflected, for example, in a decision
to approve the Navy’s requested for $45 million in FY2007 advance procurement funding
for CVN-79. Supporters could also argue that the potential savings from a block-buy
contract, though fairly small in percentage terms, could be significant in absolute terms,
in light of the combined construction cost of the two ships. Opponents of a block-buy
contract for CVN-78 and CVN-79 could argue that it would tie the hands of future
Congresses by creating a commitment to procure a ship (CVN-79) that is not scheduled
for procurement until FY2012, and that this commitment would be much greater than the
commitment created by approving the Navy’s request for $45 million in FY2007 advance
procurement funding.
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Potential Alternatives to Large-Deck, Nuclear-Powered Carriers. A
second issue for Congress is whether to continue procuring only large-deck, nuclearpowered aircraft carriers like CVN-21 class ships, which have full load displacements of
about 100,000 tons, or whether procurement of such ships should be replaced by, or
supplemented with, procurement of smaller and less expensive aircraft carriers. Some
observers have suggested procurement of smaller carriers such the 57,000-ton mediumsized carrier or the 13,500-ton high-speed carrier proposed by DOD’s Office of Force
Transformation in a 2005 report to Congress on potential alternative Navy force
architectures, or an even smaller “pocket” carrier proposed a few years ago by the Naval
Postgraduate School under the project name Corsair.
Supporters of smaller carriers could argue that they would have much lower unit
procurement costs than large-deck carriers, would improve the fleet’s ability to withstand
enemy attack by putting fewer eggs (i.e., carrier-based aircraft) into each basket (i.e., each
carrier), and that building a larger number of smaller carriers is consistent with idea under
defense transformation for shifting over time to more highly distributed force
architectures. Supporters of continued procurement of only large-deck carriers could
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argue that smaller carriers are individually less survivable than larger carriers, that they
are less cost-effective in terms of the number of aircraft they can embark and sorties they
can generate per unit expenditure, and that the Navy is already moving to a more
distributed force architecture through things such as Littoral Combat Ships (LCSs) and
unmanned vehicles.
Legislative Activity
FY2007 Defense Authorization Bill (H.R. 5122/S. 2766).
House. Section 122 of H.R. 5122 limits the procurement cost of CVN-78 to $10.5
billion, and the procurement cost of subsequent CVN-21 class carriers to $8.1 billion
each, both with adjustments for inflation and other factors. Section 216 provides makes
$4 million in research and development funding available only for implementing or
evaluating proposals for the CVN-21 program and DD(X) destroyer program under the
Defense Acquisition Challenge Program. The House Armed Services Committee, in its
report (H.Rept. 109-452 of May 5, 2006) on H.R. 5122, recommended approving the
Navy’s request for FY2007 procurement funding for CVN-78 and CVN-79. The
committee stated that it accepts the use of split funding in certain cases for aircraft carriers
and LHA/LHD-type ships, but that it does not support the idea of permanently authorizing
the use of split funding for all such ships (page 69).
Senate. Section 121 of S. 2766 authorizes 4-year incremental funding for CVN-21
class ships, beginning with CVN-78, and advance procurement of components for CVN79 and CVN-80, beginning in FY2007. Section 123 increases the CVN-77 cost cap to
$6.057 billion. The Senate Armed Services Committee, in its report (S.Rept. 109-254 of
May 9, 2006) on S. 2766, recommended increasing the Navy’s FY2007 request for the
CVN-21 class procurement funding by $50 million, for use in CVN-21 advance
procurement, and directed the Navy to review EOQ and long-leadtime material
procurement for the CVN-21 class and report next year on the advance procurement
requirements to potentially optimize EOQ savings and escalation avoidance for the first
three CVN-21 class ships (page 67). The report expressed concern over CVN-77 cost
growth, and directed the Navy to report quarterly on the CVN-77 contract (page 69). In
considering S. 2766, the Senate on June 14, 2006, adopted by voice vote an amendment
(S.Amdt. 4211) to add a provision (Section 1013) to S. 2766 naming CVN-78 in honor
of President Gerald Ford.
FY2007 Defense Appropriation Bill (H.R. 5631).
House. In its report (H.Rept. 109-504 of June 16, 2006) on H.R. 5631, the House
Appropriations Committee recommended approving the Navy’s request for FY2007
procurement funding for CVN-78 and CVN-79 (page 141), and expressed concern about
cost growth on the CVN-77 construction effort (page 140).