Order Code RS22595
February 1, 2007
Navy Aegis Cruiser and Destroyer
Modernization: Background and Issues for
Congress
Ronald O’Rourke
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division
Summary
The Navy wants to modernize 84 Aegis cruisers and destroyers over a period of
more than 20 years at a potential total cost of about $9.7 billion in today’s dollars. The
Navy’s plan poses several potential issues for Congress, including the Navy’s overall
vision behind the plan; the schedule, sequence, and scope of the destroyer
modernizations, as well as the shipyards to be used for executing them; the strategy for
achieving an open architecture combat system on the 84 Aegis ships; and whether to
extend the ships’ service lives from 35 years to 40 years. Congress’s decisions
regarding Aegis ship modernizations could affect future Navy ship force levels and
capabilities, Navy funding requirements, U.S. shipyards, and makers of Navy ship
combat systems. This report will be updated as events warrant.
Background
Aegis Cruisers and Destroyers. The Navy’s current cruisers and destroyers are
called Aegis ships because they are equipped with the Aegis combat system — an
integrated combination of sensors, weapons, computers, software, and display systems
that was named for the mythological shield carried by Zeus. The Aegis ships are multi-
mission ships for conducting missions such as anti-air warfare (air defense), ballistic
missile defense, anti-submarine warfare, anti-surface warfare, naval surface fire support
for forces ashore, and Tomahawk cruise missile strikes.
The Navy’s Aegis ships include Ticonderoga (CG-47) class cruisers and Arleigh
Burke (DDG-51) class destroyers. A total of 27 CG-47s were procured for the Navy
between FY1978 and FY1988; the ships entered service between 1983 and 1994. The first
five, which were built to an earlier technical standard, were judged by the Navy to be too
expensive to modernize and were removed from service in 2004-2005. The Navy plans
to keep the remaining 22 ships in service to age 35. A total of 62 DDG-51s were
procured for the Navy between FY1985 and FY2005; the first entered service in 1991, 49

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were in service as of the end of FY2006, and the 62nd is scheduled to enter service in late
2010 or early 2011. The Navy currently plans to keep them in service to age 35.
Between 2010/2011, when the 62nd DDG-51 enters service, and 2021, when the first
of the 22 remaining CG-47s reaches age 35, the Navy plans to maintain a force of 84
Aegis ships — 22 cruisers and 62 destroyers. These 84 ships equate to about 27%, or
more than one-quarter, of the Navy’s planned total force of 313 ships.1 Aegis ships are
to account for the majority of the Navy’s cruiser-destroyer force into the 2030s, and the
last of the 84 ships are to remain in service into the 2040s.
Major Contractors for Navy Surface Combatants. The builders of the 84
Aegis ships are General Dynamics’ Bath Iron Works (GD/BIW) of Bath, ME (7 CG-47s
and 34 DDG-51s), and the Ingalls shipyard of Pascagoula, MS, that forms part of
Northrop Grumman Ship Systems (NGSS) (15 CG-47s and 28 DDG-51s). Several U.S.
shipyards maintain and repair Aegis ships, with much of the work done under multi-
ship/multi-option (MSMO) contracts. Under a MSMO contract, a shipyard is responsible
for conducting depot-level maintenance work on several ships in a class.
The primary contractor for the Aegis system is Lockheed Martin’s Maritime Systems
& Sensors division of Moorestown, NJ. Lockheed and the firms that previously owned
the Moorestown facility have been the primary Aegis contractor since the 1970s.
Lockheed’s current contract for acting as Aegis system integrator, called the 5197
contract, was awarded in 1998 and will expire on September 30, 2007. Other makers of
Navy surface ship combat systems include Raytheon, the maker of, among other things,
the combat system for the Navy’s new DDG-1000 class destroyers, and General
Dynamics, the maker of the combat system for the General Dynamics version of the
Littoral Combat Ship (LCS).2
Purpose of Modernization. A primary objective of the Aegis ship modernization
effort is to improve the ships’ combat capabilities so that the ships will remain mission-
effective to age 35. A second major objective is to make the ships less expensive to
operate, maintain, and modernize over the remainder of their lives. The modernization
is not intended to extend the ships’ expected lives from 35 years to some higher figure,
such as 40 years.
Planned Modernization Work. The Navy’s plan includes modernization of the
ships’ basic hull, mechanical, and electrical (HM&E) equipment, and modernization of
their combat systems. In both areas, the Navy plans to install new systems or components
that are more capable than the ones they are to replace. Some of the planned changes are
intended to permit the ships to be operated with a smaller crew, thereby reducing their
annual operation and support (O&S) costs. Planned changes to the ships’ combat systems
are intended to, among other things, begin shifting their Aegis computers and software
1 For more on the Navy’s planned 313-ship fleet, see CRS Report RL32665, Navy Force
Structure and Shipbuilding Plans: Background and Issues for Congress
, by Ronald O’Rourke.
2 For more on the DDG-1000 and LCS programs program, see CRS Report RL32109, Navy
DDG-1000 (DD(X)) and CG(X) Ship Acquisition Programs: Oversight Issues and Options for
Congress
, by Ronald O’Rourke, and CRS Report RL33741, Navy Littoral Combat Ship (LCS)
Program: Oversight Issues and Options for Congress
, by Ronald O’Rourke.

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to a more open architecture (OA), meaning, in general terms, an arrangement that uses
non-proprietary computers and software. The Navy believes that moving to an Aegis
open architecture will permit the Aegis system to be updated over the remainder of the
ships’ lives more easily and less expensively, using contributions from a variety of firms.
Cost. The Navy estimates that modernizing the first 8 CG-47s would cost an
average of about $221 million per ship, while modernizing the DDG-51s would cost
about $78 million per ship in today’s dollars. Using these figures, the total cost of the 84-
ship effort could be about $9.7 billion in today’s dollars. By comparison, the Navy
estimates the combined procurement cost of the first three DDG-1000 class destroyers at
about $9.2 billion. Table 1 shows annual funding for the Aegis ship modernization
program.
Table 1. Funding for Aegis Ship Modernization
(millions of then-year dollars)
FY05
FY06
FY07
FY08
Aegis cruisers
RDT&EN
0
14.1
7.9
OPN
0
125.4
233.7
WPN
0
5.4
18.5
OMN
0
45.8
98.5
Cruiser subtotal
0
190.7
358.6
Aegis destroyers
SCN
49.8
50.0
0
OPN
0
3.0
32.2
OMN
0
10.0
3.9
Destroyer subtotal
49.8
63.0
36.1
TOTAL
49.8
253.7
394.7
Source: Table prepared by CRS using U.S. Navy data. RDT&EN is the Research, Development,
Test and Evaluation, Navy appropriation account; SCN is the Shipbuilding and Conversion, Navy
account; OPN is the Other Procurement, Navy account; WPN is the Weapon Procurement, Navy
account, and OMN is the Operation and Maintenance, Navy account.
Schedule. Under the Navy’s plan, the oldest cruisers and destroyers would be
modernized first, followed by progressively younger ships. Due to the schedule for
producing parts of the modernized combat system for the cruisers, three of the first four
cruisers would be modernized in two separate shipyard periods, with the HM&E work
being done first, and the combat system work done later. Subsequent cruisers, and all the
destroyers, would have all modernization work done during a single shipyard period.
Total time in the shipyard for each ship would be a year or less.
The cruiser modernizations began in FY2007. The first completely modernized
cruiser is to be delivered to the fleet in FY2008. Two more are to be delivered in each of
FY2009 and FY2010, and three per year are to be delivered starting in FY2011. Under
this schedule, all 22 cruisers would be modernized by FY2016. The Navy wants to fully
fund the first destroyer modernization in FY2008 and increase the rate to three ships per
year in FY2009. Under this schedule, funding of the destroyer modernizations would

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span 22 years. Destroyers would return to service two years after the year in which their
modernizations are funded. (The first year would be used to procure the equipment to be
installed, the second year to install the equipment at the shipyard.) The first modernized
destroyer would be delivered in FY2010, and the last around FY2031.
Shipyards Performing The Work. The Navy plans to use competitively
awarded MSMO contracts for executing the Aegis modernizations. Under the Navy’s
plan, all U.S. shipyards would be eligible to compete for the contracts. Navy policy calls
for modernizations lasting longer than 6 months to be competed on a coast-wide basis,
meaning that competitions would be open to all yards located along the same coast where
the Aegis ships in question are homeported.
Potential Issues for Congress3
Overall Vision Behind Modernization Plan. Some industry sources question
the Navy’s logic behind the Aegis ship modernization program, arguing that the Navy
lacks a sufficiently thought-through overall vision — a desired end-point — for the
surface combatant force, and that in the absence of such a vision, the Navy is planning to
spend money on Aegis ship modernizations in a scattershot manner, without knowing
whether this will lead to the best-possible future surface fleet for the Navy. These sources
argue that, before spending money on Aegis ship modernizations, the Navy should
develop a more fully considered overall vision for the future of the surface fleet that looks
at the surface force and the Navy as a whole as parts of a larger network of defense
capabilities involving other U.S. military forces. One potential alternative to the Navy’s
plan would be to forego some or all of the Aegis ship modernizations, accelerate the
planned procurement of next-generation cruisers and destroyers, and replace the
unmodernized Aegis ships with the accelerated replacement ships.4
Schedule And Sequence For DDG-51 Modernizations. Some industry
sources propose that Navy fund four DDG-51 modernizations per year, rather than three,
so that the 62-ship DDG-51 modernization program could be finished years sooner. A
4-per-year rate, these sources argue, would reduce total Navy expenditures considerably
be improving economies of scale for the DDG-51 modernizations and by more quickly
reducing DDG-51 operating costs. Other industry sources argue that the Navy should
begin the DDG-51 modernizations with DDG-51s currently under construction, followed
by whatever DDG-51s are scheduled for depot-level maintenance. Still others argue that
the Navy should upgrade the combat systems on younger DDG-51s when they come into
yards for periodic overhaul and repair work, while modernizing older DDG-51s at the
same time.
3 This section is based in part on CRS interviews conducted in January 2007 with several major
defense firms that have an interest in the Aegis ship modernization program.
4 The Navy plans to replace the 22 CG-47s with CG(X) cruisers to be procured between FY2011
and FY2023, and the 62 DDG-51s with a comparable number of DDG(X) destroyers, the first of
which would be procured in FY2023. The DDG(X) is not to be confused with DD(X), the prior
name of the new DDG-1000 destroyer, which is not intended as a replacement for either the CG-
47s or the DDG-51s.

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Shipyards For DDG-51 Modernizations. Some industry sources propose
allocating all the DDG-51 modernizations to GD/BIW and NGSS, with each firm
receiving one-half of the ships. These sources argue that this would reduce the cost of the
DDG-51 modernizations by permitting the two firms to achieve sustained learning-curve
benefits in the program, and also support the shipbuilding industrial base by providing
additional work to the two yards that have built all Navy cruisers and destroyers procured
in recent years. Competitive pressure on GD/BIW and NGSS, these industry sources
argue, can be maintained by employing Profit-Related Offers (PROs), under which the
two yards would bid prices for performing the modernizations allocated to them, with the
lower bid winning a higher profit margin.
Scope of DDG-51 Modernizations. Some industry sources have suggested
expanding the scope of the DDG-51 modernizations in various ways to further increase
the ships’ capabilities or further reduce their crew sizes and operating costs. One proposal
would add some electric-drive propulsion equipment to the ships’ existing mechanical-
drive propulsion systems to more fully interconnect the mechanical-drive components,
which could reduce the ships’ fuel use and create other operational advantages.5
Aegis Open Architecture. Some industry sources have expressed concerns about
the Navy’s plan for moving to an open architecture on the Aegis system, arguing that it
will not shift the Aegis ships to a truly open architecture, or do so quickly enough.
Related to this, some industry sources have expressed strong interest in, and concerns
about, how the Navy will determine who will be the Aegis system integrator after the
5197 contract expires on September 30, 2007. Some industry sources would like the
Navy to hold a competition for the system integrator work, and to structure the
competition in particular ways, while others have expressed concern that a holding a
competition could lead to delays and risks in the Aegis ship modernization program.
Aegis open architecture is viewed as important by the Navy and industry not only
because of its potential effect on the Aegis ships, but also because it might become an
initial step toward developing a common open-architecture combat system for other Navy
surface ships, such as aircraft carriers, amphibious ships, and LCSs. The issue of how to
implement open architecture more widely through the surface fleet is reportedly a topic
of significant discussion in the Navy.6 A difference of opinion on the matter was
5 For more on this proposal, see CRS Report RL33360, Navy Ship Propulsion Technologies:
Options for Reducing Oil Use — Background for Congress
, by Ronald O’Rourke.
6 Geoff Fein, “Working Group Focused On Accelerating Open Architecture,” Defense Daily, Jan.
24, 2007; Geoff Fein, “Navy Needs To Consider If Shipbuilders Should Handle Software Work,”
Defense Daily, Nov. 29, 2006; Geoff Fein, “Surface Ships Need To Follow Submarine SBIR
Program For Meeting Fleet Needs,” Defense Daily, Nov. 28, 2006; Geoff Fein, “Navy Identifies
14 Action Items To Accelerate Open Architecture,” Defense Daily, Nov. 8, 2006; Christopher
J. Castelli, “Navy Leadership Touts Importance of Open Architecture,” Inside the Navy, Nov. 6,
2006; Geoff Fein, “As Navy Defines Open Architecture, Managing The Process Is Important,
SECNAV Says,” Defense Daily, Nov. 6, 2006; Geoff Fein, “Navy Looking To Include Open
Architecture Into All Surface Ship Contracts,” Defense Daily, Nov. 3, 2006; Christopher P.
Cavas, “U.S. Navy Goal: ‘Incentivize’ Open Architecture,” DefenseNews.com, Nov. 1, 2006;
Geoff Fein, “Open Architecture Systems Will Provide Navy Benefits, But Challenges Ahead,”
Defense Daily, Oct. 10, 2006; Geoff Fein, “Defining Open Architecture For The Surface Fleet,”
(continued...)

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reportedly one issue involved in the Navy’s January 2007 decision to reassign the admiral
who has been in charge of Navy shipbuilding programs.7 For firms that make (or could
make) Navy surface ship combat systems, or parts of them, the financial stakes of the
issue are potentially very large. Some of these firms have publicized their recent open-
architecture efforts.8 Potential candidates for the basis of an eventual common open-
architecture combat system for Navy surface ships include (but are not necessarily limited
to) a modularized version of Lockheed’s Aegis system, Raytheon’s Total Ship Computing
Environment Infrastructure, or TSCEI (the core of the combat system being developed for
the DDG-1000 destroyers), and the Core Mission System developed by General Dynamics
and Northrop for the General Dynamics version of the LCS.
Service Life Extension to 40 Years. One potential option for the Aegis ship
modernization program would be to expand its scope to include work that would be
needed to extend the service lives of the Aegis ships from 35 years to a higher number,
such as 40 years. Extending the Aegis ships’ service lives to 40 years could mitigate a
substantial projected shortfall in cruisers and destroyers.9 On at least one prior occasion
(from 1989 to 1993), Navy plans called for keeping surface combatants in operation for
40 years. The feasibility and potential cost of extending the Aegis ships’ service lives to
40 years is not yet clear.
Legislative Activity for FY2008
The proposed FY2008 defense budget will be submitted to Congress on February 5,
2007.
6 (...continued)
Defense Daily, Sept. 13, 2006; Geoff Fein, “CNO Looks To Speed Up Pace of ‘Disappointing’
Move To Open Architecture, Defense Daily, Sept. 11, 2006; Christopher J,. Castelli, “Warner
Asks Navy To Review Proprietary Software On Warships,” Inside the Navy, Sept. 11, 2006;
Geoff Fein, “Warner Urges Navy To Establish Panel To Explore Open Architecture,” Defense
Daily
, Sept. 11, 2006.
7 Christopher P. Cavas and Andrew Scutro, “PEO Ships Reassigned: DoD Source,”
DefenseNews.com, Jan. 8, 2007.
8 See, for example, Geoff Fein, “General Dynamics Gives Navy Unrestricted Rights To LCS
Mission Architecture,” Defense Daily, Jan. 8, 2007; Chris Johnson, “Raytheon Touts Work On
Open-Architecture Software For DDG-1000,” Inside the Navy, Nov. 27, 2006; Geoff Fein,
“Lockheed Martin Touts Its Efforts With ARCI As Best Way Ahead For Surface Navy,” Defense
Daily
, Oct. 19, 2006; Geoff Fein, “Navy Needs Open Business To Achieve Cost Savings On
Ships, General Dynamics Says,” Defense Daily, Oct. 12, 2006.
9 For a discussion of this shortfall and options for addressing it, including extending the lives of
cruisers and destroyers to 40 years, see CRS Report RL32109, op. cit.