Navy Major Shipbuilding Programs and Shipbuilders: Issues and Options for Congress

This document also available in PDF Image . Six shipyards carry out the Navy's major shipbuilding programs: Avondale Shipyards Division of New Orleans, LA; Bath Iron Works Corporation of Bath, ME; Electric Boat Corporation of Groton, CT; Ingalls Shipbuilding, Inc. of Pascagoula, MS; National Steel and Shipbuilding Co. of San Diego, CA; and Newport News Shipbuilding of Newport News, VA. These 6 yards are currently highly dependent on Navy shipbuilding programs. They are also major private employers in their home states. Under the FY1996-FY2001 Future Years Defense Plan (FYDP), major ships will be procured for the Navy at less than half the rate of the 1980s. This has raised two key policy issues for Congress: Is the FY1996-FY2001 shipbuilding plan adequate? How many major Navy shipbuilders are needed to meet the Navy's needs?

Regarding the first issue, the FY1996-FY2001 shipbuilding plan is sufficient to maintain the planned 346-ship fleet in the short run. As the Administration has acknowledged, however, the planned FY1996-FY2001 shipbuilding rate is well below the rate needed to maintain a 346-ship fleet in the long run. It appears that the FY1996-FY2001 shipbuilding plan will be adequate to keep all 6 shipyards in business through about the turn of the century. As a group, however, the yards will not prosper during the next several years. Prospects for the 6 yards beyond FY2001 are less clear. It appears that the FY1996-FY2001 shipbuilding plan will result in shipyard production rates that are in some respects less efficient than the higher shipyard production rates of earlier years. Regarding the second issue, anywhere from 2 to 6 yards might be required to provide sufficient capacity solely for future Navy shipbuilding, depending on the future rate of Navy shipbuilding. Having as few as 2 or 3 yards could reduce efficiency and increase costs by depriving the government of the second sources or unused capacity needed to maintain effective competition, or by elevating employment levels at the yards so high that worker productivity is reduced. Having as many as 6 yards, conversely, could reduce efficiency and increase costs by depriving the government of the ability to create enough uncertainty over its contract award decisions to maintain effective competition, or by reducing workloads at each yard to the point where there is limited spreading of fixed costs and reduced learning. Given the current situation in Navy major shipbuilding and the 6 associated yards, Congress may consider four options: (1) increase the yards' workload, (2) reduce the number of yards, (3) do both, or (4) do neither, at least for now. There are several major Navy shipbuilding programs that might be increased as part of an effort to increase the yards' workload. Neither the Executive Branch nor Congress has shown enthusiasm for reducing the number of shipyards. If policymakers in the future revisit this option, many potential combinations of fewer than 6 yards might be considered.