On Wednesday (15 Jan) the Navy is scheduled to release its revised 30 year shipbuilding program, called the Integrated Naval Force Structure Assessment. The plan is eagerly awaited because the Navy clearly wants to inject fiscal realism into its current FY 2021-25 plan by reducing ship procurements, making early retirements and reducing the overall ship count goal. Through widely published leaked documents, we know that several of the Navy's proposals have been rebuffed by the White House OMB which insists that the Navy stick to its 355 ship goal even to the point of changing the definition of which ships get counted.
The Navy's current shipbuilding plan, delivered to Congress in March 2019 aspires to a fleet of 355 ships by FY 2034, a net increase of 65 ships over the current 290. The CBO analysis of that plan released in October assessed that the Navy was underestimating the cost of achieving a 355 ship fleet by about $10B per year.
The Navy clearly wants to rebalance its current readiness and procurement plans and live within an achievable budget. Although PresBud 21 programming changes have been extremely closely held, we have some indications of the changes that the Navy wanted to make to move towards affordability.
- In its FY 2020 plan, the Navy wanted to retire the USS Nimitz, lead aircraft carrier of its class, 25 years early and forego the ~$4B cost of its refueling. Reducing the fleet from 12 carriers to 11 did not go over well with OMB or Congress in the 2020 deliberations thus creating a $4B bill for the Navy in the FY 2021-25 FYDP. Finding the $4B has been a main theme inside the Navy budget development process this past year.
- The Navy initial proposal apparently also called for reducing the planned procurement of DDG Burke-class destroyers (GD, HII) from 12 to 7 and the early decommissioning of 12 ships to save O&M costs. According to the OMB memo, while the Navy's original proposal would save $9.4B across the FY 21 FYDP compared to the FY 20 plan, it would result in a smaller fleet of 287 ships in 2025 than the 290 today and further delay ever achieving a 355 ship fleet.
Based on the President's campaign promise to build a 355 ship fleet, OMB ordered the Navy in December to go back to the drawing board and develop an FY 2021-25 plan that would achieve a 355 ship fleet by 2031. They also told the Navy that they should begin counting unmanned vessels, surface and undersea, to the total battleforce count, something which has not occurred previously. Given the direction of technology, this definitional change will ease the Navy's ship count task and make their plan achieve affordability more palatable.
We will write a note highlighting the changes when they come out on 15 January but we predict the following:
- Planned GD and HII shipbuilding contracts in the near term are secure but there will be long term consequences.
- Virginia and Colombia-class submarine construction will remain the top priority and the new plan will include adding a tenth Block V Virginia-class to the current nine boat buy.
- Aircraft carrier construction plans will generally remain the same in the near term given Congressional resistance to any change particularly in view of the current two carrier block contract. There could be some stretching out of buys in the outyears of the plan.
- DDG and amphibious ship construction will be reduced at the end of the FYDP (2021-25). In the FY2020 plan the Navy was moving towards procuring 3 DDGs (GD and HII) per year starting in 2023 at about $1.9B each. We think the annual target will be reduced to the current two per year with some years only seeing one new DDG procured.
- The Navy was planning to replace its aging 12 LSD (landing ship dock) amphibious ships with one LPD Flight II ship (HII) procured every other year at a cost of ~$1.8B. We think the Navy will take advantage of the Marine Corps' apparent reduced focus on amphibious shipping and propose early retirement of LSD class ships and truncate the planned LPD Flight II buy.
