In our last note, "Navy's Shipbuilding Plan Not Executable", we highlighted the 31% resource shortfall of the Navy's current 30-year plan despite repeated Congressional plus ups to DoD requests. Today we look at the China's 30-year military modernization plan and show why there are serious concerns about the US Navy's plans and their poor execution thereof. Not the best mix and too late to boot?
DoD's Annual Report to Congress, "Military and Security Developments Involving PRC" released just last week is stark in its discussion of the rate of change and improvement of Chinese military capabilities.
- "The PRC has marshaled the resources, technology, and political will over the past two decades to strengthen and modernize the PLA in nearly every respect. Indeed, China is already ahead of the United States in certain areas such as: shipbuilding, land-based conventional ballistic and cruise missiles and integrated air defense."
- "The PRC has the largest Navy in the world with an overall battle force of 350 ships compared with the US Navy's battle force of 293 ships. China is the top ship-producing nation in the world by tonnage and is increasing its shipbuilding capacity and capability for all naval classes including submarines, surface combatants, amphibious warfare ships, aircraft carriers, and auxiliary ships as well as developing and fielding advanced weapons, sensors, and command and control capabilities."
- Chinese leadership recognizes that its military still has gaps and shortcomings but it has a well-integrated plan to be "basically" modernized by 2035 and a "world-class" military capability by 2049. "World-Class" is interpreted to mean at least equal to if not superior to the US. "This modernization aligns with the PRC's growing emphasis of the maritime domain and increasing demands for its Navy to operate at greater distances from China."
The current known US 30-year shipbuilding plan is based on a Force Structure Assessment (FSA) completed in 2016. That FSA resulted in the following "Navy the Nation Needs" consisting of 355 ships.
As discussed in our last note, the Navy completed a new "Integrated Force Structure Assessment" (IFSA) earlier this year but it has not yet been released by the SecDef. The new assessment will result in an adjusted 30-year shipbuilding plan with most of the changes taking place after the current FYDP (2021-25).
In the meantime, Congress and the shipbuilding industry are operating off a "Long-Range Procurement Profile" published with the FY 2020 budget that results in the Navy achieving its numerical goal of 355 ships in 2034.
As seen below, the Pentagon's request for the FY 2021-25 falls short of the Long-Range Profile by 12 ships! (54 ships in the Long-Range Profile and only 42 ships in the Navy request)
FY 2021 Five Year (2021-25) Shipbuilding Plan
The disconnect between a decelerating series of shipbuilding requests against long term US Navy plans on the background of accelerating PRC Navy procurements is setting off alarm bells everywhere.
- Even the Navy has serious questions about the force structure assessment that produced the 355 ship "Navy the Nation Needs". Hence it has a new one SecDef hasn't released. Should the nation be investing so much in carriers given the shape of the Chinese threat and in view of developing US capabilities like the B-21 bomber and hypersonic missiles?
- The current Long Range Procurement Profile does not achieve "Navy the Nation Needs" target of 355 ships until 14 years from now but never actually achieves the mix supposedly required.
- The Navy has never had the resources to achieve even the inadequate Long Range Procurement Profile and is actually losing ground (12 ships short in 2025). The rate of change is trending down.
- There has been discussion that the Navy's new Integrated Force Structure Assessment plan may finally be published prior to the election. Speculation is that it will describe a larger Navy in terms of numbers of ships (a point for releasing it prior to the election) but with a slightly different and perhaps more achievable mix of ship classes. These would include the Marines' apparent downplaying of large amphibs in favor of "Light Amphibious Warships" and perhaps a more affordable fleet of smaller aircraft carriers.
Our Take: Regardless of the election results the Navy's new plan will be changed again within 18 months. The numbers don't add up. We also believe that regardless of the shape of the new plan, in the end, the Navy will receive more resources for shipbuilding. The threat demands it and this is the only Navy we have.
Look for an invitation or contact your Hedgeye representative regarding a Skype call in the next two weeks on the shipbuilding dilemma and its potential impacts on GD and HII.
