Heavy Seas Ahead

The fleet and crew are poised to shrink, but the Navy's missions are growing.

Chief of Naval Operations Adm. Vernon Clark has studied the teachings of Jack Welch and other corporate gurus for the past six years, seeking ways to increase the return on the nation's $120-billion-a-year investment in the service's sailors, ships and other equipment. But as his July 22 retirement approaches, Clark leaves a host of unresolved issues. His successor, Adm. Michael G. Mullen, inherits a Navy that is getting smaller, and also busier. It is a Navy that, in Clark's words, is overstaffed, yet still needs more intellectual capital. And one that bases much of its strength on superior ships and technological clout, but continually must trim shipbuilding budgets as costs spiral out of control.

The rising prices for ships, and consequent plans to cut back purchases in fiscal 2006 through 2011, have made the Navy the target of much criticism in recent months. The spending reduction plan sparked heated debate within the Pentagon and on Capitol Hill about the future of the Navy-it already has shrunk by more than half since the end of the Cold War. The official word is that the number of ships is not what really counts, but rather the capabilities of each ship. But lawmakers and industry insiders aren't buying that.

Numbers matter to shipbuilders. Philip Dur, who recently stepped down as president of Northrop Grumman Ship Systems, for many months has called on the Navy and the Coast Guard to determine how many ships they need to meet national security requirements. Once that number is set, the industry can "right-size" itself, says Dur.

With only two major private shipbuilding companies remaining-Northrop Grumman Corp. and General Dynamics Corp.-any form of right-sizing would lead to politically unpalatable shipyard closings and layoffs. Just a year ago, Clark maintained the Navy needed 375 ships to meet its required missions. He backed away from that number when it became clear that Pentagon leaders would not support an expansion of the fleet from its current 290 ships. The Navy in April sent Congress an "interim" long-range shipbuilding plan. The proposal shows a Navy fleet that could, during the next three decades, be as small as 260 ships or as large as 325.

Shipbuilding advocates on Capitol Hill already have dismissed the plan as unrealistic. The Congressional Budget Office estimated in an April 25 report that the Navy would have to spend an average of $15 billion annually (in 2005 dollars) on ship construction to achieve a 260-ship fleet in 2035. Realizing a 325-ship fleet by that year would require an average shipbuilding budget of $18 billion annually. But the service projects shipbuilding budgets are unlikely to exceed $10 billion a year in the foreseeable future.

Ideally, the Navy should be able to forecast its needs much more accurately, but an estimate somewhere in the range of 260 to 275 ships is the best it can do right now, says Vice Adm. Joseph A. Sestak Jr., deputy chief of naval operations for warfare requirements and programs. "What I can't do, or I don't think anybody can, is predict with pinpoint accuracy how many ships we'll need in 35 years," he says. These decisions are "driven by the vagaries of the strategic environment," he adds.

Culture Clash

Meanwhile, the tenets of efficiency that Clark has promulgated would drastically change Navy culture. To get more productivity from the current fleet, Clark espoused a crew-swap program that keeps vessels deployed for two years, with sailors rotating every six months. Today's standard deployments generally occur once every 27 months and last for six months, during which the crew and ship are in theater for three to four months. The plan would be to keep ships out at sea longer while crews came and went.

But in November, the Government Accountability Office [GAO-05-10] reported that one experiment with crew rotation-Sea Swap, which keeps ships at sea two to four times longer and swaps crews every six months-produced serious morale problems that have led to a lower rate of re-enlistment. The need for more maintenance due to the ship's longer time at sea has led to less liberty time for crews, who have been forced to remain on board working when their ships pulled into port, while sailors from other vessels were allowed to go on shore leave.

Another of Clark's efficiency measures, the "fleet response plan," would reduce the number of ships required to be constantly out at sea. Instead, fleet response would position ships and crews to be ready to surge rapidly into action when called upon. Clark promised Defense Secretary Donald Rumsfeld that the Navy would be able to deploy up to six aircraft carriers within 30 days of getting the go-ahead. That marks a drastic departure from the days when carriers had predictable schedules and destinations.

The fleet response plan has been vilified privately by officers who believe the Navy's and the nation's strength is founded on the steady presence of its carriers around the world. Compounding the fears of those who support keeping a core number of aircraft carriers is the Navy's intent to downsize the fleet from 12 to 11 flattops, and possibly cut that number to 10.

Sestak recognizes the predicament the service confronts, but he stresses that the Navy must have a flexible plan that can accommodate emerging needs. "That does not mean we shouldn't have more stability" in the budget, he says. "That is what is most important to industry." Shipbuilders are becoming increasingly anxious about getting caught in the dreaded "death spiral" that often haunts big-ticket Pentagon programs. As the Navy buys fewer ships, the cost of each vessel rises, leading to yet more cutbacks. At that rate, even one shipyard would be too many, industry advocates lament.

$1.4 Billion Per Ship

GAO estimates that between 2001 and 2005, 5 percent to 14 percent of the Navy's annual ship construction budget, which totaled $52 billion during that five-year period, went to pay for the cost growth of ships funded in prior years. At a time when the Navy is in the early stages of buying the Virginia-class submarine, the futuristic DD(X) destroyer, the CVN 21 aircraft carrier and the new Littoral Combat Ship, its ability to acquire these ships as scheduled will depend on controlling costs, says GAO. Robert Work, senior analyst at the Center for Strategic and Budgetary Assessments in Washington, says the average cost of a Navy ship today is $1.4 billion. At those prices, it's no wonder the Navy is buying only four ships next year, he says. "Unless we change that, you are in a spiral that is impossible to get out of."

Even if the Navy's shipbuilding budget soars as projected, from $6.3 billion this year to $10 billion in the coming years, the fleet will drop to between 210 and 225 ships, Work says. But the United States has such overwhelming naval power that it's unlikely another country would challenge it on the seas, even if the fleet fell to 200 ships, he adds.

Shipyard officials hope that the $1.4 billion price tag will come down as a result of corporate efficiencies they've introduced in recent years. But those cost reductions will be marginal unless the Navy increases production. "In shipbuilding, when you do things in a repetitive way, you can do them more efficiently and you can lower costs," says C. Michael Petters, president of Northrop Grumman Newport News Shipbuilding.

It is premature to panic, he suggests. "We are at a time when it's not clear to anyone, I don't think even to the Navy, exactly what the way ahead is. . . . If you ask people at the Pentagon what the Navy of the future will look like, you'll get a different answer from everyone." The Pentagon's office of industrial policy, in a study published in May, predicted difficult times ahead for the Navy. "U.S. shipbuilders produce the finest warships in the world, but cost growth continues to erode the purchasing power of the Navy," says the study. The cost growth is attributed to "commencing construction with immature designs; material and other schedule delays; inexperienced labor; and drops in productivity due to new construction facilities or the introduction of a new series of a given combatant."

And while shipbuilding woes have commanded headlines, they are only one piece of a larger quandary facing military leaders: Deciding what kind of Navy the United States needs to fight terrorism overseas, defend the homeland and, in the process, ensure that all this comes at an "affordable" price. Comments from Navy leaders, so far, indicate that the future remains very much undefined.

Tough Trade-Offs

Senior Navy leaders working on the Pentagon's Quadrennial Defense Review are grappling with these issues. With the size of the Navy shrinking and ships becoming unaffordable, the service's strategy now being fed into the QDR is underpinned by expectations that it will be able to do more, even with fewer ships, explains a senior official who asked to remain anonymous. Three new areas are being added to the Navy's mission: law enforcement in the aftermath of military intervention, homeland defense and combating terrorism.

The Navy can afford this ambitious plan only by making trades between the capabilities assigned to traditional major combat operations and those allocated to new irregular challenges-a low-cost means of neutralizing the Navy's powerful high-tech fleet-such as ballistic missiles, swarming boats, mines and diesel submarines, the official says. "Where do you accept risk to be competent in all areas? That is the major focus of this building right now," the official says. "Much of what we need, it's already paid for. It's a question of how to leverage what we have."

As a backdrop to the exchange of ideas that is shaping strategies and budgets is Clark's long-held desire to beef up the service's intellectual capital, vaguely defined as those highly qualified individuals with the professional skills and the commitment to service that will bring the Navy completely out of the Cold War era and into the Information Age. "I believe we have a Cold War strategy that will not produce the kind of military that is required for the future," Clark told a March 31 conference in Washington sponsored by the Heritage Foundation, a Washington think tank.

The consensus is the Navy could simultaneously deploy more ships and downsize the force, because ships will be more technologically advanced and staffed with smaller, but skilled and better educated crews. A destroyer that typically goes to sea with 300 sailors would see crews as small as 100. An aircraft carrier, which usually has more than 5,000 sailors aboard, would deploy with about 3,000.

The Navy allots about two-thirds of its budget to personnel-related expenditures, so the money must be used wisely, Clark says. "We'll spend whatever it takes for the people who have committed their lives to defend the principles and the values this nation believes in. . . . But I don't want to spend a nickel for somebody that we really don't need." Clark's position that the Navy should not pay for people who don't have useful jobs already has been turned into action. Last year, the Navy budgeted for 7,900 fewer sailors, generating annual savings of $254 million.

But the high retention rates of the past two years have resulted in overstaffing and complicated planning, officials say. The Navy's workforce today is about 960,000 strong, including active-duty personnel, reservists, civilian employees and contractors. The size of the future force has yet to be determined, but it will be smaller.

Like many other industries, the Navy wants to replace manual labor with high technology. But doing this might be harder than it sounds, says Gregory Maxwell, director of human systems integration at the Naval Sea Systems Command. "We're constantly challenged with technology as the solution to taking people off of ships, and people say that like it's easy," Maxwell says. "I don't believe that all technology can replace sailors one for one. In fact, I think that needs to be assessed."

The Navy is accustomed to divvying up resources to its three major communities: surface, air and undersea. The emphasis now has moved to "total force" requirements: basing resource decisions on what makes sense in the context of joint operations with the other military services. In this context, it's not clear which Navy communities will be winners and losers in the ongoing budget wars. Although the surface Navy has high-level support for pricey new vessels, such as the DD(X) destroyer and the Littoral Combat Ship, both these programs are under intense scrutiny.

Ships used to transport Marines to war, such as the San Antonio class of amphibious transport dock ships, almost certainly will see cutbacks. Submariners could see a sizable drop in the number of new Virginia-class attack boats. The attack-submarine fleet, which once was estimated to require 55 boats to patrol the world's oceans, likely will drop to 41.

Predictions of a shrunken fleet also shaped base realignment and closure decisions unveiled May 13, when the Defense Department announced its intention to shut down two major naval maintenance facilities-Portsmouth Naval Shipyard in Kittery, Maine, and the New London Naval Submarine Base in Groton, Conn.

Even as he prepares to depart, Clark continues to preach his business mantra. "I'm studying the big boys of industry and figuring out how they've done it," he says. A new team of leaders preparing to take over may or may not embrace the same approach to running the Navy, but will, in one form or another, continue pursuing efficiency.