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Navy Should Delay Next Carrier Amid Troubles, GAO Audit Says (3)

June 27, 2013

Navy Should Delay Next Carrier Amid troubles, GAO Auditors

The gallery deck to flight deck bridge assembly is moved into place on the Gerald R. Ford aircraft carrier in October 2012. The Navy estimates the vessel’s total cost, to include one-time engineering, detailed design and construction already has climbed about 18 percent in four years to $12.3 billion, according to Defense Department data. Source: Huntington Ingalls via Bloomberg

The U.S. Navy should delay the award of a multibillion-dollar contract to Huntington Ingalls Industries Inc. (HII:US) to build the second aircraft carrier in a new class as the first one faces failings from its radar to the gear that launches planes, congressional investigators said.

“Technical, design and construction challenges” with the first carrier, the USS Gerald R. Ford, have caused “significant cost increases and reduce the likelihood that a fully functional ship will be delivered on time,” the Government Accountability Office said in a draft report obtained by Bloomberg News.

The Ford, already the most expensive warship ever built, is projected to cost $12.8 billion, 22 percent more than estimated five years ago. The report raises questions about the future of U.S. seapower in a time of reduced defense budgets and about whether new carriers are affordable as they assume greater importance in the Pentagon’s strategy to project U.S. power in the Asia-Pacific region.

Delays and “reliability deficiencies” with the flattop’s new dual-mission radar, electromagnetic launch system and arresting gear for aircraft mean that the Ford “will likely face operational limitations that extend past commissioning” in March 2016 and “into initial deployments,” the agency said.

The GAO, the investigative arm of Congress, said that’s reason enough to delay the contract that’s scheduled to be issued this year for the second ship, the USS John F. Kennedy.

‘Repeating Mistakes’

“It will be important to avoid repeating mistakes” in the contract for the Kennedy, the GAO said. “Staying within budget” will require the Navy to reduce “significant risk mainly by completing land-based testing for critical technologies before negotiating a contract” with Newport News, Virginia-based Huntington Ingalls.

Beci Brenton, a company spokeswoman, said in a telephone interview that “it would not be appropriate to comment on a draft report.”

Naval Sea Systems Command spokeswoman Colleen O’Rourke said in a statement that “as the Navy is currently working with the GAO on this report, it would be inappropriate to comment on any draft findings at this time. When the report is finalized, it will include Navy comments.”

The Navy remains committed to the Ford-class carrier as a needed capability, said a Navy official who declined to be identified before the GAO releases its final report. The Navy is confident that the first vessel will be delivered on schedule and that lessons learned from building it will be applied to reduce the cost of the second ship, the official said.

Shipbuilding Plan

Huntington Ingalls rose 2.3 percent to $56.59 at the close in New York and has climbed 31 percent this year.

The Navy is grappling with how to pay for a shipbuilding plan that anticipates $43 billion for three carriers in the Ford class, as well as $34 billion for 52 Littoral Combat Ships and a 12-vessel nuclear submarine fleet to replace the Ohio-class submarine.

While the GAO said that the Navy and Huntington Ingalls are taking steps to control costs for the Ford, most increases occur after a vessel is 60 percent complete and key systems are installed and integrated. The Ford is now 56 percent complete.

Even the current $12.8 billion estimate is “optimistic because it assumes the shipbuilder will maintain its current level of performance throughout the remainder of construction,” the GAO said.

Carrier Numbers

The Pentagon’s independent cost-estimating office, the Congressional Budget Office and a Navy-commissioned panel project final costs as high as $14.2 billion, the GAO said.

The draft report also raises questions about how many aircraft carriers the nation will have ready this decade. Congress has given the service temporary relief from the requirement to have 11 fully capable aircraft carriers. There are now 10 after deactivation of the USS Enterprise, and the Ford is supposed to bring that back to 11 by March 2016.

“As it now stands, the Navy will not be positioned to deliver a fully capable ship at the time,” the GAO said.

“Reliability shortfalls facing key Ford-class systems cloud the Navy’s ability to forecast when, or if” the carrier will meet the aircraft sortie rates and reduced manning requirements that distinguish it from the older Nimitz class, the GAO said.

O’Rourke, the Naval Sea Systems Command spokeswoman, wouldn’t comment on the specific value of the potential detailed design and construction contract to Huntington Ingalls for the Kennedy that the GAO said is due in September.

General Atomics, Raytheon

The largest share of the cost increase for the Ford, 38 percent, stemmed from technologies delivered by the Navy, including the radar, launch system and arresting gear, according to the GAO.

The electromagnetic launch system made by San Diego-based General Atomics has increased to $742.6 million, up 134 percent since 2008, the GAO said. The cost of arresting gear also made by the company increased 125 percent to $169 million.

Raytheon Co. (RTN:US)’s dual-band radar has increased 140 percent to $484 million, according to data cited by the GAO. Twenty-seven percent of the cost growth was pegged to shipbuilder design issues and another 27 percent to construction, both attributed to Huntington Ingalls.

Huntington Ingalls is building the Ford under a $4.9 billion detailed design contract that covers the shipbuilder’s portion of constructing the vessel. It doesn’t cover other costs, such as the nuclear reactor to power the ship and other government-furnished equipment.

Forecasting Overrun

The GAO said its analysis indicates that Huntington Ingalls “was forecasting an overrun at contract completion of over $913 million” that it said stemmed from “the shipbuilder not accomplishing work as planned.”

Huntington’s Brenton said in an e-mail in May that, “as the first new design carrier beginning construction in more than 40 years,” the Ford “is designed to provide increased capability and reduced total ownership cost by about $4 billion compared to Nimitz-class carriers.”

“For this first-of-class ship, construction commenced in parallel with design completion based on earlier decisions at Department of Defense,” she said. “Ongoing design during the construction process caused delay and inefficiencies in procurement, manufacturing, and assembly.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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Companies Mentioned

  • HII
    (Huntington Ingalls Industries Inc)
    • $93.4 USD
    • 0.00
    • 0.0%
  • RTN
    (Raytheon Co)
    • $92.07 USD
    • -1.48
    • -1.61%
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