Panel: COVID-19 Pandemic Could Prompt Changes to National Security Spending

By: John Grady

June 15, 2020 5:39 PM • Updated: June 16, 2020 7:58 AM

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This illustration, created at the Centers for Disease Control and Prevention (CDC), reveals ultrastructural morphology exhibited by coronaviruses. Note the spikes that adorn the outer surface of the virus, which impart the look of a corona surrounding the virion, when viewed electron microscopically. CDC Image

The Pentagon’s budget will fall in the future as Congress sees how little the Department of Defense’s spending was able to protect against the global COVID-19 pandemic, three national security experts predicted in a panel discussion last week.

“People are less convinced that three-quarters of a trillion dollars gets them much security,” retired Army Lt. Gen. David Barno, with Johns Hopkins University’s School of Advanced and International Studies, said during the Center for Strategic and International Studies event.

The loss of 115,000 American lives in a few months, the accompanying economic collapse and now weeks of social unrest is a “watershed event” in the nation’s history, he said.

“There will be a reckoning” in how the nation addresses cross-border threats: pandemics and cyber or space attacks that “supersede land, air and sea” challenges,” Barno added.

The Pentagon’s spending “is going to go down,” Melanie Marlowe, a CSIS senior associate, agreed.

Nora Bensahel, also affiliated with Hopkins’ Strategic Studies program, said that maintaining the existing level of spending “is going to be tough sell” at a time when legislators and citizens have a domestic focus.

Other factors she saw driving future Pentagon spending downward quickly are the $4 trillion debt that continues to grow, falling tax revenue from the economic havoc associated with the contagion, the need to shore up civilian businesses, and the likely expansion of the social safety net, particularly in healthcare.

Looking at likely areas to cut in the Pentagon, Barno started with active-duty Army and Marine Corps end strength.

“The Army, in particular, will be in the bull’s eyes” because soldiers’ pay, benefits and allowance account for such a large percentage of the service’s budget. At the same time, he predicted an acceleration of pullbacks of deployed forces from the Middle East, as has begun in Afghanistan, and probably in Europe.

Next, “large legacy programs” such as the F-35 fleet and the “large new class of Ford carriers” are vulnerable because they are “inordinately expensive.”

Decisions to cut end strength and scale back or shelve weapons programs could allow money to “re-focus DoD on different kinds of warfare.” If the current crisis had been an all-out cyber attack on infrastructure rather than a healthy emergency, the impact would have been more immediate and the effects more long-lasting, he said.

In that case, the dual nature of the National Guard would be useful to handle the challenges of a domestic disaster with foreign policy implication.

“The wise way would to be cut a bit less from the reserve components” because many of their members have necessary skills from their civil occupations that can be used in health crises, recovery from natural disasters or future cyber or space attacks, Bensahel said.

Marlowe said these skills also could be drawn from retired military or Individual Ready Reservists to fill these new needs.

Barno added the present emergency has focused attention on weaknesses in a number of government agencies and in the civilian sector. “Our capabilities [to respond to pandemics] are very weak compared to the military’s” ability to meet overseas threats, and those vulnerabilities have to be dealt with.

But the armed forces should not be the lead or even the co-lead in handling a public health crisis, the three agreed.

“We don’t want the military focusing on this,” Bensahel said. Its focus should be on threats from nation states, terrorist organizations and “all overseas threats.” She and Barno termed the military’s response to the pandemic as “about right,” including the use of 46,000 guardsmen in their state role.

The National Guard is the “Swiss Army knife that can be used by governors. That’s an incredible capability that the active force can’t provide,” Barno added.

For the delivery of health care, even in a pandemic, “we can do this better with civilians,” Marlowe said.

Barno said the continuing protests over police behavior and the impact of the pandemic may see the “prestige of the U.S. military … diminish a bit,” but the public has also seen in the crisis new sets “of heroes protecting the nation.”

Pfc. Arnoldo RomeroVelazco, with 1st Battalion, 4th Marine Regiment, 1st Marine Division, post security to secure the Military Sealift Command hospital ship USNS Mercy (T-AH-19) in Los Angeles, Calif., on March 27, 2020. US Navy Photo

Navy Calling Up 1,600 Reservists to Fill in For Shipyard Workers Out for COVID-19

By: Ben Werner

June 11, 2020 2:29 PM • Updated: June 12, 2020 11:45 AM

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Norfolk Naval Shipyard workers prepare to install a 2400-pound pilgrim nut on a propeller of the aircraft carrier USS George H. W. Bush (CVN 77) on Feb. 12, 2020. George H.W. Bush is currently in Norfolk Naval Shipyard for its Docking Planned Incremental Availability (DPIA). US Navy photo.

The Navy is activating 1,629 reservists to help reduce a carrier and submarine maintenance backlog at its public shipyards that is exacerbated by COVID-19, according to Naval Sea Systems Command.

Nearly a quarter of the production workforce at the Navy’s four public shipyards are unable to come in to work due to being deemed “high risk” for catching COVID-19, NAVSEA said in a news release. Virus mitigation efforts include expanded safety leave for those who are high risk, which keeps the workforce healthy but slows the rate of production at the yards.

The reservists sent to work at the shipyards will start arriving in July and will have one-year orders, which can be adjusted if needed. They are part of the Navy’s Surge Maintenance program, established in 2005, and will supplement current civilian shipyard staff. This is the SurgeMain program’s largest reservist mobilization.

“Our sailors are electricians, pipefitters, sheet metal workers, plumbers, hydraulic technicians, mechanics, machinists, carpenters, welders and more,” Capt. Michael MacLellan, the national director of SurgeMain, said in the NAVSEA statement. “Many of our people have prior experience at the shipyard where they’re being sent, down to the specific shop where they will be working alongside the shipyard’s organic civilian workforce.”

SurgeMain reservists will start arriving in phases at the following shipyards:

• Portsmouth Naval Shipyard in Kittery, Maine, will receive 267 reservists.

• Norfolk Naval Shipyard in Portsmouth, Va., will receive 486 reservists.

• Puget Sound Naval Shipyard and Intermediate Maintenance Facility in Bremerton, Wash., will receive 676 reservists.

• Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility at Joint Base Pearl Harbor-Hickam, Hawaii, will receive 200 reservists.

Before COVID-19, the Navy struggled for years to reduce the number of days ships and submarines have to wait for space at the service’s four shipyards. Chief of Naval Operations Adm. Mike Gilday set the goal of eliminating maintenance time lost due to shipyard availability by the start of Fiscal Year 2021 when he issued an update in December to the Navy’s “A Design for Maintaining Maritime Superiority 2.0.”

“As we have learned over the past decade, it is cheaper to maintain readiness than to buy it back. Our toughest near-term challenge is reversing the trend of delivering only 40 percent of our ships form maintenance on time.” Gilday wrote in the update. “Our goal is to improve productivity, reduce lost days through depot availability extensions by 80 percent in FY20 compared with FY19, and eliminate lost days through depot extensions by the end of FY21.”

The Navy has focused this year on improving the way it planned for and scheduled maintenance, Vice Adm. Tom Moore, the commander of NAVSEA, previously told USNI News. The current mobilization of reservists is intended to prevent the Navy from losing any of the gains made in reducing maintenance backlogs.

“We have been methodical in how we planned this mobilization,” Moore said in the NAVSEA statement. “We did not mobilize anyone who already works in the ship maintenance or construction field, and we worked to place people into shipyards where they have previously drilled so there was a built-in comfort factor for both the reservist and the shipyard personnel.”

Ingalls Expands Shipyard Facility Docking New U.S. Navy Destroyer

Destroyer docking at Ingalls Shipbuilding's reactived east bank facility - Photo by Derek Fountain/HII

BY THE MARITIME EXECUTIVE  06-05-2020 03:34:41 

Ingalls Shipbuilding expanded its operations in Pascagoula, Mississippi with the reactivation of its facility on the east bank of the Pascagoula River. The area had been decimated when Hurricane Katrina struck the area in August 2005. Over the past 15 years, the shipyard has been run from its facilities on the west bank of the river.

The newly reactivated, 187-acre east bank facility features covered construction areas to improve safety and optimize ship assembly, expansive storage facilities and a fully restored pier where ships will dock upon returning from sea trials.   

Ingalls, a division of Huntington Ingalls Industries, marked the reopening of the facility with the arrival of the Arleigh Burke-class guided missile destroyer Delbert D. Black, which docked at Pier Four on the east bank. Transferred to the US Navy at the end of April 2020, it is the 32 Arleigh Burke-class destroyer Ingalls has delivered to the Navy. The Black will remain on the east bank until the ship’s scheduled sail-away date later this year. The shipyard currently has four additional DDGs under construction.

“This restoration and modernization project demonstrates our commitment to continuously enhancing our shipbuilding facilities to increase capability and ensure future growth,” Ingalls Shipbuilding President Brian Cuccias said. “We are proud to see more of our workforce, and our customers, moving back into the heart of the city of Pascagoula.”

The east bank location is site of the original Ingalls Shipbuilding Corp. founded in 1938. Ingalls had announced plans in April 2018 to reactivate its east bank facilities as part of the company’s modernization efforts. The primary components of the project included the addition of large, covered construction areas for construction of ship assemblies and components as well as the restoration of an outfitting pier.

The project included clearing and recycling more than 100,000 tons of concrete, which was used to construct a road base on the east bank, as well as installation of LED technology interior and exterior lighting.

Ingalls said that many historical features from original east bank facilities were salvaged and incorporated into new structures on the property, including all of the bricks from a 1930s guard house as well as a concrete slab into which Robert Ingalls Sr., founder of Ingalls Shipbuilding, carved his initials.

“In reopening the east bank, we celebrate the 80-plus year legacy of those Ingalls shipbuilders who came before us, and look forward to continuing Ingalls’ legacy of building the finest ships in the world for decades to come,” Cuccias said.   

Navy Lacks ‘Clear Theory of Victory’ Needed to Build New Fleet, Experts Tell House Panel

By: Sam LaGrone

June 4, 2020 7:41 PM • Updated: June 5, 2020 12:39 PM

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An MH-60S Sea Hawk assigned to the Eightballers of Helicopter Sea Combat Squadron (HSC) 8 flies next to the aircraft carrier USS Theodore Roosevelt (CVN-71) and the amphibious assault ship USS America (LHA-6) while they transit the Pacific Ocean, Feb. 15, 2020. US Navy photo.

The Navy and the Department of Defense haven’t finished their homework needed to inform how the Navy builds its future fleet, a panel of naval experts told a House panel on Thursday.

The debate in Congress and in the Pentagon on naval power has been pegged on the last assessment of the number of hulls the Navy needs to meet the future requirements – 355. However, the underlying mission of what a newly structured fleet would do is unclear, said the panel addressing the House Armed Service subcommittee on seapower and projection forces.

The Navy never released an unclassified maritime strategy in conjunction with the 2018 National Defense Strategy, nor has it given a public version of its distributed maritime operations (DMO) operational doctrine.

“I was part of the National Defense Strategy Commission, and we were very blunt about the fact that there were not operating concepts. … There were piecemeal parts,” former Chief of Naval Operations Adm. Gary Roughead told the subcommittee.

But even for those on the inside who are familiar with the strategic pushes, there are major institutional questions as to what role the Navy would have in a world of great power competition, said Bryan Clark, a naval analyst and a senior fellow at the Hudson Institute who helped craft the 2017 fleet architecture for the Navy.

“We don’t really have that clear theory of victory or operational concept today,” Clark told the House panel.

That work is ongoing. Inside the Pentagon, the Office of the Secretary of Defense is developing new joint warfighting concepts and refining DMO and other emerging warfighting plans.

“Those concepts are all driving in a good direction to try to come up with a new way of fighting that doesn’t involve strictly attrition-based warfare, which is sort of the approach we took largely after the Cold War ended,” Clark said.

The focus now for the Pentagon is maneuverer warfare, “where we plan on using our forces to create dilemmas for adversaries that prevent them from being successful more than us being able to project power and take over locations of our own choosing. So, this decision-centric move in warfare is going to require us to have a fleet design that reflects some new characteristics different than the characteristics of our previous fleet,” he said.

In large strokes, that means moving the Navy away from the massed formations centered on aircraft carriers and amphibious warships and into smaller groups that will make it harder for adversaries like China and Iran to target.

For example, the Chinese DF-21D and DF-26 missiles are designed to hold U.S. capital ships at risk from hundreds of miles away.

“We have to guard against things like the DF-21, DF-26 and the whole plethora of Chinese missiles that can reach out and strike a surface fleet or territory out as far as Guam,” Alan Shaffer, deputy undersecretary of defense for acquisition and sustainment, said last year.

That thought process would also emphasize building smaller warships like well-armed frigates rather than the large multi-mission Arleigh Burke destroyers, as well as a new class of corvettes, according to an outline of a 2045 fleet Clark included in his written testimony to the HASC panel.

The testimony comes as the Navy’s own plans for its next fleet are on hold after Secretary of Defense Mark Esper prevented the release of the Navy’s latest Force Structure Assessment and 30-year shipbuilding plan.

“We have been promised by the Department of the Navy an updated force structure assessment, late in 2019, then early in 2020, then a little later in 2020. And now, again, we to this day still have not received an updated force structure assessment. In addition, we did not get a 30-year shipbuilding plan, which is required by law,” subcommittee chairman Rep. Joe Courtney (D-Conn.) said in his opening statement.

The Navy’s internal analysis called for a force that Pentagon officials consider to be too expensive. Esper left the new fleet study to be evaluated by not only the Navy but also outside think tanks and members of the Pentagon’s Cost Assessment and Program Evaluation (CAPE) to evaluate. Now Congress is set to consider the Navy’s budget for Fiscal Year 2021 with few hints of what the service plans for the future.

“So, there are assumptions I want to go back and have discussions with the Navy,” Esper told the House in February. “There’s other assumptions in there about ships and warfighting that I want to make sure I get right, so when I present you the plan it’s defensible and I feel confident in it and [Joint Chief’s Chairmen Gen. Mark Milley] feels confident in it.”

CAPE and some senior leaders in the Navy have pushed for a major expansion of unmanned vessels in 2019, and there is still a desire to create “attritable” vessels for the future fleet.

In its FY 2020 budget submission, the Navy initially proposed a $2.7-billion program to buy largely untested unmanned surface prototypes. The service has largely not released any justification for the need for unmanned surface ships to Congress or the public, Ron O’Rourke, a naval analyst with the Congressional Research Service, told the panel in response to a question from subcommittee ranking member Rep. Rob Wittman (R-Va.).

“We need to understand better what the Navy has done to shown analytically that this concept for distributing the Navy in this way not only makes sense but that it’s the best or most promising possible way forward. We’ve had an assertion that this is the way to go, but I’m not sure how much analytical underpinning there has been for it,” O’Rourke said.
“It’s one thing to say, you’re going to do this. It’s another thing to develop the operational concepts to actually figure out how you’re going to operate the ships and not just be a topic of hand-waving and briefing slides with electric bolts on them. The analytical basis and the operational concepts need to be developed if they haven’t already, and that needs to be shared with the Congress so that Congress can look at that and factor it into its assessment and markup of these proposed budgets.”

Roughead agreed that the Navy should develop prototypes of the unmanned surface vehicles but said they shouldn’t move into initial production until the operational concepts were well defined.

He offered a cautionary tale of how the Navy paused aggressive development of unmanned carrier aviation after successful tests of the X-47B unmanned aerial vehicles almost a decade ago.

“We flew an unmanned aircraft off of an aircraft carrier in 2012. Yeah, 2012, that has not happened again. That’s eight years in my mind of a hiatus, and trying to advance this new technology is not aggressive by any stretch of the imagination,” he said. “I think that there have to be provisions for the Navy to construct some of [unmanned ships], for them to be able to deploy them even before they meet all of the operational wickets so that we can learn.”

Beyond individual platforms, Roughead said there is a need to emphasize the ability for the U.S. to project power on the sea when faced with a rival like the Chinese People’s Liberation Army Navy.

“I don’t think we should be shy about the fact that it is maritime. … That requires certain types of capabilities to come together, that we can rely on elements of the joint force, but we really need to start thinking more about the maritime domain, because I would argue that PLA– if you look at their writings — they have transitioned,” he said.
“If we do not acknowledge the fact that we have maritime needs, capabilities, and we have to integrate all of it, we’re going to be behind the eight ball.”

A Ghost Fleet Overlord test vessel takes part in a capstone demonstration during the conclusion of Phase I of the program in September. Two existing commercial fast supply vessels were converted into unmanned surface vessels (USVs) for Overlord testing, which will play a vital role in informing the Navy’s new classes of USVs. US Navy photo.

A X-47B during a March 2015 test flight. US Navy Photo

Navy Receives No Protests Over FFG(X) Frigate Award to Fincantieri; Detail Design Process Begins

By: Megan Eckstein

June 3, 2020 12:05 PM • Updated: June 3, 2020 9:24 PM

USNI.org

Fincantieri FFG(X) Design based on the FREMM. Fincantieri Image

This post has been updated to include comments from industry.
No protests have been filed over the Navy’s decision to award Fincantieri a detail design and construction contract for the FFG(X) program, clearing the way for work to begin, the Navy confirmed to USNI News.

Under contracting rules, bidders have a certain amount of time to protest the decision to the Government Accountability Office if they feel the contracting office made the wrong decision in evaluating bids against the stated requirements. That protest window ended Monday, Naval Sea Systems Command (NAVSEA) spokesman Alan Baribeau told USNI News, and none of the three losing bidders protested the decision.

“The GAO protest period for the FFG(X) contract award has passed and the Navy has not received notice of protest. The Navy is moving forward with execution of the contract, and has completed the Post-Award Conference. Detail design of the FFG(X) is commencing,” he said.

Austal USA submitted a bid based on its Independence-variant Littoral Combat Ship. General Dynamics Bath Iron Works submitted a bid with parter Navantia based on the Spanish F100 frigate. Huntington Ingalls Industries submitted a bid but has not disclosed what mature parent design it is based on.

For a stretch of time – particularly while the military services were limited in spending by the Budget Control Act and sequestration – it was almost assumed that any major acquisition program would be held up by protests. If even one company protests, the winning bidder cannot start work on the program until GAO adjudicates the matter.

According to a GAO report from November 2019, in Fiscal Year 2019 GAO received 2,071 protests, as well as 60 cost claims and 67 requests for reconsideration. Of those protests that were deemed to have merit and were considered by GAO, just 13 percent were sustained and the original decision changed.

“Our review shows that the most prevalent reasons for sustaining protests during the 2019 fiscal year were: (1) unreasonable technical evaluation; (2) inadequate documentation of the record; (3) flawed selection decision; (4) unequal treatment; and (5) unreasonable cost or price evaluation,” reads the report.

The number of overall cases has gone down compared to just a few years ago, according to the report. The 2,198 total cases in FY 2019 compares to 2,607 in FY 2018, 2,596 in FY 2017, 2,789 in FY 2016 and 2,639 in FY 2015.

For the frigate program, the Navy prided itself in having heavy industry engagement early on in the requirements development process to ensure that requirements were informed by both the state of technology as well as realistic cost estimates. Additionally, with all four bidders having participated in the conceptual design process ahead of the detail design and construction competition, the Navy hoped that there would be clarity on what it was looking for and how it prioritized cost and capability, therefore leading to less confusion and less likelihood of a protest period that would slow down the start of this new shipbuilding program.

Ingalls Shipbuilding spokeswoman Teckie Hinkebein told USNI News that the Mississippi shipyard was disappointed to have lost the competition but that the process the Navy had used was a useful one.

“Ingalls is disappointed that our highly capable ship was not selected, which includes our extensive experience in building, integrating and testing highly complex warships across numerous ship classes,” she said.
“The early Navy-Industry studies were useful in shaping our understanding of the requirements. As a result, our offer was U.S. designed by U.S. engineers with U.S. material that was highly common with other Navy ships and leveraged the existing domestic supply chain. Unfortunately the Navy decided to go in another direction. We look forward to continuing our strong performance on our existing programs.”

Austal declined to comment on the competition and its decision not to protest.

Bath Iron Works did not comment directly to USNI News but pointed to recent comments by yard president Dirk Lesko, who said ongoing delays in Arleigh Burke-class destroyer construction at the yard likely contributed to the company not winning the frigate contract.

“The thing we really need to focus on is, as we look at what comes after the work we currently have under contract, how do we do those things, meet those customer needs – quality, schedule and affordability – better than we are doing now,” Lesko told the Portland Press Herald. “There is no simple answer, but we know what to do, we know how to do it. We have to go work on that together and collaboratively with the Navy, collaboratively with the workforce.”

Lesko noted that in recent years the yard also failed to win a Coast Guard cutter contract and won fewer destroyers under a recent contract than Ingalls Shipbuilding, which also builds Arleigh Burke DDGs. He said the company has years of DDG work ahead of it, but it’s currently running about six months behind schedule on production, which may contribute to losing out to other shipbuilders in recent years.

“From the Navy’s evaluation, they say you are six months behind or more, that is a risk for me going forward on everything you have under contract and certainly a risk for anything new you would start,” he told the Maine newspaper.

Report to Congress on Navy Force Structure

June 4, 2020 9:42 AM

The following is the June 3, 2020 Congressional Research Service report, Navy Force Structure and Shipbuilding Plans: Background and Issues for Congress.

From the report

In December 2016, the Navy released a force-structure goal that calls for achieving and maintaining a fleet of 355 ships of certain types and numbers. The 355-ship goal was made U.S. policy by Section 1025 of the FY2018 National Defense Authorization Act (H.R. 2810/P.L. 115-91 of December 12, 2017). The Trump Administration has identified the achievement of a Navy of 355 or more ships within 10 years as a high priority. The Navy states that it is working as well as it can, within a Navy budget top line that is essentially flat in real (i.e., inflation-adjusted terms), toward achieving that goal while also adequately funding other Navy priorities, such as restoring eroded ship readiness and improving fleet lethality. Navy officials state that while the 355-ship goal is a priority, they want to avoid creating a so-called hollow force, meaning a Navy that has an adequate number of ships but is unable to properly crew, arm, operate, and maintain those ships.

The Navy states that its proposed FY2021 budget requests the procurement of eight new ships, but this figure includes LPD-31, an LPD-17 Flight II amphibious ship that Congress procured (i.e., authorized and appropriated procurement funding for) in FY2020. Excluding this ship, the Navy’s proposed FY2021 budget requests the procurement of seven new ships rather than eight.

A figure of 7 new ships is less than the 11 that the Navy requested for FY2020 (a figure that excludes CVN-81, an aircraft carrier that Congress authorized in FY2019) or the 13 that Congress procured in FY2020 (a figure that again excludes CVN-81, but includes the above-mentioned LPD-31 as well as an LHA amphibious assault ship that Congress also procured in FY2020). The figure of 7 new ships is also less than the 10 ships that the Navy projected under its FY2020 budget submission that it would request for FY2021, and less than the average ship procurement rate that would be needed over the long run, given current ship service lives, to achieve and maintain a 355-ship fleet.

In dollar terms, the Navy is requesting a total of about $19.9 billion for its shipbuilding account for FY2021. This is about $3.9 billion (16.3%) less than the Navy requested for the account for FY2020, about $4.1 billion (17.0%) less than Congress provided for the account for FY2020, and about $3.6 billion (15.3%) less than the $23.5 billion that the Navy projected under its FY2020 budget submission that it would request for the account for FY2021.

The Navy states that its FY2021 five-year (FY2021-FY2025) shipbuilding plan includes 44 new ships, but this figure includes the above-mentioned LPD-31 and LHA amphibious ships that Congress procured in FY2020. Excluding these two ships, the Navy’s FY2021 five-year shipbuilding plan includes 42 new ships, which is 13 less than the 55 that were included in the FY2020 (FY2020-FY2024) five-year plan and 12 less than the 54 that were projected for the period FY2021-FY2025 under the Navy’s FY2020 30-year shipbuilding plan.

The Navy’s 355-ship force-level goal is the result of a Force Structure Assessment (FSA) conducted by the Navy in 2016. A new FSA, referred to as the Integrated Naval FSA (INFSA), is to be published sometime during the spring of 2020. Statements from Department of the Navy (DON) officials suggest that the INFSA could result in a once-in-a-generation change in the Navy’s fleet architecture, meaning the mix of ships that make up the Navy. DON officials suggest that the INFSA could shift the fleet to a more distributed architecture that includes a reduced proportion of larger ships, an increased proportion of smaller ships, and a newly created category of large unmanned surface vehicles (USVs) and large unmanned underwater vehicles (UUVs). Such a change in fleet architecture could alter the mix of ships to be procured for the Navy and the distribution of Navy shipbuilding work among the nation’s shipyards.

Defense Contractors Remain Upbeat About 2021

By: Ben Werner

June 1, 2020 11:50 AM

USNI.org

A worker in the shipyard’s foundry uses a torch to slice through scrap steel at Newport News Shipbuilding. HII Photo

A trio of large defense contractors belive their financial futures are secure in 2020 and 2021 – even with COVID-19 and a slowed federal budget process.

Leaders from Huntington Ingalls Industries, Lockheed Martin and Northrop Grumman provided investors with their financial outlook over two days during the annual Bernstein’s Virtual Strategic Decisions Conference.

President Donald Trump proposed a top line defense budget of $741 billion for Fiscal Year 2021, slightly more than the FY 2020 budget of $738 billion, said Marillyn Hewson, chief executive of Lockheed Martin. COVID-19 has thrown off Congress’ usual schedule, but Hewson said progress is being made with working out a defense authorization act.

“It will probably see some timing impact because of the coronavirus situation. We are starting to see Congress weigh in a little bit,” Hewson said.

There’s a chance lawmakers will not pass a budget before the fiscal year ends on September 30, Hewson said. In this scenario, Congress would likely pass a temporary spending measure to keep the government running at FY 2020 spending levels. If the government has to operate under such a stopgap spending bill, Hewson did not expect much of a change in Lockheed Martin’s finances, since the Department of Defense’s proposed spending in FY 2021 is nearly the same as what Congress approved for FY 2020.

“The budget that was submitted this year, even though it was less than the budget that was approved last year, the budget that was submitted this year is still an historically high budget, you know, relative to what shipbuilding has been over the last 30 years,” said Mike Petters, the chief executive of Huntington Ingalls Industries. “What that means is the outlook is still pretty bullish for shipbuilding.”

The Navy’s FY 2021 budget request lays out the smallest shipbuilding plan in six years, though, the proposed spending on shipbuilding is still higher than was the case in 2015. The FY 2021 ship buy proposes spending $19.9 billion for eight ships – $4 billion and four ships less than the FY 2020 ship buy. The last time lawmakers approved only purchasing only eight ships was 2015, when the entire budget process was skewed by spending caps mandated by the Budget Control Act of 2011.

Among the ships cut from the FY 2021 budget request when compared to previous shipbuilding plans is a second Virginia-class attack submarine, which Huntington Ingalls Industries is slated to work on with sub-building partner General Dynamics Electric Boat. The Virginia-class program had been on a two-sub per year build rate since 2011. Lawmakers and the Navy had even discussed squeezing funding to increase the build-rate to three Virginia-class subs in future budgets.

Petters painted the single-Virginia-class submarine buy in FY 2021 as part of the budgeting process, not a lack of faith in the program.

“When you take things out of the budget at the eleventh hour like they did, it doesn’t mean that they don’t like the program, it means they’re trying to figure out how they’re going to pay for it and when they’re going to pay for it,” Petters said. “Taking a submarine out in your submission then gives the Congress an opportunity to put it back in, or it means that you’re going to appropriate the money in next year’s budget and not this year’s budget.”

In the long-run, Petters suggested the second Virginia-class submarine will likely reappear in a future appropriation. The second Virginia-class submarine tops the Navy’s unfunded priorities list. Petters said Huntington Ingalls Industries isn’t even expecting to change its production schedule.

“There’s no curtailments going on. This is just really moving pieces around to try to figure out how to fit them into the appropriations process for 2020, 2021, 2022,” Petters said. “It’s just trying to figure out the best way to do that.”

Hewson and Kathy Warden, the chief executive of Northrop Grumman, both said the proposed FY 2021 defense budget gives them a signal of where to invest research and development dollars.

“If you look at what was submitted in the president’s budget, there is $3.2 billion for hypersonic programs, which is a key area that we are focused in,” Hewson said.

The companies who win future contracts for such emerging programs as hypersonics, Hewson said, will be those investing in research and development now. Warden agreed, saying Northrop Grumman sees the demand for hypersonics increasing, opening up opportunities for more firms to compete for contracts

“When you look over the long-term, we believe the demand signal will be there, and there will be new requirements that create the potential for companies like ours to enter particular areas,” Warden said. “We’ve talked about hypersonics. We see that as part of this broader market space over the long-term, and we do believe there will be enough demand signal to support three suppliers.”

Fincantieri Marine Systems Appoints Ryan Smith as New CEO

BY THE MARITIME EXECUTIVE  05-22-2020 05:44:17 

Fincantieri Marine Systems North America, the U.S. engine service and vessel maintenance subsidiary of Italian shipbuilding company Fincantieri, has appointed longtime defense executive Ryan Smith to the role of CEO. 

Smith has more than 15 years of experience in program management and engineering with Northrop Grumman and BAE Systems, as well as project management and lifecycle consulting services for major defense contractors and ship repair organizations in support of U.S. Navy programs. Smith also has more than a decade of waterfront management experience at multiple ports, which is expected to help FMSNA's expansion into total ship sustainment.

“Ryan brings years of experience and strong leadership, after leading major repair and maintenance projects supporting the U.S. Navy,” said Dario Deste, Fincantieri Marine Group President and CEO. “We are pleased to bring him onboard.”

FMSNA serves the Department of Defense (and commercial customers) with engineering support, service of marine propulsion systems and components, training and maintenance support. FMSNA recently expanded into total ship sustainment for the U.S. Navy, starting with Trial Card completion and post shakedown availability (PSA) support in Jacksonville.

CNO, Commandant: Naval Forces Can Meet Today’s Obligations, But 2021 Readiness At Risk With Pande

By: Megan Eckstein

May 21, 2020 4:54 PM

USNI.org

Sailors assigned to the command and control ship USS Mount Whitney (LCC-20) salute while manning the rails as the ship gets underway from Gaeta, Italy, on May 18, 2020. US Navy Photo

Naval operations are proceeding unimpeded by the COVID-19 pandemic, top leaders say, but there could be readiness challenges next year if the virus continues to affect the output at maintenance depots and at the suppliers who make spare parts.

Chief of Naval Operations Adm. Mike Gilday said today that current operational plans were written by the joint force 18 months ago “uninformed by COVID math” and that the Navy would find a way to meet its obligations. In fact, he said, the service has about 15 percent more underway assets today than its normal operating pattern in recent years, with more than 100 ships and submarines at sea today – including seven aircraft carriers and two amphibious ready groups (ARGs).

Citing recent increased presence and operations with allies and partners in the South China Sea, the Persian Gulf and the Barents Sea, Gilday said, “we want to basically show that COVID is not going to affect us in terms of being able to pivot where we need to be, when we need to be there.”

The U.S. Navy amphibious assault ship USS America (LHA 6), left, is underway with the Royal Australian Navy guided-missile frigate HMAS Parramatta (FFH 154), the Arleigh-Burke class guided-missile destroyer USS Barry (DDG 52) and the Ticonderoga-class guided-missile cruiser USS Bunker Hill (CG 52) on April 18, 2020. US Navy photo.

Still, “we are both looking into ‘21 and ‘22 in terms of force generation, and so all the things that have to be in place with respect to manning, training and equipping the fleet to meet the secretary of defense’s requirements out though ‘21 and into ’22. We’re beginning to look at that based on what we’ve experienced so far with COVID impacts with the industrial base, and to begin to make some projections – as well as pulling on some levers, including things like overtime at shipyards, including bringing back some reservists into the shipyards, in order to make sure we are at close to full capacity,” he said while on the phone with a small group of reporters this morning.

Gilday said the shipyards saw productivity drop to about 70 percent during March and April because many of the workers there are older and more vulnerable to the COVID-19 disease. The Navy and its industry partners were “conservative” in taking measures to protect workers’ health, he said, but now workforce attendance is coming back up as yards implement measures to distance workers, disinfect spaces and otherwise prevent the spread of the disease.

Acting Secretary of the Navy (SECNAV) James McPherson, right, Chief of Naval Operations (CNO) Adm. Mike M. Gilday and Master Chief Petty Officer of the Navy Russell Smith are briefed by Recruit Training Command (RTC) staff members at Freedom Hall on May 7, 2020. US Navy Photo

But, it’s unclear if the virus will peter out or if it will come back in subsequent waves.

Assistant Secretary of the Navy for Research, Development and Acquisition James Geurts told USNI News this week that “the challenge we’re going to have in this situation is just the impact will kind of depend on the severity, the length and the severity, and how it hits a little bit geographically. And so we’re running, I would say, a couple of different models depending on, do we largely get to a steady state kind of operation here say by the end of May and into June, or is it going to be one that is going to have some follow-on periods of disruption?”

Geurts added that the team at Naval Sea Systems Command (NAVSEA) “has done a really good job protecting the near-term availabilities” and that, as the workforce comes back up to full capacity, “now what we’re really looking at is prioritizing work downstream, understanding where we may have some flexibility, and then working closely with the fleet to align that.”

Marines, with the Maritime Raid Force, 26th Marine Expeditionary Unit (MEU), depart the well deck of the amphibious assault ship USS Bataan (LHD-5) during sustainment training, April 21, 2020. US Navy Photo

Gilday told USNI News that he was eyeing 14 CNO availabilities or major work periods on ships – looking at what work remains on those ships compared to shipyard capacity based on workforce attendance, and then coming up with plans to de-scope work that can be postponed with acceptable risk, or prioritizing work that must get done as a precursor to other work in the availability.

“Based on what we’ve seen so far this year with COVID, we are beginning to take a look at how that bow wave of potential delays might impact in ‘21, and then how do we prioritize nuclear-powered ships, strike groups, ARGs, SSNs, SSBNs – we want to make sure we get the prioritization right so that we can optimize those ships and their path through the shipyards, through the maintenance cycle and back out” into the fleet for operations, the admiral said.

Commandant of the Marine Corps Gen. David Berger said during the call that his service is facing a similar prospect.

“The impact to maintenance efforts this summer, for example like the depot work where weapons systems and vehicles and aircraft are sent for major maintenance – is there an impact? Yes, there is, because of the reduced” workforce productivity, he said.

“So is there an impact this summer? There is. Can we adjust training accordingly? We cannot, but we will factor that in in terms of where the flow of machinery is and equipment is through those depots. That will have an impact probably late this summer, this fall. That’s the near term. The long term, as the CNO hinted at, perhaps six, 12 months down the line, this is where the supply chain impacts come into play, because right now all those parts that would have been produced this summer for maintenance we’re going to need next summer are going to have an impact. So we need to work hard to try to forecast what those critical elements are, where we might be short parts next year, next summer, for maintenance that we do. We’re using parts right now that are on the shelf, but by next summer all those parts will be used up – so this summer’s impact on the supply chain, I think we’ll feel six to 12 months into the future,” he continued.

General David H. Berger, 38th commandant of the Marine Corps, delivers his speech at the commissioning ceremony of the USS Hershel “Woody” Williams, March 7, 2020, in Norfolk, VA. US Marine Corps photo.

Geurts said during his May 20 media call that “as we have gone through the crisis, we have not had to shut down any of our shipyards, both private or public, and as I look at the (COVID-19) case count we are having a relatively flat number of cases and more folks coming back than getting infected.”

“Now what we’re starting to see is, we have had some delay and disruption and some attendance slow-down for a little while. We’re seeing that attendance creeping back up. Productivity at the, I would say, worker level has remained high. Where we’re tracking in terms of disruption is just overall output given some of the delay and disruption in terms of getting the full workforce fully employed.”

At the supplier level, he said, a couple hundred companies of all sizes were temporarily shut down at some point over the last eight weeks, but like employees at repair yards, more are coming back online now than are shutting down due to COVID-19 infections.

He noted that the conversations between the maintenance community and the fleet operators would have to go both ways – just as the maintainers might have some delays due to worker absences or parts shortages, the fleet too is adjusting its operations due to the pandemic and may throw off some ship repair schedules. For instance, instead of coming straight home after its deployment to U.S. 5th and 6th fleets, the Harry S. Truman Carrier Strike Group has been loitering off the coast of Norfolk, Va., to avoid exposing the crew to the virus until another carrier strike group is certified for tasking in case of emergency. Geurts said decisions like that could also affect maintenance schedules and that close coordination between both communities would be important to get through this difficult time.

USS Stout (DDG 55) sails aside the amphibious assault ship USS Bataan (LHD-5) on April 26, 2020. US Navy Photo

The COVID-19 pandemic in a way lays bare an ongoing struggle the services have had in recent history: balancing the need to preserve hard-fought-for readiness while also meeting Joint Force-tasked operational commitments.

Gilday said that, in the near term, the Navy would find a way to meet the commitments it’s been tasked well before the virus emerged. But, he said, the pandemic today will affect planning for 2021 and 2022 and may give additional considerations for planners to think about.

“We are having those discussions now so that we can plan better and set expectations better across the force,” he said.

Berger added that the joint force must be judged by its ability to do three things: how well can it deter aggression through presence? How well can it react to a disaster? And how prepared is it to take offensive action if called upon by the president? Berger noted that the military cannot sacrifice the last two capabilities, so routine presence operations must be de-emphasized under the National Defense Strategy instead of “running the machine so hard that we’re not in a position to react or not in a position to take action when we need to.”

Shuttered Schools Are Biggest Obstacle for Defense Industry Productivity

By: Ben Werner

May 14, 2020 3:54 PM

USNI.org

Norman Bialk TIG welds an aluminum frame in the Hull Outfitting Shop. Newport News Shipbuilding

More than potential supply chain gaps or funding cuts, defense industry productivity during COVID-19 is threatened most by closed schools and a lack of childcare, company executives and government officials have said in the last several weeks.

Workforce absenteeism was cited among the top threats to productivity when company executives discussed their first-quarter financial results during a round of conference calls.

“The number-one driver in attendance right now, by far, is the schools are closed,” Mike Petters, the chief executive of Huntington Ingalls Industries, told analysts during a recent conference call. “Folks have to decide how they’re going to take care of their kids, and all of the usual mechanisms for people to take care of their kids are not available either. So that’s our biggest driver in attendance.”

Across Huntington Ingalls Industries, Petters said the company’s average attendance rate was about 75 percent. But that 75-percent average was not constant for all business segments: more than 75 percent of employees who could telework remain on the job, whereas for the employees who have to physically be the shipyards, Petters said less than 75 percent of these workers are able to regularly clock in.

The Federal Reserve predicts work absenteeism will likely continue for weeks, even months. Coronavirus-related school closures will last for the remainder of the school year in many states.

“It is likely many full-time workers will drop out of the labor force to take care of their children,” states a Federal Reserve Bank of St. Louis report released in April.

Since the Fed report was released, analysis by CNN shows education officials in 48 states and Washington D.C. recommended keeping schools shuttered for the rest of the academic year. Company executives said the effects of school closures would linger on factory floors.

“This is early in the COVID-19 crisis and its impact on our business,” said Phebe Novakovic, chief executive of General Dynamics, during a recent analyst call. “So far, we’ve experienced some deterioration in efficiency driven by absenteeism at a couple of our facilities. We expect absenteeism to decline as we see the rate of infection slow.”

Yet overall, the defense industry is faring pretty well during COVID-19, according to company executives. Revenues from government contracts were described in several conference calls with analysts as being stable, since the Department of Defense is still paying for work. In some cases, the rate of payments increased due to a DoD policy change intended to help firms continue operations during a time when non-DoD work could be slowing due to COVID-19.

“To the extent that we have an opportunity to flow through and accelerate payments, we accelerate them to them as well as to our domestic suppliers in the U.S.,” Marillyn Hewson, the chief executive of Lockheed Martin, said during a recent conference call. “They may face challenges of productivity or absenteeism and/or other constraints, and so we’ll continue to watch that closely. And frankly, that’s the area that we watch the most closely and why we’ve been so focused on it every week.”

During the second quarter is when firms said they expect to see the most significant COVID-19-related slowdowns to their manufacturing operations. The slowdown, though, is not expected to last long, said Kathy Warden, the chief executive of Northrop Grumman, during a recent analyst call. Her comments captured the general expectations expressed by most firms for the year.

“We’re not through with the disruption at this point in time, but we are seeing positive trends both in our own facilities and with our suppliers,” Warden said. “We are starting to see absenteeism reduce and more people coming to work in the production facilities. We are seeing small businesses that had to pause operations for a short period of time resuming their operations. I would say that the trajectory is positive, but we still have uncertainty ahead.”

However, even if large defense contractors push additional funding received from the DoD down to the second- and third-tier suppliers, paying to keep supply chains running only works if employees can show up to work. With schools and childcare centers closed across the country, employee absenteeism becomes a problem that money alone can’t solve.

For Huntington Ingalls Industries, Petters said his leadership team is in close contact with state leadership in Virginia and Mississippi and frequently discusses schools and daycare. HII’s yards are the largest non-government employers in Virginia and Mississippi, and the firm has a long-standing relationship with the education systems in each state.

“We work very closely with our local school systems as part of our ongoing workforce-development efforts, beginning with preschool. This close association provides us insight into the challenges the school and daycare facilities are facing and how that impacts our employees,” Beci Brenton, a spokeswoman for Huntington Ingalls Industries, told USNI News after the analyst call.

There’s a lot of talk of reopening workplaces in each state, and nationwide, Petters said during the conference call. For HII, the company has remained open throughout the COVID-19 pandemic, which Petters said gives his team some insight into what it takes to bring workplaces back online. Governments and companies need to think about employee safety and customer safety.

“I would just say the whole thing about reopening is it’s volunteering. Businesses have to volunteer to open. Even if the governor says to open, it doesn’t mean you’re going to open. A business has to volunteer to open. A business owner has to say, I can open because I’m confident that I can keep my employees safe and I can keep my customers safe, and I can do that at a rate that makes sense for me to open. And the second voluntary part is on the customer’s part, and they have to decide it’s safe to go out,” Petters said. “When are you going to feel safe to put your kids back in school is the number-one question relative to all of this opening.”

The island of the aircraft carrier USS John F. Kennedy (CVN 79) is landed onto the flight deck during a mast-stepping ceremony at Huntington Ingalls Industries Newport News Shipbuilding in Newport News, Va., May 29, 2019. The event coincided with the birthday of the ship’s namesake, former President John F. Kennedy. Capt. Todd Marzano, the ship’s prospective commanding officer, placed his aviator wings underneath the island during the ceremony. With the island, Kennedy is more than 90 percent structurally complete. US Navy Photo