There remains a retro view of the defense industry from the Cold War that suggests such firms are well funded, overcharge the taxpayers, and do not give good value in the products they produce. Nothing could be further from the truth. The “warfare state” from the last period of great power rivalry with the Soviet Union died in the 1990s. Defense companies, especially U.S. defense shipbuilders face an uphill challenge in maintaining a qualified, ready workforce in the face of undefined fleet force structure planning, funding problems incurred in periods such as sequestration, and the fact that shipbuilding is hard, but complex work. HII’s Newport News Shipbuilding division is a good example of a shipyard that is doing its best to train and maintain a complex and highly skilled workforce for aircraft carrier and submarine work in periods of Defense budget uncertainty. If industrial base management is indeed a key element of the Department of Defense’s budgeting, then the Department needs to follow the Navy’s lead and maintain funding for the 355 manned and 155 unmanned ship fleet.
Just a decade later, it was mostly dead. Government funding for weapons-related research dried up with the end of the Cold War and the expanding globalization of the 1990s and 2000s developed new civilian sources of funding for advanced research that benefitted civilian and military pursuits. The writing was on the wall as early as 1993 when Defense Secretary William Perry invited a large number of defense executives to a dinner, later known as the “last supper” saying defense firms needed to “combine into a few, larger companies because Pentagon budget cuts would endanger at least half the combat jet firms, missile makers, satellite builders and other contractors represented at the dinner that night.” In just a few years, a dozen leading American military contractors folded into only four. The warfare state as the nation had known it since 1941 was gone and defense companies would need to fund their own improvements in capability without a ready government check in support.
One Example: Newport News Shipbuilding
HII’s Newport News Shipbuilding (NNS) is a good example of a post-warfare state defense systems provider. It is the largest industrial employer in Virginia with over 25,000 employees, but it faces significant challenges in maintaining a steady state build of nuclear-powered aircraft carriers and submarines in the absence of a regular navy force structure plan such as was seen in the 1980s with the 600-ship navy. From 1976 to 1996, the nuclear shipbuilding industrial base delivered 1,350,000 tons while from 1997-2016 (after the end of the Cold War to just six years ago), it delivered only 440,000 tons. In that same post-Cold War world, NNS made $1.08 billion in its own investments to modernize its shipbuilding hardware and processes.
At the same time, the company invested in its people in the form of training and apprenticeship programs to retain employees in a tough working environment made even more challenging through the COVID-19 pandemic. In fact, for 2021, the entire HII Corporation that includes NNS, as well as Ingalls Shipbuilding in Mississippi and its relatively new Mission Technologies division, had a profit margin of only 5.71% for the last year even with a record $9.5 billion in overall revenue. By contrast, Apple Inc had a profit margin of over 26% in 2021, Meta (formerly Facebook) had a net profit margin of 33.4% in 2021, and European mega-shipbuilder A.P. Moeller had a 2021 profit margin of over 29%. There hardly seems a “military industrial complex” at work seeking to enrich stockholders at taxpayer expense. General Dynamics Marine group (Bath Iron Works) had an 8.3% profit margin for 2021 and Franco-Italian shipbuilder Fincantieri Marine (builder of the forthcoming US Navy FFG-62 Constellation class frigates) made only a 7.4% profit margin in 2021. Compared to the tech giants and mega-shipbuilders, defense shipbuilders are hardly rolling in taxpayer-funded profits.
How can the Department of Defense help Naval Shipbuilders like HII?
The overall nuclear shipbuilding industrial base expects to build 900,000 tons of projected construction in the period 2017-2036. NNS, other shipbuilders, and the thousands of suppliers in essentially every state, need shipbuilding plans and associated federal funding stability to retain and grow the highly trained workers needed to complete these ships on time and on or under budget. The Chief of Naval Operations Admiral Mike Gilday said recently in a Heritage Foundation event that:
“We need to give a signal to industry…this is on us [Navy] to give them a clear set of – a clear aim point so they can plan a work force and infrastructure that’s going to be able to meet the demand…no industry is going to make those kinds of investments unless we give them a higher degree of confidence.”
This means a steady-state U.S. Navy force design plan such as the Navy’s recent 355-ship Force detailed in CNO Admiral Mike Gilday’s Navigation Plan 2022 with a regular schedule of construction and overhaul of existing units. Perturbations in schedules cause ripples across the shipbuilding industry. For example, the 2008 decision to massively truncate the DDG-1000 (Zumwalt class) destroyer to just three units and to re-start the DDG-51 class destroyers ended up costing taxpayers billions of dollars. Shipyards are also massively affected by such changes. When the SSN-21 Seawolf class attack submarine was truncated to three units in the early 1990s, it meant eliminating 11,442 jobs throughout the General Dynamics Electric Boat division and 6,612 jobs at the yard alone. These jobs are not easily re-created and DoD and Congress must avoid such massive disruptions and changes in the shipbuilding plan for NAVPLAN 2022.
Conclusion
With the right Navy partnership, HII has the ability to add additional capacity to build more ships, and HII’s NNS alone is a 550-acre facility with 2.5 miles of waterfront construction space.
At that current facility, NNS is providing a significant amount of forthcoming Navy combat capability with USS Gerald R. Ford now and expected to deploy before the end of 2022; USS John F. Kennedy to be commissioned in 2024, keel just laid for next USS Enterprise expected in 2028, and the future USS Doris Miller to follow in 2032. Harnessing this facility and other American shipyards in a predictable, regular pattern (i.e., both the 30-Year Shipbuilding Plans and the budgets to achieve them), will do much to both grow the fleet in size and capability while preserving the vital industrial base that creates and sustains U.S. naval forces.
Dr. Steven Wills is the Navalist at the Center for Maritime Strategy. His research and analysis centers on U.S. Navy strategy and policy, surface warfare programs and platforms, and military history.
The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.
Center for Maritime Strategy
By Dr. Steven Wills
There remains a retro view of the defense industry from the Cold War that suggests such firms are well funded, overcharge the taxpayers, and do not give good value in the products they produce. Nothing could be further from the truth. The “warfare state” from the last period of great power rivalry with the Soviet Union died in the 1990s. Defense companies, especially U.S. defense shipbuilders face an uphill challenge in maintaining a qualified, ready workforce in the face of undefined fleet force structure planning, funding problems incurred in periods such as sequestration, and the fact that shipbuilding is hard, but complex work. HII’s Newport News Shipbuilding division is a good example of a shipyard that is doing its best to train and maintain a complex and highly skilled workforce for aircraft carrier and submarine work in periods of Defense budget uncertainty. If industrial base management is indeed a key element of the Department of Defense’s budgeting, then the Department needs to follow the Navy’s lead and maintain funding for the 355 manned and 155 unmanned ship fleet.
The Old “Warfare State” is long Dead
The Cold War-era union of university research funded by the government to empower industry in creating weapons to contest hegemony with the Soviet Union began in the U.S. effort to ramp up for participation in the Second World War. Rather than be dismantled at war’s end as past systems were in 1865 and 1919, the warfare state continued to conduct research and produce industrial solutions for the nuclear arms race, the space race and conventional weapons programs. President Eisenhower worried that this “military industrial complex” would drain the government treasury of funds needed for citizen projects. Kennedy and Johnson administration Defense Secretary Bob McNamara wanted to tame the military industrial complex through the application of analysis and testing to prevent runaway spending on costly projects that did not directly support national security. The Cold Warfare state reached its zenith in the 1980s as it produced such game-changing systems as the global positioning system, the ARPANET (later the internet), and contemplated making President Reagan’s “Star Wars” vision a reality.
Just a decade later, it was mostly dead. Government funding for weapons-related research dried up with the end of the Cold War and the expanding globalization of the 1990s and 2000s developed new civilian sources of funding for advanced research that benefitted civilian and military pursuits. The writing was on the wall as early as 1993 when Defense Secretary William Perry invited a large number of defense executives to a dinner, later known as the “last supper” saying defense firms needed to “combine into a few, larger companies because Pentagon budget cuts would endanger at least half the combat jet firms, missile makers, satellite builders and other contractors represented at the dinner that night.” In just a few years, a dozen leading American military contractors folded into only four. The warfare state as the nation had known it since 1941 was gone and defense companies would need to fund their own improvements in capability without a ready government check in support.
One Example: Newport News Shipbuilding
HII’s Newport News Shipbuilding (NNS) is a good example of a post-warfare state defense systems provider. It is the largest industrial employer in Virginia with over 25,000 employees, but it faces significant challenges in maintaining a steady state build of nuclear-powered aircraft carriers and submarines in the absence of a regular navy force structure plan such as was seen in the 1980s with the 600-ship navy. From 1976 to 1996, the nuclear shipbuilding industrial base delivered 1,350,000 tons while from 1997-2016 (after the end of the Cold War to just six years ago), it delivered only 440,000 tons. In that same post-Cold War world, NNS made $1.08 billion in its own investments to modernize its shipbuilding hardware and processes.
At the same time, the company invested in its people in the form of training and apprenticeship programs to retain employees in a tough working environment made even more challenging through the COVID-19 pandemic. In fact, for 2021, the entire HII Corporation that includes NNS, as well as Ingalls Shipbuilding in Mississippi and its relatively new Mission Technologies division, had a profit margin of only 5.71% for the last year even with a record $9.5 billion in overall revenue. By contrast, Apple Inc had a profit margin of over 26% in 2021, Meta (formerly Facebook) had a net profit margin of 33.4% in 2021, and European mega-shipbuilder A.P. Moeller had a 2021 profit margin of over 29%. There hardly seems a “military industrial complex” at work seeking to enrich stockholders at taxpayer expense. General Dynamics Marine group (Bath Iron Works) had an 8.3% profit margin for 2021 and Franco-Italian shipbuilder Fincantieri Marine (builder of the forthcoming US Navy FFG-62 Constellation class frigates) made only a 7.4% profit margin in 2021. Compared to the tech giants and mega-shipbuilders, defense shipbuilders are hardly rolling in taxpayer-funded profits.
How can the Department of Defense help Naval Shipbuilders like HII?
The overall nuclear shipbuilding industrial base expects to build 900,000 tons of projected construction in the period 2017-2036. NNS, other shipbuilders, and the thousands of suppliers in essentially every state, need shipbuilding plans and associated federal funding stability to retain and grow the highly trained workers needed to complete these ships on time and on or under budget. The Chief of Naval Operations Admiral Mike Gilday said recently in a Heritage Foundation event that:
This means a steady-state U.S. Navy force design plan such as the Navy’s recent 355-ship Force detailed in CNO Admiral Mike Gilday’s Navigation Plan 2022 with a regular schedule of construction and overhaul of existing units. Perturbations in schedules cause ripples across the shipbuilding industry. For example, the 2008 decision to massively truncate the DDG-1000 (Zumwalt class) destroyer to just three units and to re-start the DDG-51 class destroyers ended up costing taxpayers billions of dollars. Shipyards are also massively affected by such changes. When the SSN-21 Seawolf class attack submarine was truncated to three units in the early 1990s, it meant eliminating 11,442 jobs throughout the General Dynamics Electric Boat division and 6,612 jobs at the yard alone. These jobs are not easily re-created and DoD and Congress must avoid such massive disruptions and changes in the shipbuilding plan for NAVPLAN 2022.
Conclusion
With the right Navy partnership, HII has the ability to add additional capacity to build more ships, and HII’s NNS alone is a 550-acre facility with 2.5 miles of waterfront construction space.
At that current facility, NNS is providing a significant amount of forthcoming Navy combat capability with USS Gerald R. Ford now and expected to deploy before the end of 2022; USS John F. Kennedy to be commissioned in 2024, keel just laid for next USS Enterprise expected in 2028, and the future USS Doris Miller to follow in 2032. Harnessing this facility and other American shipyards in a predictable, regular pattern (i.e., both the 30-Year Shipbuilding Plans and the budgets to achieve them), will do much to both grow the fleet in size and capability while preserving the vital industrial base that creates and sustains U.S. naval forces.
Dr. Steven Wills is the Navalist at the Center for Maritime Strategy. His research and analysis centers on U.S. Navy strategy and policy, surface warfare programs and platforms, and military history.
The views expressed in this piece are the sole opinions of the author and do not necessarily reflect those of the Center for Maritime Strategy or other institutions listed.