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US aircraft carrier's labor costs missing Navy's savings goal

By TONY CAPACCIO | Bloomberg | Published: September 26, 2017

Huntington Ingalls Industries Inc. is falling short of a U.S. Navy goal to reduce hours of labor on the second ship in the new Ford class of aircraft carriers in a drive to reduce costs, according to service documents.

With 34 percent of construction complete on the USS John F. Kennedy, Huntington Ingalls estimates it will be able to reduce labor hours by 16 percent from the hours needed to construct the first vessel, the Gerald R. Ford. That's less than the 17 percent reduction reported at the end of last year and the 18 percent goal the Navy negotiated in the primary construction contract for the carrier.

The "recent degradation in cost performance stems largely from the delayed availability of certain categories of material," such as pipe fittings, controllers, actuators and valves, according to the Navy's annual report on the program and updated figures obtained by Bloomberg News.

The first carrier is expected to cost $12.9 billion, making it the most expensive U.S. warship. Lawmakers, including Senate Armed Services Committee Chairman John McCain, have criticized overruns that totaled about $2.4 billion and problems with construction and system reliability that delayed delivery by about 32 months.

The Navy needs to keep the next carrier's costs under an $11.4 billion cap set by Congress as the service seeks funds to expand its fleet to 350 vessels from 279 deployed today.

"We acknowledge that the cost reduction target for CVN-79," relative to the first carrier, "is challenging," Huntington Ingalls spokeswoman Beci Brenton said in an email, referring to the Kennedy by its Navy designation. "While it is still early in the ship's schedule, we are seeing positive results from" new initiatives to keep costs in check, she said.

About 49 million hours of labor were expended to build the Ford, according to the U.S. Government Accountability Office. The Navy's goal for the Kennedy is to reduce that to about 40 million hours.

Navy Secretary Richard Spencer told reporters last week that he will stay involved in monitoring the CVN-79's construction trends. "This is my personal approach -- the CEO has to be involved."

A close watch is required "because there are so many moving parts and so many opportunities to do things in a more efficient manner," Spencer said.

The Navy has been working with the contractors "to mitigate technical risks and impacts of late material," Navy spokesman Victor Chen in an email. "The overall volume of late material items and associated impact to construction performance is declining. The Navy has hired third-party experts who are working collaboratively with the shipbuilder to identify manufacturing opportunities for efficiency gains" and to assist in implementing improvements.

The 18 percent reduction in labor hours was "quite optimistic" from the start, Michele Mackin, a Government Accountability Office director who oversees its shipbuilding assessments, said in an email. "Even based on that assumption, the $11.4 billion cost cap was unlikely to be met," she said. "If those labor-hour efficiencies are in fact not materializing, costs will go higher.

Also, "with the ship being over 30 percent complete, it's unlikely the shipbuilder can get back enough efficiencies to further reduce labor hours -- the more complicated work is yet to come," she said.

The Kennedy, which is to replace the 42-year-old USS Nimitz, remains on track for a preliminary acceptance by the Navy in 2020 and a planned first deployment in 2027.

The aircraft carrier Pre-Commissioning Unit Gerald R. Ford (CVN 78) pulls into Naval Station Norfolk for the first time on April 14, 2017.
MATT HILDRETH/HUNTINGTON INGALLS INDUSTRIES

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