Navy cancels $20b purchase of destroyers
Move hits Raytheon hard, imperils Bath shipyard jobs
Email|Print|Single Page| Text size – + By Robert Weisman and Bryan Bender
Globe Staff / July 24, 2008
A stunning Navy decision to abort a $20 billion plan for a new fleet of destroyers yesterday threw into question the future of Raytheon Co.'s largest defense program and renewed longstanding concerns about the fate of the Bath Iron Works shipyard in Maine.
Graphic The DDG-1000
Waltham-based Raytheon is the prime contractor for the ship's combat systems, which are being developed at its Tewksbury and Andover plants. Assembly work on the guided-missile destroyers was to have been divided between the 124-year-old Bath shipyard, owned by General Dynamics Corp., and a yard in Mississippi.
Cancellation of the 14,000-ton, Zumwalt-class destroyer, called the DDG-1000,
after just two ships were funded, was made public by Maine's two Republican senators, Olympia J. Snowe and Susan M. Collins, and US Representative Thomas H. Allen, a Democrat whose district includes the Bath shipyard. The lawmakers said they were informed by top Navy officials that with costs rising 50 percent, to $3 bil lion per ship, the program has become too expensive and would make it impossible for the Navy to meet its overall goal of a 313-ship fleet. The service currently has about 280 ships.
The lawmakers said they were also told that the Navy had concluded the destroyer's design was not well suited to combating the evolving threat of long-range missiles.
Navy representatives declined to confirm they were scrapping the program, nor would spokesmen for Raytheon and General Dynamics.
"We won't discuss the content of our internal budget briefings," Lieutenant Clay Doss, a Navy spokesman, said yesterday. "That said, we continue to discuss all options to develop the surface ship force for the future that will meet all identified requirements."
The news set off a flurry of activity. Dugan Shipway, Bath Iron Works president, flew to Washington yesterday to discuss the impact of the cancellation with Maine lawmakers. The lawmakers and their staffs scheduled a series of meetings with the Navy to get more answers.
Collins, after meeting with Shipway,
said the Navy plans instead to build more of the older Arleigh Burke class of destroyers, designated the DDG-51s. Some of those may be built at Bath, which would offset the loss of the DDG-1000 program. But she said the shipyard would have to be guaranteed the work on virtually all the additional DDG-51s to maintain its current workload and prevent job losses.
Allen said he was assured by Navy officials that the service would request funds to construct an additional nine DDG-51s through fiscal year 2015. "I am confident that the return to the DDG-51 program will maintain a stable workforce at Bath for years to come," Allen said. Employment at the Bath Iron Works shipyard has dropped to less than 6,000 from a post-World War II peak of 12,000 in 1991.
Raytheon, meanwhile, has assigned about 2,000 employees - in Tewksbury, Andover, Portsmouth, R.I., and elsewhere - to work on the new destroyer's combat systems. The company had counted on the Zumwalt program to help catapult it into the ranks of top military contractors, which not only build weapons but integrate sophisticated technology into larger systems. It was the biggest of the company's thousands of military contracting programs.
The older Arleigh Burke models, which cost less than half the price of the DDG-1000s, have combat systems developed by a Raytheon rival, Lockheed Martin Corp.
"A decision to stop DDG-1000 procurement and restart DDG-51 could shift combat system work from Raytheon to Lockheed," said Ronald O'Rourke, a naval specialist at the nonpartisan Congressional Research Service, the research arm of Congress.
Jonathan D. Kasle, a Raytheon spokesman, said the company planned to continue its work on combat systems for the two destroyers that have been funded. But he suggested the new systems might also be used in other Navy vessels.
"We don't believe the Navy can afford to put old technologies onto any ships," he said. "Zumwalt technologies advance mission capabilities to address current and evolving threats, and support a necessary trend to lower ship personnel levels in an effort to reduce operating costs. These technologies can be leveraged for future or existing ships."
Raytheon has not disclosed how much in total it has received from the Navy so far for its work on the Zumwalt program. But the company won a $3 billion development contract in 2005 and a nearly $1 billion production contract last year for the combat systems.
The new DDG-1000 destroyer was conceived in the early 1990s as a land attack ship that would fend off Soviet-style threats. It later evolved into an all-purpose vessel that could accompany a carrier group in deep water against conventional enemies while also being able to launch special operations to thwart terrorists closer to shore. The first ship in the class has been scheduled for delivery to the Navy in 2013.
But the estimated cost for each Zumwalt-class destroyer had jumped from $2 billion to more than $3 billion. Even before the cancellation, the Navy had decided to scale back the program from an original goal of 32 ships to just seven. Congress has approved only two, and a House committee recently balked at funding the third.
The decision puts the spotlight on military procurement problems that have festered for decades: program mismanagement, ballooning costs, and increasingly sophisticated and rapidly changing technology that has outstripped the government's ability to pay for it.
"You'd have to say the Pentagon acquisition system is broken," said former naval architect Jon B. Kutler, chairman of Admiralty Partners, a private equity firm specializing in aerospace and defense. "They're spending a lot of money and have very little to show for it."
Cancellation of the Zumwalt-class destroyer potentially could have a greater impact on Raytheon than on General Dynamics, some analysts said. "This is bad news for Raytheon," said Loren B. Thompson, chief operating officer at the Lexington Institute, an Arlington, Va., think tank.
But program executives at Raytheon have maintained that shipboard systems it has designed for the Zumwalt class could be used on future Navy vessels and "backfitted" to older models such as the DDG-51. While several analysts questioned that, others said Raytheon's development work is seen as critical to future Navy combat.
"They want the technology Raytheon is developing to mature," said Patrick J. McCarthy, defense analyst for the Washington investment bank Friedman, Billings, Ramsey Group.
The termination of the Zumwalt program is the latest sign of trouble for the Navy's plans to achieve a 313-ship fleet. The Navy's shipbuilding program has been under intense scrutiny from Congress following construction delays and skyrocketing costs.
Last year the Navy was forced to restructure the Littoral Combat Ship, a next-generation fleet of small, fast attack vessels, opting to acquire just two ships rather than six after engineering problems.
Robert Weisman can be reached at
weisman@globe.com. Bryan Bender can be reached at
bender@globe.com
© Copyright 2008 Globe Newspaper Company.
1 2 Graphic The DDG-1000
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