The US Navy is spending billions to stabilize vendors. Will it work?

WASHINGTON — The U.S. Navy expects the submarine-industrial base to start delivering attack submarines on time by 2028 — more than a decade after vendors and shipbuilders began struggling to keep up with growing demand, made worse by the pandemic and the seismic disruption it brought to the labor market.

In fact, the Navy says, industry will have additional capacity by the early 2030s to start increasing the size of the attack sub fleet, which is currently smaller than its required size and would be more so following the sale of a couple boats to Australia as part of the AUKUS trilateral pact.

To get there, the sea service anticipates spending $6.3 billion to bolster the submarine-industrial base — on top of the annual cost of buying and repairing submarines.

But has the first tranche of investments yielded enough progress to warrant the Navy’s optimism?

Here’s a closer look at how the submarine-industrial base is faring after the first $2.3 billion went toward shoring up two shipbuilders and their thousands of suppliers.

Investments to date

The Navy spent $2.3 billion from fiscal 2018 to fiscal 2023 “to build and strengthen the Submarine Industrial Base’s capacity, capability and resiliency,” Whitney Jones, director of the Navy’s Submarine Industrial Base initiative, told Defense News in a written statement.

This money was spent across five main lines of effort.

First is supplier development, after what Jones called the “slow but sustained degradation of domestic manufacturing over the past 40 years.”

This money would boost the production capacity of existing suppliers, develop new suppliers in areas where there may be a single vendor building a critical part, and addressing market sectors where there has been a significant demand increase, such as electrical and electronics subcomponents.

For example, Scot Forge received more than $20 million as part of this effort. The company, part of the castings and forgings market that has struggled to keep up with demand, used the money to buy more production equipment. It has since seen a 100% increase in capacity to process large forgings, Jones said, and reduced its costs by 30%.

In this fiscal year, the Navy will infuse about $70 million into the raw material market, an area where material must be delivered on time to keep submarine construction on schedule, and which has been “especially impacted by market fluctuations and post-pandemic realities,” Jones said.

The second area is shipyard infrastructure, to ensure General Dynamics Electric Boat and HII’s Newport News Shipbuilding can ramp up their production to a rate that will, in FY26, hit its highest rate by tonnage since World War II: one Columbia-class ballistic missile submarine and two Virginia-class attack submarines with the Virginia Payload Module insert each year, dubbed a 1+2 production rate.

(Though Electric Boat is the prime contractor for both submarine programs, it has a teaming relationship with Newport News Shipbuilding where both yards build certain portions of each submarine and share in the final assembly and testing responsibilities.)

The shipyards are making their own investments. For example, Newport News Shipbuilding spokesman Todd Corillo told Defense News the yard is in the midst of making $1.9 billion in capital investments that started in 2016 and will run through 2025, which include facilities to accelerate submarine production.

The Navy is also pitching in with support for the facilities and equipment needed to keep up with growing demand.

The third effort, strategic outsourcing, appears to be taking some of this growing work away from the two shipyards. Jones said the Navy is looking to move at least 5 million production hours a year in large-scale steel fabrication, outfitting and other heavy manufacturing work to other locations, allowing the shipyards to focus on outfitting, final assembly and testing.

Already, the Austal USA shipyard in Alabama has begun building steel modules for the Virginia submarine program, becoming a “strategic supply chain company … that will take millions of man hours out of the strain in the system” at Electric Boat, Rep. Joe Courtney, a Democrat whose Connecticut district includes the Electric Boat yard in Groton, told Defense News.

Navy spending planned for FY24 will formalize Austal’s work on these modules, creating a dedicated submarine fabrication facility there, Jones said.

The fourth effort is workforce development, as companies in the submarine-industrial base of all sizes and in all locations struggle to recruit and retain the workers they need.

And the fifth is investing in new manufacturing technologies that can make work processes more efficient, such as automated welding, robotics and additive manufacturing.

In total, Jones said, the Navy and the submarine-industrial base are executing 79 projects in the current fiscal year aimed at boosting the capability, capacity and quality of work in the sub-tier supply chain, in support of the so-called 1+2 production rate of Columbia and Virginia submarines.

‘One way or another’

Courtney says the submarine-industrial base investments to date are paying dividends.

He wrote a memo to his congressional colleagues in July, outlining how past investments helped and encouraged them to continue the spending to ensure the industrial base can deliver submarines on time during the 1+2 production cadence, and that it has excess capacity to support the AUKUS pact.

The agreement between Australia, the U.K. and the U.S. will see the former acquire nuclear-powered submarines. That’s expected to further pressure the submarine construction sector.

“Among other results, this investment has helped support nearly 200 suppliers in 31 states that has increased capacity 10% to 50% at key suppliers,” the congressman wrote. “Since 2018, 3.5 million hours of work has been moved out of the primary shipyards to ease the pressure on production, with a goal of getting to 6 million hours in FY25/26. Over 3,200 workers have been trained through vital workforce training pipeline programs in Virginia, Connecticut, and other regions.”

Bryan Clark, the director of the Center for Defense Concepts and Technology at the Hudson Institute think tank, said the first tranche of funds was meant to stabilize the industrial base.

“In some cases, that just manifested as ordering ahead of time for things [the two shipbuilders] need in the future. In some cases, the primes took that money and directly invested it in the subcontractor so the subcontractor could improve their production process or their quality control. So some of this money was essentially given in the form of grants to suppliers so the suppliers could automate processes, or introduce new quality control measures, or change how they do manufacturing to make it more efficient or more reliable,” he said.

Based on his conversations with these sub-tier suppliers, he noted, there is evidence this money is flowing as intended.

“That first set of investments, arguably, improved the health of the suppliers, so now they’re able to meet the current demand, or they’re getting close to meeting the current demand,” Clark said.

But this stabilization doesn’t get the industrial base to a higher capacity.

Even as the sector tries to ramp up to the 1+2 delivery schedule by FY26, it is also being asked to build more spare parts to improve the performance of submarine repair activities.

The Navy proposed spending $2.4 billion from FY24 to FY28 to further infuse cash into the supply chain and churn out parts to support submarine maintenance.

Now the question is, “how do we expand the submarine-industrial base’s capacity? And I think one of the problems is, the supply chain can be bolstered and its capacity improved, but at the end, it’s all about how much space and the people you’ve got at the construction yards,” Clark said. “So it seems like the Navy is going to have to put money into expanding the capacity of the construction yards, particularly on the workforce side, and that will involve investments in training, benefits, compensation in general for shipyard workers, which — that’s not an area the Navy usually invests in.”

The yards themselves have acknowledged the importance of addressing the workforce issue.

During an Aug. 3 earnings call, HII President Chris Kastner said the company, through the second quarter of this year, “hired over 3,200 craftsmen and women on a solid pace to meet our full year plan of approximately 5,000. Although we’re meeting our hiring targets, attrition remains high and labor is still the greatest risk to meeting our plan.”

He called labor “the largest obstacle, the largest risk” on the Virginia-class program, and said the company would have to focus on recruiting, training and retaining skilled workers for years to come.

Courtney recalled Electric Boat President Kevin Graney saying in February that his yard aimed to hire 5,750 this year.

“It was greeted by some eye rolls,” the lawmaker said with a laugh, but then noted the yard has hired more than 3,000 people this year.

Clark said the two shipyards must continue offering higher salaries, greater benefits and more training, all of which will result in the Navy spending more per submarine on the Virginia program.

The $1.6 billion in planned Navy investments from FY24 to FY27 will pay for expanding suppliers and building new facilities, he added, but “a surprising portion of it will go to somehow paying for more expensive workers, one way or another.”

Remaining work

Though workforce issues remain a significant challenge for the submarine-industrial base, Courtney said there’s also work to do within the supply chain.

He praised Electric Boat’s Quonset Point facility in Rhode Island for churning out submarine modules at a higher pace than the overall sector, which the Navy says is producing 1.2 Virginia submarines a year — short of the two per year the service is buying.

But the efficiency at Quonset Point doesn’t matter if suppliers can’t deliver components on time, or if the Groton yard can’t perform final assembly work at a faster pace.

“If you look at getting the cadence rate up to where I think everyone wants it to be, building out that supply chain infrastructure is really critical,” Courtney said.

“Castings seems to be the real sort of kink in the garden hose right now in terms of … there’s just not that many manufacturers that still do castings. And that’s where the resources could really help, and also the investment in new technology could also help. There’s a lot of excitement around the idea of 3D metal manufacturing as a way of helping increase casting production without having to build mega foundries and doing it the old-fashioned way,” he added.

Jones, the Navy official, said FY24 money would address those issues. Beyond outlining previous and upcoming initiatives, she highlighted an effort to use data analytics to identify the best uses for this submarine-industrial base money.

The Navy team “must quantitatively and qualitatively describe challenges, gaps, and the impact of efforts/investments,” she said.

As part of that effort, her office has mapped out and performed a risk assessment of the 16,000 suppliers in the submarine-industrial base. It identified the more than 200 million parts the two shipbuilders will need to buy in the next 10 years, and found 15 critical chokepoints that could threaten these future purchasing plans.