STAFF: Ladies and gentlemen, good afternoon. Thank you for attending today. Secretary Young will first provide a brief statement regarding our recommended changes to the USS Carl Vinson's refueling and complex overhaul. It'll be followed by approximately 15 minutes of Q&A. Firstly, I'd like to go over some ground rules.
The comments by Mr. Young are on the record for full attribution. It's a single subject conference, so if we could please stick to the topic at hand. And after the Q&A, what we'd like is to provide for you two senior Navy officials that are standing by to cover any more specifics that you may want to get into here.
So with that, I'd like to introduce Secretary Young.
MR. YOUNG: Thank you very much. And if there are no Q's and A's, we won't need that 15-minute period.
Let me thank you all for coming today. And we wanted the opportunity, the Department of the Navy -- and I do mean that in the fullest sense of the world -- a chance to talk to you about discussions that have been held over, really, the last several months on shipbuilding workload. An important piece of that is the Carl Vinson CVN-70. The acquisition team, the fleet and the resource requirements community have been engaged in some very productive discussions that included industry -- Northrop Grumman was a full partner as well as the supship's team in Norfolk -- talking about the status of carrier construction and overhaul specifically. Admiral Malone was a representative at these meetings, and I'm particularly disappointed he can't be here today because in his role, speaking for the fleet, he's been just a vital contributor to these discussions.
These discussions pointed out back in the April-May time frame as we looked out several years at Northrop Grumman's workload a pretty sizable dip in the '07 to '09 time frame. So the question was asked by the group about the status of the Vinson, because in one opportunity, at least for discussion and analysis, would be if you slip the Vinson, it would mitigate to some degree this serious dip in workload at the yard. And reviewing this matter and working with Admiral Malone's team it also -- it became clear that the Vinson did, indeed, have reactor fuel to support a delay of one year. Delaying the Vinson for one year made sure that the Department of Defense got the maximum from the Vinson's reactor fuel, which obviously is important. It helped with this '07 to '09 shortfall in workload, or dip in the workload. It avoided also a near-term labor peak and high overtime that we've been experiencing at Northrop Grumman and throughout the shipyards to some degree. And it provided the fleet, probably more importantly, a surge asset as the Vinson now will be deployable for an additional year.
As we looked into the details of beyond this, of delaying CVN 70 refueling, and evaluated the workload across the shipyards, a number of issues emerged.
First, the George Washington really needed to be docked for all the work to be accomplished on it. Docking the George Washington and doing the work at Northrop Grumman became an option, and that is very helpful to us in retaining the skills and avoiding some of the near- term workload that delaying the Vinson would have created at Northrop Grumman.
The Navy also determined that we would like to and need to perform additional maintenance on the John F. Kennedy to get that carrier in optimal condition for service in the global war on terrorism. The Kennedy work increase actually matched very nicely with the need to use the Norfolk Naval labor, which had been planned to be -- to apply to the George Washington.
So, there are several steps here, and I apologize, but I'm trying to walk them through carefully. Norfolk Naval also had additional capacity as a result of these moves, which we expect to apply to the submarine depot modernization periods that are -- that were scheduled for Portsmouth. There were a couple of DMPs at Portsmouth. Those will now be displaced, partly because of the Congress in FY '04 added an engineered refueling overhaul submarine that's to be done at Portsmouth.
There are a lot more details behind all of this, but I have given you some of the top-level issues, and I want to mention that the Northrop Grumman team, the Norfolk Naval Shipyard team, they've been exceptional in working with the fleet and the acquisition community and the requirements community as a partner to think through all of these details and implications. And two, what you see in this execution is a single shipyard concept that Admiral Balisle and the NAVSEA team have really developed and created, and has the potential to serve the Navy as an enterprise very effectively.
The Navy's proposing to make the necessary budget adjustments to go with these fleet and industrial decisions in the FY '05 budget, but that will still be under consideration, as you well know, with the Office of the Secretary of Defense. However, there are timelines for shipbuilding, as we keep making sure everybody understands, and we need to take some actions now, actions that could be discussed in public, and so we wanted people to understand the full context for those decisions. For example, planning for execution of the George Washington needs to be shifted to Northrop Grumman if we're actually going to do the work in that yard and produce the paper instructions for that work. Enhanced planning for the John F. Kennedy needs to start for Norfolk Naval, and planning for the DMPs need to start and there are a number of other actions that need to be taken.
Beyond all these details, I guess I want to highlight an important aspect of how this matter is being handled. This issue and these decisions were reviewed and evaluated in detail by the acquisition community, the fleet, industry, and the requirements and resources communities working together in a collaborative fashion. The issue was briefed several times to the Chief of Naval Operations, Admiral Clark asked several questions that resulted in more analysis, so everybody's doing their homework here.
These are major decisions, which deal with the fundamental pieces of the Navy enterprise, aircraft carriers and stable, well-managed shipyards. The Navy enterprise is working these matters, as I said, in a collaborative, businesslike manner and making decisions at the senior levels on these major moving pieces of the enterprise, working to devise long-term plans that provide budget and program stability while we're also ensuring that we're responsive to the needs of the fleet, as you all know are in a daily exercise to respond to the requirements of the global war on terrorism.
And lastly, I'd say this truly is, as Secretary Rumsfeld and Secretary England talk about, changing our business practices, in all these comments I've made to you, and about managing the department as a business enterprise. So I can't tell you how positive I think these discussions have been, the participation of the fleet, the requirements community and everyone, the efforts to create stable budgets and stable program plans that our industry partners can plan to and execute, hopefully, with the efficiency we seek in the enterprise
So with that, I'll stop and take questions, as he said, if you have questions. Yes, sir?
Q Actually this sort of spins out a bit from the fact that initially you had expected to start work on what was back then CVNX, and it got slipped a year. I think Northrop Grumman has been -- Newport News has been talking about the problems with the labor force not being utilized for a period. This would cause them difficulties; either they'd lay them off and have to rehire them back at high rates, or they'd have to pay them for a year without them having work to do.
Is this basically a solution to the problems that Schievelbein raised more than a year ago? And does this answer all of Northrop's problems? Are they satisfied with this?
MR. YOUNG: I'll take this maybe a little differently than you asked, but I think it's exactly how it happened. Really, one of the first meetings that involved Admiral Malone and myself, and the whole team here, was back in April, and it was really focused on making sure we were doing everything we could to finish Reagan in a timely manner, and then start looking at how to continue to work with Northrop Grumman as a partner to deliver the rest of the business, the rest of the business being the refueling of 70, 77, the things that are the near-term screen. When you start to look beyond the near-term screen, you do see, and we did see what you talked about and what Tom's talked about, is a dip in workload out in that time frame, and a ramp back up. The ramp back up is really, I think, for 70 production. And we wanted to address that because I would like to have several years of good stability within our single shipyard, Norfolk Naval and Northrop Grumman Newport News, and across the enterprise.
So that's really how the discussions came about, less so -- it was let's do a better job of managing our near-term work, and then let's be conscious of the future and having that discussion. So we did that.
This does take a big step towards helping with that valley. There's still a dip out there in the future that we've got to think through managing and working with the company to handle. And we're going to keep paying attention to that because, as I've emphasized, you know, we really are trying to manage, as a single shipyard, the discrete entities, and give everybody -- which means the Navy -- give everybody a stable workload so the Navy gets the product it needs through those yards and does so, as Secretary England says, effectively and efficiently.
Q This business model, you're getting away from the pre- scheduled maintenance and you're being more flexible in the scheduling. What does that do -- what is the impact on the fleet? What have you heard from the people in fleet that could be the impact in terms of training and preparation and predictability?
MR. YOUNG: Maybe -- I'm happy to try, but I think it would be better to answer that question in some detail when we have a couple of people that can speak to that on background afterwards because they probably can do a better job than I can answering that question in detail.
Q Could you address the problems with the Kennedy? It's just come out of a -- or I guess it's coming out of an extended period in Mayport of maintenance. Did you find things there that you didn't anticipate, further difficulties that required it to come to Newport News? And what's the price tag of all that?
MR. YOUNG: I can't comment yet on the price tag. I mean, we're building that, and I'd rather not do that, because some of these adjustments we're finalizing, and they'll be made in the '05 budget, and it's really premature for me to comment till OSD reviews that budget.
Also, I'd offer the chance to get more detail on that from background discussions that provide you those details. But the basics are the Kennedy, as you well know, had some challenges and what -- over time I think that the department feels like we have not done enough of both the required and preventive maintenance on Kennedy, so that she serves and serves well without problems arising.
And so this planning package, I think, is intended to recover some ground that's been lost over several years and do both the maintenance that's required, as well as some preventive and some smart plan-ahead maintenance that will let Kennedy serve, hopefully with lower -- shorter maintenance periods and less maintenance overall in the future, instead of finding ourselves with -- having done the minimum amount of maintenance and then the next time Kennedy's maintained, you find problems emerge that require more time and money.
Q Well, if you could help me out, then, I mean, I thought that's kind of what you were doing in this extended period in Mayport. And again, were there things that were discovered during this maintenance period that weren't anticipated, that require even more? I mean, I thought the whole idea of this extended time in Mayport was to do this catching up on the ship.
MR. YOUNG: Yeah, I think it's -- we've struck a balance there, and that the extended time was intended to do the same -- some of the extended time was because we found things along the way. You know, there were emergent problems that forced an extended time for the Kennedy -- sought to fix as many of those as possible. And the fleet's acknowledged that there are more things we would like to do, because -- and this really does reach back, and I can't do it full justice, to the fact that over the last, you know, six to eight years, we've probably not done all of the maintenance, preventive and otherwise, that we really should have done on Kennedy.
Q By delaying the Vinson work a year and also keeping it operational for another year, aren't you increasing your long-term costs?
MR. YOUNG: Are we --
Q It seems that would cost more if you were -- both to keep it running another year, and then -- and then do the maintenance later.
MR. YOUNG: Say that again? I'm not sure I understand.
Q Well, I'm just wondering if you're increasing your long- term costs under this plan -- if you're delaying the maintenance until a later date and also keeping the ship running now an extra year, more than you had planned before, for the -- before the overhaul.
MR. YOUNG: I think there are some incremental additional costs. There's a time value of money issue where, you know, a year in the shipyard this year is probably a little less costly than a year in the shipyard next year. Trading that against making sure you use that full reactor fuel load and giving the fleet the option to have a deployable asset, an extra year's worth of deployable asset time I think dwarfs those incremental costs. And then over the long term, the Vinson's going to be in service for an extended period of time.
So there are some modest incremental additional costs. But it's not substantial.
Q You had mentioned about the reactor fuel remaining in Vinson. How realistic is that asset now as a surge asset with what's left in the reactor? In other words, how many -- how much of a full burn can you get out of what's left in Vinson's reactor to really make it a viable surge asset if you had to go full steam across the Atlantic again to do another Operation Iraqi Freedom or that sort of thing? Will there be some husbanding of that resource because it's finite?
MR. YOUNG: No, I can't go very far down the detail path on that. But in these discussions, both the naval reactors team and the fleet team have studied this very carefully and are satisfied that this carrier can serve as a surge asset during that additional year and do a full deployment, which is a great benefit to the fleet, if called upon.
And, you know, this perfectly addresses the CNO's fleet response plan, where we'd like to, on short notice, be able to surge an asset, as response to what both Admiral Clark and Secretary England have talked about, and that is, when a ship comes home, sometimes it's in the best condition throughout its deployment, and then we -- Secretary England used to talk abut this -- take it down to nothing and build it back up. The Vinson's returning, it's in great shape, it's clear -- it has the fuel, and the fuel to do a full deployment if it's called upon. So I think everybody is comfortable with that, but that's the kind of detailed issue that's been reviewed in considering this decision.
STAFF: (Off mike) -- last question.
Q You mentioned that, okay, we're going to smooth out the workload here. You've also had some other attempts to kind of rationalize things. With Virginia, you went to multi-year and said, "Okay, you've got economic order quantity, that helps you, you can squeeze better prices out of your supplier; your workforce, you're more dependable as far as being able to have the work for them to do." You also had the swap between Northrop and General Dynamics: "Okay, over here, let's make all the destroyers here, let's make all the amphibs over there."
Have you had discussions with the two companies, Northrop and General Dynamics, that, "Look, if we can give you guys some more rational business, if we can stabilize things, make tings more predictable, make things more efficient for you, that's going to be good for your bottom line and your stockholders. Now, in return, can you guys come back and share some of that savings with us so we can go back up to Capitol Hill and say, 'Hey, look, this was going to cost X, now it's X minus whatever, and the taxpayers make out, everybody'" -- you know, it's a win-win. Have you had that kind of discussion?
MR. YOUNG: Not in those precise terms, but that's the path we're embarking on. As we did with Virginia, and you highlighted it, I think in future discussions with Northrop Grumman, we'll make sure that the contract terms and conditions are appropriate and suitable so that we all have a good chance to manage the target.
Whenever we use incentives and set a realistic target and then adjust the share lines, in an effort to incentivize delivery of the carrier, the product at or below the target, the government has a responsibility to make sure the GFE is there, to make sure that workload shifts don't substantially alter their ability to be effective and efficient. And that's what you see in this discussion. I think, as part of their work on Virginia, as part of 76 completion, 70 execution and 77 execution, we want the shipyard to not face peaks and valleys; and we want to across the enterprise plan for Norfolk Naval to be stable, Newport News and all the other partners, and in some cases move workers, especially critical workers, between the yards in this single shipyard concept.
So we're doing all these things, and this is one of the ingredients for us, giving them a chance to deliver for cost. Then I think we both together, industry and the Navy, need to go to Capitol Hill and show people we are -- you know, show them the money -- i.e., show them we're delivering product on time and on schedule. And I think that'll pay some big dividends for the department.
I thank you all very much.
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