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Will Congress Torpedo the Navy's Littoral Combat Ship?

Don't look now, but the U.S. Navy's highest profile warship may soon be toast -- a victim of Pentagon cost-cutting.

LCS-1 -- America's first Littoral Combat Ship. Source: Wikimedia Commons.

It's a pretty ship, no doubt. But for years, the Navy's Littoral Combat Ship has been bedeviled by reports of production delays and cost overruns. Originally expected to cost just $220 million apiece (in FY2005 dollars), the cost quickly ballooned to as high as $500 million (again, in 2005 dollars, worth more than today's).

Cost cutting ensued, bringing expenses (somewhat) under control. But even so, current budget estimates suggest that each LCS built by military contractors General Dynamics (NYSE: GD  ) and Lockheed Martin (NYSE: LMT  ) will cost taxpayers at least $450 million ($380 million in FY2005 money) -- 73% over their initial budget.

So ... what do we get for our money, and how much money are we talking about?

Pentagon math
According to a July 2013 Congressional Research Service report, estimates of each ship's cost vary from $440 million to as high as $528 million, depending on the year the ship is to be built (factoring in the effects of inflation), the rate at which they are produced (faster production of more ships is more efficient and saves money), and other variables. Fiscal 2014 budgets put the price tag at $448 million each for the four ships to begun that year.

But a better way to look at this may be the total cost of the program, reflected in the following chart.

Meanwhile, defense officials are staring at an estimated $52 billion in spending cuts they may have to implement at the end of this month. Cutting short the LCS building program would go a long way toward covering those cuts, and paying for future years' spending reductions as well.

How deep to cut, and how far will it go?
The $80 billion-plus price tag you see up above, after all, is the cost to build the 52 LCSes that the Navy wants to build, and had planned to build, before sequester struck. Now, budget cutters in Congress are suggesting we might be better off building the LCSes we've contracted to have General Dynamics and Lockheed Martin build (20), plus the four already built -- making for a nice, round two-dozen-ship fleet -- and calling it quits after that.

How much could taxpayers save by gutting the LCS program? You might think "54%" -- 52 divided by the 28 ships-that-won't be built. But in fact, the savings could well be less than that. Contractors would still want to recoup their R&D costs, for one thing. Costs won't be spread out across as many vessels, either, preventing production efficiencies. By my calculations, we'll probably end up saving about half the estimated cost to get less than half the ships we expected -- and we'll still spend in excess of $40 billion over the fleet's lifetime.

Who's out of pocket?
Which companies will suffer from curtailing the LCS program? Lockheed and General Dynamics, most obviously. As the builders of the sea frames, and the primary contractors doing operational support and maintenance over the vessels' life-cycles, they've got the most to lose -- probably tens of billions of dollars in lost revenue. But they won't be the only losers.

Northrop Grumman (NYSE: NOC  ) has already won tens of millions of dollars to consult on how to integrate "mission packages" into the LCS. Northrop, General Dynamics, Raytheon (NYSE: RTN  ) , and other big builders of equipment for outfitting warships would all lose as the budget for building mission modules (weapons systems going into building each mission package) gets slashed by more than $3 billion.

And who's going to be OK?
Other companies might fare better, despite the cuts. Cubic (NYSE: CUB  ) , for example, has won nearly $300 million in contracts to build instructional course-ware for operating the vessels already. Those instructional materials will be needed no matter how many LCSes are ultimately built.

Plans to focus the fleet on minesweeping missions means companies who focus on producing that mission package might not get hurt as badly as, for example, makers of weapons for sub-hunting, coastal bombardment, and air defense. (And fortuitously, one of the companies building robotic submarines for minesweeping is ... General Dynamics.)

Foolish takeaway
The LCS was designed to replace three classes of warships with just one, whose "mission packages" could be swapped out to transform a single LCS, in the space of four days, into whatever kind of warship it needed to be: Cyclone (PC-1) class patrol craft, Oliver Hazard Perry (FFG-7) class frigate, or Avenger (MCM-1) class minesweeper.

Plans to gut the program, and refocus the LCS on just one mission, could end up giving the LCS the dubious distinction of making it the world's most expensive minesweeper.

$61 million minesweeper USS Guardian, stuck on a reef. Source: Wikimedia Commons.

Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2013, at 5:07 PM, agsb2 wrote:

    If the Syria crisis mushrooms in to WWIII, congress may have no choice but to buy it for the Navy.

  • Report this Comment On September 07, 2013, at 5:26 PM, fisch2 wrote:

    The liberal logic with military cuts never ceases to amaze.

    Despite what views any of you may have on the military and its size and mission, one thing is for sure. A well funded US military is GOOD for the American economy (with in reason).

    Military spending employs AMERICANS in factories around AMERICA- building tanks, planes, ships, body-armor, whatever.

    Isn't that what Obama has wanted to do since day one? Put Americans to work? What with all those "shovel ready jobs", "cash for clunckers", etc...

    Tell me how 99 weeks of unemployment or filling in potholes is better than providing jobs to military manufacturing that puts people to work AND has the added bonus of long term returns that comes with a powerful navy.

    The US Navy is almost solely responsible for keeping this planet from ripping itself apart.

    With our flag ships strategically positioned we can calm even the maddest of men.

    *This coming from an Army Sgt. who thinks the Navy is a bunch of nannies.

    All kidding aside, you don't have to be an economist or a CPA to understand the benefits of our military spending.

    Now, to be fair I can point to a half dozen or more military programs and existing hardware that can be eliminated without much notice to our overall capabilities.

    I'm also not apposed some personnel cuts.

    But this LCS is designed to replace 3 other classes of ship. That means this ship will save us money when you look at the life cycle and maintenance costs.

  • Report this Comment On September 07, 2013, at 5:48 PM, rotorhead1871 wrote:

    LM and NG......wouldn't you just know it....but to keep this ship the NAVY is going to have to show a savings....not a many ships can be retired?? over the life of the LCS?? how much man power cost can be avoided by the newer ship????

    get busy NAVY...sell sell sell.......

  • Report this Comment On September 07, 2013, at 8:11 PM, CBDer wrote:

    This ship class was deemed "not fit" for combat by the Navy's own Test and Evaluation command. The modules are no where near ready to be tested much less used. I would not risk anyones life manning these ships. This ship program needs to sink and end the military industrial complex welfare system that it is supporting.

  • Report this Comment On September 08, 2013, at 6:21 AM, SeniorMoment wrote:

    They would be better off looking at the F-35C to scrap. The F-35A is the cheapest option and the F-35B is the most flexible (its also the one that looks like being the biggest seller for the USA)

  • Report this Comment On September 08, 2013, at 11:34 AM, peterwolf wrote:

    'Super warship' ?? It's a joke. It's a ship that was deliberately designed to be low firepower and 'brown water' capable only. Brought into the littorals, it's a sitting duck for land based strike options. Why was such a ship built by a blue water Navy? Because it's our first 'post-American' warship.It's purpose is to demonstrate to the world that the U.S. no longer desires to be a world power and would rather field a 'navy' like Denmark's or Holland's . And to prove that to the world, we'll build ships that can't even protect themselves, let alone do any damage.

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