As Global Warming Melts the Arctic, Who Will Build America's New Navy?

Four of America's biggest defense contractors could win upward of $16 billion contracts to build an Arctic Navy.

Jan 18, 2014 at 12:30PM

The Arctic ice cap is melting. That's just a fact. It's how to deal with this fact that is the real question.

Fortunately, the U.S. Navy has a solution.

Nuclear attack submarine USS Hampton, surfacing from beneath the ice of the North Pole. Source: Wikimedia Commons.

This week, The Wall Street Journal described an as-yet-unpublished report by the Navy that lays out the difficulties posed by global warming and what the military branch needs to function in a warmer, wetter world. In a nutshell, the problem is this:

In 2012, global warming at the Earth's North Pole created 1 million square miles more of ice-free water than has been the historic average in the Arctic. Essentially, a body of water four times the size of Texas has become navigable to commercial traffic, mineable by the global oil industry -- and in urgent need of patrolling by the U.S. Navy.

Sailing into hot (cold) water
In the waters off Alaska, the U.S. Coast Guard is already tracking commercial traffic that is up 26% from 2011. Problem is, the Navy currently lacks the "operational experience," and the ships, that it needs to protect all these boats. Tracking icebergs, rescuing vessels and explorers who get stuck in the ice, protecting traffic from pirates, and generally extending a protective "umbrella" over U.S. scientists, explorers, and businesses  operating in the area all require a naval presence. And the Coast Guard alone is woefully underequipped to shoulder the burden.

Polar Star

USCGC Polar Star. Source: Wikimedia Commons

As recently as the 1980s, the Coast Guard operated a fleet of eight icebreakers in the Arctic. Today, the service is down to just two lonely vessels: The medium icebreaker USCGC Healy, commissioned in 1999, and her even more ancient big sister, the heavy icebreaker USCGC Polar Star, built by Lockheed Martin (NYSE:LMT) and commissioned in 1976.

That's quite literally it. In contrast, Canada has three times as many icebreakers as we do, while rising Arctic power Russia boasts 25(!) -- of which six are hulking, nuclear-powered, icebreaking beasts. And as the WSJ pointed out, America's Polar Star actually has to pull double duty, patrolling the Arctic in the summer and the Antarctic in winter.


USCGC Healy. Source: Wikimedia Commons.

Breaking through the ice
As the Navy's report explains, operating ships in icy waters is no easy task. The constant abrasion of polar ice floes, the cold environment, and harsh weather all take their toll. Some naval experts are calling for a program to "harden" some 10% of the Navy's 283 vessels. At an average cost of $300 million to outfit a warship for polar missions, this effort alone could cost some $8.4 billion. Other officials believe we need at least 10 new U.S. icebreakers. The $7.8 billion it would cost to build them would still produce an icebreaking fleet less than half the size of Russia's.


Data source: U.S. Coast Guard

Who profits?
The melting of the polar ice caps presents the U.S. Navy with a crisis. But if the experts' numbers are accurate, there's upward of $16 billion in potential contract revenue to be made -- and a significant opportunity for U.S. defense contractors to help resolve this crisis.If contracts are issued for a fleet of 10 new icebreakers, Lockheed would be the logical company to turn to for construction. Similarly, shipbuilder Huntington Ingalls (NYSE:HII) owns the shipyard that put USCGC Healy in the water, and likewise stands in good position to win contracts.

Huntington is also, along with General Dynamics (NYSE:GD), one of the nation's two builders of nuclear-powered submarines -- which as you can see up above, are perfectly capable of projecting power all the way up to the North Pole itself. (In fact, Huntington built the USS Hampton, pictured at the beginning of this article.)

Meanwhile, the company that spun off Huntington Ingalls three years ago, Northrop Grumman (NYSE:NOC), has already begun winning contracts to upgrade the integrated bridge systems, navigation systems, and software on both of America's remaining icebreakers. If efforts get under way to begin retrofitting more than two dozen warships for polar duty, expect Northrop Grumman to share in the revenue from this work.

Is all of this really necessary?
In an era of constrained defense spending, convincing Congress to fund additional ships for the Navy and Coast Guard to conduct Arctic missions may be a hard sell -- so none of this revenue is assured. But this mission is quite simply essential to the national interest.

Even in a world where navies rarely shoot at each other anymore, it's hard to overestimate the value of having "boats in the water" -- the naval equivalent of boots on the ground. In the Pacific, Chinese naval vessels have been playing havoc with commercial fishing and mining operations by Japanese, Vietnamese, and Filipino vessels. Simply by showing up, they put an intimidation factor in play and can send unarmed civilian ships running for cover.

Unless the U.S. wants its own fishermen, oil drillers, scientists, and explorers to suffer a similar fate, it's time to pay up to protect the Arctic.

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Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics, Lockheed Martin, and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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