According to the Government Accountability Office, or GAO, Lockheed Martin's (NYSE:LMT) Littoral Combat Ship, or LCS, is supposed to be reconfigurable to perform three different primary missions: mine countermeasures, surface warfare, and anti-submarine warfare.
Additionally, the LCS is supposed to accomplish this goal by having two distinct parts: the seaframe, which is available in either a Freedom or Independence variant (the Independence variant was designed and built by Austal USA and General Dynamics), and an interchangeable package called a "mission package," which consists of different weapons, sensors, and aircraft.
Thanks to its ability to meet three main goals, the LCS is supposed to represent a "large portion of the Navy's future surface combatant fleet." Unfortunately, the ship doesn't exactly work like it's supposed to. Consequently, the Navy may be looking for an LCS alternative, dubbed the Small Surface Combatant, or SSC. Here's what you need to know.
According to the GAO, one of the big problems facing the LCS is weight. Specifically, during construction of the first several ships, the weight of the LCS' seaframe grew significantly. This is problematic because it limits the LCS' capabilities and decreases the ship's service life.
When the Navy deployed the LCS USS Freedom to Singapore in March 2013, it found that although the LCS is supposed to run on a 40-person crew, the USS Freedom had a 50-person crew (the maximum crew allowed), which still strained to keep up with duties.
During its 10-month deployment, the USS Freedom lost 55 mission days due to mechanical failures, and used more fuel than expected, which contributed to low average transit speeds. In addition, fleet users expressed uncertainty regarding the LCS' ability to perform in theater.
Clearly, the above problems aren't the best news for the LCS, nor are they the only problems it faces. Secretary of Defense Chuck Hagel cut the Navy's procurement of LCSs from 52 to 32, and directed the Navy to appoint a Small Surface Combatant Task Force, or SSCTF, to "submit alternative proposals to procure a capable and lethal small surface combatant, consistent with the capabilities of a frigate."
The possible good news for Lockheed Martin is that an alternative to the LCS includes the possibility of a "modified LCS." However, Hagel also instructed the Navy to consider a "new design," and an "existing ship design." More importantly, the SSCTF's deadline for submitting its findings was July 31st.
What to watch
As of this writing, there's no definitive news on what the SSCTF found. Further, Defense News reports that not all senior Navy officials have been briefed on the task force's findings. As such, it may be a while before we know officially what will happen to the LCS. However, we do know that a total of 20 ships have been funded through fiscal year 2014, though on February 24th, 2014, Hagel stated, "no new contract negotiations beyond 32 ships will go forward."
Considering that the GAO estimates that each LCS has a program unit cost of $577.4 million (as of 12/2012), and orders are split evenly between Lockheed Martin and Austal, anything besides a "modified LCS" could be bad news for Lockheed Martin.
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Katie Spence has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. 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.