Why Is the U.S. Navy Rethinking Its Future Surface Combatant Fleet?

Why Lockheed Martin’s Littoral Combat Ship may be more trouble than it’s worth.

Aug 3, 2014 at 9:30AM

An MH-60R Seahawk assigned to Helicopter Maritime Strike Squadron (HSM) 73 flies in front of the littoral combat ship USS Freedom (LCS 1). Photo credit: U.S. Navy photo by Mass Communication Specialist 1st Class James R. Evans. 

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.

The problems

Uss Independence Lcs

The littoral combat ship USS Independence (LCS 2) pulls out of Naval Station Mayport as the ship begins transit to her homeport of San Diego. Photo credit: U.S. Navy photo by Mass Communication Specialist 2nd Class Gary Granger Jr.

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. 

The solution?

Lcs Sunset

The littoral combat ship Pre-Commissioning Unit (PCU) Fort Worth (LCS 3) conducts builders trials in Lake Michigan. Photo credit: U.S. Navy photo courtesy of Lockheed Martin by Michael Rote.

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. 

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers