America's new Zumwalt-class DDG-1000 destroyer is a marvel of engineering.
Sixty percent bigger than the DDG-51 Arleigh Burke-class destroyers it was designed to replace, but just as fast as a DDG-51 and featuring a stealthier design, Zumwalt touts two 155-millimeter guns, can carry a combination of 80 Tomahawk, Sea Sparrow, and ASROC missiles, and is one of the few warships in the U.S. fleet capable of producing enough power to operate the new railgun and laser cannon weaponry just starting to come on line.
But Zumwalt is not cheap.
Although it was initially designed in 1998 with the intention of producing 32 warships for a total cost of $36.9 billion (including R&D costs), a combination of cost overruns and procurement cuts have sent per-ship costs skyrocketing. According to the U.S. Government Accountability Office, each of the Zumwalt-class ships now under construction, expected to cost $1.2 billion to build, will instead cost $7.5 billion.
That's more than half the cost of a Ford-class aircraft carrier, and a big price to swallow and get only a destroyer in return. So it's little wonder that, with costs spiraling out of control, the Pentagon pulled the plug on the Zumwalt program in 2009, ordering a halt to production after just three ships.
But now there's a new threat on the horizon that could convince the Navy it can't afford not to build more Zumwalts.
Introducing China's Type 055 battle cruiser
As reported in The National Interest magazine in late March, China is hard at work developing a new "Type 055 cruiser" for its navy. This new weapons system, which TNI dubs a "dreadnought," is believed to displace 11,500 tons, putting it somewhere between the size of an American Arleigh Burke destroyer and a Zumwalt. And the Type 055's size may be only its least impressive attribute.
According to TNI, the Type 055 will boast:
- X-band and S-band radars, giving it defensive characteristics similar to America's "Aegis"-equipped cruisers -- a capability even the Zumwalt does not possess.
- A new electric drive allowing cruising speeds of 32 knots, and perhaps producing enough juice to power next-generation laser weapons like on Zumwalt.
- long-range land attack cruise missiles
- sea-based missile interceptors
- medium- and long-range air defense missiles
- medium-range antisubmarine missiles
- a "new-type supersonic long-range antiship missile."
In total, Type 055 will pack 96 such missiles -- 20% more than Zumwalt can carry, and on a platform 20% smaller (and we presume, correspondingly cheaper). In the best of all possible worlds, in which we assume that China's cost of building a warship "per ton" is equal to what the Pentagon is spending on Zumwalt, the Chinese navy would still be putting missiles on boats at roughly 60% the cost we're spending.
And here's the real kicker: According to TNI, China's missiles have much greater range. In fact, the missiles carried by China's new battle cruiser might even be able to shoot down satellites.
One question: Why?
That's a pretty alarming line to read in a TNI assessment of China's new weapons program. It also raises the question of why China would build a new boat to load anti-satellite missiles aboard. (One would think it'd be cheaper to just set up the missiles on land, and skip the cost of building a battle cruiser.)
Presumably, the answer is that land is fixed in location, and this location may not be conducive to targeting a satellite in some other location. Conversely, an anti-satellite battle cruiser can be sent all over the globe, attacking satellites on any orbit, from any vector. But whatever the answer, this is not the point defense investors should be focusing on.
The real point is that China is building a new battle cruiser that, at least judging by the specs that have been released, appears to outclass the most advanced "destroyer" in the U.S. fleet, both in traditional missions (anti-ship) and in new objectives (anti-satellite). This, in turn, could affect the U.S. Navy's plans to continue doing things as it's been doing them for decades -- focusing on the construction of old-model Arleigh Burke-class destroyers and budget-busting aircraft carriers, for example.
That's been a very lucrative business for chief naval contractors Huntington Ingalls (NYSE:HII) and General Dynamics (NYSE:GD) in years past. Huntington Ingalls is our chief aircraft carrier specialist; both Huntington and General Dynamics build our destroyers. Combined, these two defense contractors took in $15 billion in revenue from their maritime businesses last year, according to data from S&P Global Market Intelligence -- and $14.3 billion the year before that, and $13.5 billion the year before that.
As the threat from China evolves, however, so too must the Pentagon's acquisitions strategy. Chances are, Huntington Ingalls and General Dynamics will still be the companies that get tapped to respond to these threats. But the work they do might be directed more toward research and development of new weapons and new ships, and less toward building older, more standardized designs. This, of course, could put pressure on profit margins.
Trust that as the rules of the game change, we'll be watching.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 288 out of more than 75,000 rated members.
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