Navy's Aircraft Carrier Program: Investment Strategy Options (Letter
Report, 01/01/95, GAO/NSIAD-95-17).

The 1993 Bottom-Up Review--an evaluation of the nation's defense
strategy, force structure, and modernization done in response to the end
of the Cold War and the dissolution of the Soviet Union--concluded that
a force of 10 aircraft carriers could meet the military's war-fighting
requirements but that 12 carriers were needed for sufficient overseas
presence. The Bottom-Up Review recommended that construction of CVN-76
begin in fiscal year 1995 to maintain the 12-carriers force structure,
allow flexibility in the carriers force size, avoid cost increases
arising from a construction delay, and preserve the industrial base at
Newport News Shipbuilding. This staff study supplements GAO's April 1994
testimony (GAO/T-NSIAD-94-171) on the affordability of several carrier
force structure investment alternatives to begin building CVN-76 in
fiscal year 1995. The staff study discusses the budget implications of a
wide range of options for meeting the Bottom-Up Review force structure
requirement for 12 carriers, including the purchase of conventionally
powered carriers instead of nuclear-powered carriers. It also discusses
each option's effect on employment levels at Newport New Shipbuilding.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-17
     TITLE:  Navy's Aircraft Carrier Program: Investment Strategy Options
      DATE:  01/01/95
   SUBJECT:  Navy procurement
             Investment planning
             Military vessels
             Nuclear powered ships
             Shipbuilding industry
             Military cost control
             Contractor personnel
             Defense contingency planning
             Future budget projections
             Defense capabilities
IDENTIFIER:  DOD Bottom-Up Review
             CVN-76 Aircraft Carrier
             U.S.S. Nimitz
             Nimitz-Class Aircraft Carrier
             National Defense Sealift Fund
             U.S.S. John C. Stennis
             U.S.S. United States
             U.S.S. Enterprise
             SSN-688 Submarine
             SSN-21 Submarine
             Seawolf Attack Submarine
             Navy Recapitalization Plan
             
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Cover
================================================================ COVER


National Security and International Affairs Division

January 1995

NAVY'S AIRCRAFT CARRIER PROGRAM -
INVESTMENT STRATEGY OPTIONS

GAO/NSIAD-95-17

Navy's Aircraft Carrier Program


Abbreviations
=============================================================== ABBREV

  BUR - Bottom-Up Review
  DOD - Department of Defense
  NNS - Newport News Shipbuilding
  OMB - Office of Management and Budget

PREFACE
============================================================ Chapter 0

Aircraft carriers are a central part of the nation's defense
strategy.  The decision on the composition of the aircraft carrier
force is essential for planning the defense budget, since new carrier
procurement is a significant investment, and a long-term commitment
to purchase and sustain associated air wing, escort, and support
ships. 

In March 1993, the Secretary of Defense initiated the Bottom-Up
Review (BUR)--a review of the nation's defense strategy, force
structure, modernization, infrastructure, and foundations--because of
the dramatic changes that resulted from the end of the Cold War and
the dissolution of the Soviet Union.  As part of this review, the
Department of Defense (DOD) evaluated key modernization programs,
including the Navy's aircraft carrier program.  The BUR concluded
that a force of 10 carriers was adequate to meet war-fighting
requirements, but 12 carriers (11 active and 1 reserve/training
carrier) were needed for sufficient overseas presence.  The BUR
recommended that construction of CVN-76 begin in fiscal year 1995 to
maintain the 12-carrier force structure, allow flexibility in the
carrier force size, avoid cost increases associated with a delay in
construction, and preserve the industrial base at Newport News
Shipbuilding in Newport News, Virginia.\1

In fiscal year 1993, the Congress provided $832 million for long-lead
procurement items (primarily nuclear components) for CVN-76. 
Congressional conferees on the Defense Appropriations Act for 1994
stated that $1.2 billion in the National Defense Sealift Fund may be
made available for later transfer to the shipbuilding and conversion
account for the carrier.  In fiscal year 1995, the Congress
appropriated about $2.3 billion to cover the remaining construction
costs of CVN-76, and $38.3 million in advance procurement funds for
the nuclear refueling complex overhaul of the U.S.S.  Nimitz
(CVN-68), scheduled to begin in fiscal year 1998.  The total cost of
CVN-76 construction is estimated at $4.3 billion (current dollars for
fiscal years 1993-95) and the U.S.S.  Nimitz overhaul is estimated at
$2.7 billion (current dollars for
fiscal years 1993-2002). 

Newport News Shipbuilding is the only shipyard that can build nuclear
aircraft carriers.  It is completing construction work on two new
nuclear carriers, the U.S.S.  John C.  Stennis (CVN-74) and the
U.S.S.  United States (CVN-75), and the nuclear refueling complex
overhaul of the U.S.S.  Enterprise (CVN-65).  The shipyard is also
one of two locations that can construct nuclear submarines.  It is
completing work on its last construction contract for SSN-688 class
submarines and is the lead design agent for the SSN-21 Seawolf. 

According to the BUR, delaying construction of CVN-76 would threaten
the viability of the Newport News Shipbuilding shipyard due to the
lack of work once existing contracts are completed in the mid-1990s. 
However, the BUR stated that if CVN-76 construction were delayed
beyond fiscal year 1995, the risk to Newport News Shipbuilding could
be minimized by rescheduling ship overhauls, delaying delivery of
carriers currently being built, and assigning other work to the
shipyard.\2 To maintain the BUR force structure and/or critical
industrial capabilities, the Navy developed the Navy's
Recapitalization Plan.  This plan transfers resources from the Navy's
infrastructure and savings from a smaller fleet to fund the Navy's
protected major procurement accounts, including the carrier program. 
Under both the BUR and the Navy's Recapitalization Plan, the naval
shipbuilding industry will experience drastic declines in employment
levels. 

The Navy estimates the minimum sustainable employment level at
Newport News Shipbuilding to be between 10,000 and 15,000 people.  As
the employment level decreases within this range, risks to the
shipyard's viability and ship affordability increase.  The Navy also
estimates the minimum economic production of aircraft carriers at
Newport News Shipbuilding would consist of (1) new carrier
construction in fiscal years 1995 and 2000 followed by a production
interval of 3 to 4 years and (2) refueling complex overhauls of the
Nimitz-class carriers. 

This report supplements our April 1994 testimony before the
Subcommittee on Military Acquisition, House Committee on Armed
Services, on Navy affordability issues.\3 We testified on the
affordability of several carrier force structure investment
alternatives to begin building CVN-76 in fiscal year 1995.  This
report discusses the budget implications of a wide range of options
for meeting the BUR force structure requirement for 12 carriers,
including the purchase of conventionally powered carriers instead of
nuclear-powered carriers.  It also discusses each option's effect on
employment levels at Newport News Shipbuilding.  Chapter 2 provides
details on each option. 

The congressional conferees on the Defense Appropriations Act for
1994 have mandated that we review the cost-effectiveness of
conventional versus nuclear carriers and submarines.  This review is
currently underway with completion scheduled for next year.  That
report, along with this report on affordability, should assist the
Congress in deliberating carrier issues. 

Questions concerning this report should be directed to me at (202)
512-3504.  Major contributors to this report are listed in appendix
IV. 

Richard Davis
Director, National Security
 Analysis


--------------------
\1 CVN is the designation used for nuclear aircraft carriers.  Two
other designations used throughout this report are CV for
conventional aircraft carriers and CVA for alternative conventional
aircraft carriers. 

\2 Newport News Shipbuilding has previously built major surface
combatants and large complex commercial ships and completed
refuelings and complex overhauls on nuclear surface ships, attack
submarines, and ballistic missile submarines. 

\3 Navy Modernization:  Alternatives for Achieving a More Affordable
Force (GAO/T-NSIAD-94-171, Apr.  26, 1994). 


OVERVIEW
============================================================ Chapter 1


   KEY FINDINGS FROM INVESTMENT
   OPTIONS ANALYSIS
---------------------------------------------------------- Chapter 1:1

The Navy can maintain a 12-carrier force for less cost than that
projected in the Bottom-Up Review (BUR) and the Navy's
Recapitalization Plan by using one of several options that consider
cost and employment levels.  The least expensive investment option
that also maintains employment levels at or above minimum levels
authorizes building the CVN-76 in fiscal year 1995 and then
transitions to a conventional carrier construction program.  This
option costs approximately 25 percent less than the BUR and the
Navy's Recapitalization Plan options. 

Building CVN-76 in fiscal year 1995, as proposed by the BUR, the
Navy's Recapitalization Plan, and other options in our report (see
table 1.1), stops the downward trend in Newport News Shipbuilding
employment at about the minimum sustaining level of 10,000 employees. 
Options to delay building the carrier result in a continuing decline
to about 7,500 employees.  However, in the long term the employment
levels in the BUR and the Navy's Recapitalization Plan also fall
below 10,000 employees.  In addition, options that include building
CVN-76 in fiscal year 1995 require building carriers sooner than they
are needed for force structure purposes and therefore incur expenses
sooner than necessary.  Moreover, the option to build nuclear
carriers at the historical rate of one every 3 years maintains stable
employment levels but costs about 40 percent more than options in the
BUR and the Navy's Recapitalization Plan. 

Options for using carriers for their full service lives (options 1A
and 1B) are less expensive than those in the BUR and the Navy's
Recapitalization Plan, especially if the force transitions to a
conventional carrier construction program.  However, in the near
term, the employment levels fall below the Navy's estimated critical
minimum sustaining level of 10,000 employees. 

Since affordability of the future force is an important concern, a
transition to constructing conventionally powered carriers would save
the largest amount of investment resources (see table 1.1).  A
conventional carrier force structure would require less budget
authority funding and fewer outlays than any force structure that
continues to require building nuclear aircraft carriers.  Costs are
lower because all major cost elements--procurement, midlife
modernization, and inactivation costs--are lower for a conventional
carrier than for a nuclear carrier. 



                                    Table 1.1
                     
                       Effect of Force Structure Options on
                          Outlays, Production Starts and
                     Intervals, Lost Useful Service Life, and
                       Newport News Shipbuilding Employment
                                      Levels

                      (Fiscal year 1993 dollars in millions)


                                                             Useful  Newport
                                                                     News
                                                  Building  service  Shipbuildin
                                          Next     start       life  g
Carrier    FY 95-    FY 95-    FY 95-   carrier   interval   lost\a  employment
option       99        15        35       (FY)    (years)   (years)  levels\b
--------  --------  --------  --------  --------  --------  -------  -----------
Nuclear
--------------------------------------------------------------------------------
BUR--      $4,235   $26,005   $56,154     1995      2-7           7  Stays above
 Buy                                                                  10,000 in
 CVN-76                                                               the near
 in                                                                   term
 fiscal
 year
 1995
Navy's     4,212     26,432    58,600     1995       4           18  Stays above
 Recapit                                                              10,000 in
 alizati                                                              the near
 on Plan                                                              term
1A--       2,116     26,901    55,993     1999      3-10          0  Drops to
 Replace                                                              7,500 in
 all                                                                  the near
 carrier                                                              term
 s at
 retirem
 ent
 with
 nuclear
 carrier
 s
2A--       5,137     36,205    79,275     1995       3           83  Stays above
 Build                                                                10,000 in
 nuclear                                                              the near
 carrier                                                              term;
 s at a                                                               averages
 sustain                                                              21,500 in
 ed rate                                                              the long
 of                                                                   term
 product
 ion\c
4A--       2,649     25,579    54,667     1998      4-5           3  Drops to
 Defer                                                                7,500 in
 CVN-76                                                               the near
 until                                                                term
 fiscal
 year
 1998
4B--       1,890     26,515    54,317     2000      4-5           3  Drops to
 Defer                                                                7,500 in
 CVN-76                                                               the near
 until                                                                term
 fiscal
 year
 2000

Conventional
--------------------------------------------------------------------------------
1B--       1,561     18,168    35,410     2000      3-10          0  Drops to
 Replace                                                              7,500 in
 all                                                                  the near
 carrier                                                              term
 s at
 retirem
 ent
 with
 convent
 ional
 carrier
 s
2B--       1,561     19,612    44,630     2000       3           40  Drops to
 Build                                                                7,500 in
 convent                                                              near term
 ional
 carrier
 s at a
 sustain
 ed rate
 of
 product
 ion\c
3--Buy     4,215     20,363    41,873     1995       4           23  Drops just
 CVN-76                                                               below
 in                                                                   12,000 in
 fiscal                                                               the near
 year                                                                 term
 1995
 but
 transit
 ion to
 a
 convent
 ional
 carrier
 constru
 ction
 program
 with
 CVA-77
4C--       1,501     17,332    37,393     2002      3-4           9  Drops to
 Defer                                                                7,500 in
 CVA-76                                                               the near
 until                                                                term
 fiscal
 year
 2002
--------------------------------------------------------------------------------
Note:  Cost estimates do not include the cost of initial nuclear
fueling or refueling. 

\a Projected service life lost totals include those carriers that
would be prematurely inactivated so that carriers built in 1995 or
later could enter the fleet.  Totals do not include early carrier
retirements required to reduce the force to 12 carriers. 

\b The Navy estimates the minimum sustainable employment level at
Newport News Shipbuilding to be 10,000 to 15,000 people. 

\c Sustaining rate options buy carriers at a sustaining interval
based on historical procurement rates. 


   NUCLEAR AND CONVENTIONAL
   CARRIER PROPULSION ISSUES
---------------------------------------------------------- Chapter 1:2

Throughout the 1960s and most of the 1970s, the Navy pursued a goal
of creating a fleet of nuclear carrier task forces.  The centerpiece
of these task forces, the nuclear-powered aircraft carrier, would be
escorted by nuclear-powered surface combatants and nuclear-powered
submarines.  In deciding to build nuclear-powered surface combatants,
the Navy believed that the greatest benefit would be achieved when
all the combatant ships in the task force were nuclear powered. 
Nonetheless, the Navy procured the last nuclear- powered surface
combatant in 1975 because this vessel was so expensive.  More
recently, relatively new and highly capable nuclear-powered surface
combatants have been decommissioned because of the affordability
problems facing the Navy. 

Affordability is an important, but not the only, criterion when
comparing nuclear and conventional carriers.  Important factors also
include operational effectiveness, potential utilization, and other
intangibles.  Flexibility of operations, such as the ability to steam
at high speeds for unlimited distances without refueling; increased
capacity for aviation fuel; increased capacity for other consumables,
such as munitions; and the higher speeds of the advanced nuclear
carrier over conventional carriers are some of the factors that need
to be considered when evaluating nuclear- and conventionally powered
carriers.  Other considerations include the availability and location
of homeports and nuclear-capable shipyards for maintenance and
repairs and other supporting infrastructure, such as for training;
the effect of out-of-homeport maintenance on the amount of time
personnel are away from their homeport; and the disposal of nuclear
materials and radioactively contaminated materials.  These issues and
others will be addressed in our upcoming review on the
cost-effectiveness of conventional versus nuclear carriers and
submarines as mandated by the congressional conferees on the Defense
Appropriations Act for 1994. 


   AGENCY COMMENTS AND OUR
   EVALUATION
---------------------------------------------------------- Chapter 1:3

Department of Defense (DOD) officials partially concurred with the
results of our report.  DOD agreed that affordability is an
important, but not the only, criterion when comparing nuclear and
conventional carriers.  DOD stated that other factors, including
operational effectiveness and potential utilization, need to be
considered when comparing nuclear and conventional carriers.  We
agree, and these issues will be examined as part of our upcoming
review of the cost-effectiveness of conventional versus nuclear
carriers and submarines. 

DOD noted that we did not examine the impact of alternative
investment strategies on the Newport News Shipbuilding nuclear
carrier industrial base, nuclear construction skills and vendors, or
the need to preserve the base.  We noted those limitations to the
report's scope in our draft.  Our report does reflect the employment
levels resulting from the investment options, and the Navy's comments
on the likely effects of those employment curves are in our report. 

DOD also noted that our report compares only the investment-related
cost of a nuclear-powered carrier with that of a conventionally
powered carrier and not the operating and support component of total
life-cycle costs, including the fuel cost.  DOD stated that the
potential requirement to build additional logistics support ships
must be considered in the decision to build and operate a
conventionally powered carrier force.  As we noted in the draft
report, our analysis focused on the investment-related costs of
alternative procurement profile strategies.  Although outside the
scope of this review, we have estimated the operating and support
costs of a nuclear carrier and a conventional carrier of the general
type used in our investment analysis (see table 1.2). 



                          Table 1.2
           
            Annual Operating and Support Costs for
              Nuclear-and Conventionally Powered
                           Carriers

            (Fiscal year 1993 dollars in millions)

                                                      Annual
Carrier type                                            cost
------------------------------------------------  ----------
Nimitz-class nuclear carrier                          $235.4
Kitty Hawk/John F. Kennedy class conventional          196.3
 carrier
============================================================
Additional cost for nuclear-powered ship               $39.1
------------------------------------------------------------
Note:  Estimates include the cost of initial nuclear fueling and
refueling. 

The annualized life-cycle cost of a modern fleet oiler is about $19.6
million.  A recent Center for Naval Analyses study suggests that the
conventional carrier's incremental support requirements would be less
than one fleet oiler per carrier.  We have not verified this data. 
Our upcoming review will examine in greater detail the life-cycle
costs of nuclear and conventional carriers, considering the
incremental fuel-driven demand of conventional carriers for
additional logistics support ships. 


ANALYSIS OF AIRCRAFT CARRIER
INVESTMENT STRATEGY OPTIONS
============================================================ Chapter 2


   FORCE STRUCTURE OPTION ANALYSES
---------------------------------------------------------- Chapter 2:1

The objective of the BUR strategy is to maintain a 12-carrier force,
maintain the industrial base at NNS, avoid cost increases associated
with a delay in construction, and preserve carrier force size
flexibility.  Under the BUR, the Navy would purchase CVN-76 in fiscal
year 1995 consistent with a sustaining rate strategy but would shift
to a replacement rate strategy beginning with CVN-77.  The Navy's
Recapitalization Plan transfers resources from the Navy's
infrastructure and savings from a smaller fleet to fund the Navy's
protected major procurement accounts, including the carrier program,
in order to maintain the BUR force structure and/or critical
industrial capabilities.  Under the Navy's recapitalization strategy,
the Navy would buy CVN-76 in fiscal year 1995 but would defer CVN-77
until fiscal year 2002 and then shift to a sustaining rate strategy
of one carrier every 4 years. 

The BUR and the Navy's Recapitalization Plan were analyzed to
determine the effects of their strategies on the carrier force
structure, financial investment requirements, and the Newport News
Shipbuilding total employment level.  In addition, we analyzed eight
alternatives for structuring a 12-carrier force to achieve one of the
following objectives: 

1.  Maximize budgetary savings through a carrier replacement rate
strategy.  This approach maximizes the carriers' useful service lives
and builds new carriers when actually needed to sustain force levels. 
(See the analysis and discussion of alternatives 1A and 1B.)

2.  Maximize the stability of Newport News Shipbuilding (NNS)
employment through a sustained rate construction and
refueling/complex overhaul program.  This approach requires forgoing
useful service life by accelerating inactivations to maintain a
sustained rate production program.  (See the analysis and discussion
of alternatives 2A and 2B.)

3.  Optimize budgetary savings and employment level stability.  This
approach optimizes the service lives of nuclear carriers and provides
a stable employment base.  (See the analysis and

4.  Delay building the new carrier to defer near-term outlays and
reduce overall carrier program costs.  The new starts for a nuclear
carrier force were planned for fiscal years 1998 and 2000 and fiscal
year 2002 for a conventional carrier force.  (See the analysis and
discussion of alternatives 4A, 4B, and 4C.)

The following discusses our analyses of DOD's and the Navy's baseline
force structure plans and the options we developed based on the four
planning objectives and force structure investment strategies.  We
analyzed each option's impact on force structure and the trade-offs
between budgetary requirements


      BOTTOM-UP REVIEW BASELINE
      FORCE STRUCTURE OPTION
-------------------------------------------------------- Chapter 2:1.1

Under the BUR's baseline force structure option to support a
12-carrier force (i.e., 11 active carriers and 1 operational
reserve/training carrier), CVN-76 is funded in fiscal year 1995,
necessitating the early retirement of the U.S.S.  Kitty Hawk (CV-63). 
After CVN-76 the Navy plans to procure new carriers when needed to
maintain force levels.  This approach results in fluctuating
intervals of 2 to 7 years for the construction of new carriers, but
maximizes the notional 50-year service life of current and planned
nuclear-powered carriers.\1 To sustain their full 50-year service
life, nuclear carriers will be refueled after approximately 23 years
of service.\2 (See fig 2.1.)

Figure 2.2 shows that this option halts the rapid decline in
employment at NNS at just above the 10,000-employee level-- the
minimum level needed to sustain the shipyard's viability, according
to the Navy.  If scheduled CVN construction is delayed, the Navy
stated it would, at a minimum, have to expand the number of regular
overhauls at NNS and take action to preserve the nuclear component
and shipbuilding industrial base. 

The BUR option provides a near-term solution to the employment level
decline, although it may be difficult for the shipyard to
economically administer the drastic shifts in the employment levels
at the yard between fiscal years 1998 and 2033.  Substantial declines
in employment at NNS are projected to bottom out in fiscal years
1998, 2004, 2014, 2024, and 2033.  The drastic decline beginning in
fiscal year 2010 reduces the workforce by about 13,000, dropping
total employment below the minimum level. 

Although DOD believes that this option is cost-effective, it totals
over $4.2 billion in the short term (fiscal years 1995-99), and its
cost over the long term (fiscal years 1995-2035) totals more than $56
billion.\3 Only one option, which reduces the service life of nuclear
carriers to 37 years, has larger



(See figure in printed edition.)Figure 2.1:  Force Structure for BUR
Option



(See figure in printed edition.)Figure 2.2:  Total Employment Level
at NNS Under BUR Option


--------------------
\1 The U.S.S.  Enterprise (CVN-65), which is the only nuclear carrier
in the force that is not part of the Nimitz-class, was recently
refueled and has a projected 53-year service life. 

\2 Unless otherwise noted, references to the nuclear carrier force
include those nuclear carriers currently under construction:  the
U.S.S.  John C.  Stennis (CVN-74) and the U.S.S.  United States
(CVN-75). 

\3 The cost estimates exclude nuclear fuel expenditures. 


      NAVY'S RECAPITALIZATION PLAN
      OPTION
-------------------------------------------------------- Chapter 2:1.2

The Navy's Recapitalization Plan was developed to fulfill the
requirements of the BUR.  This plan calls for funding CVN-76 in
fiscal year 1995 and building new nuclear carriers in 4-year
intervals beginning in fiscal
year 2002, as shown in figure 2.3.  The plan requires that some
assets be retired early to buy newer equipment.  The U.S.S.  Kitty
Hawk (CV-63) will be retired 3 years before the end of its projected
service life to maintain the 12-carrier force level when CVN-76
enters the fleet.  To sustain the 4-year build interval, five other
carriers will be retired early:  the U.S.S.  Enterprise (CVN-65) will
be inactivated 2 years early, the U.S.S.  Dwight D.  Eisenhower
(CVN-69) and the U.S.S.  Carl Vinson (CVN-70) will be retired
3 years before the end of their projected service lives, and the
U.S.S.  Nimitz (CVN-68) and the U.S.S.  Theodore Roosevelt (CVN-71)
will be decommissioned 4 years early.  The Navy will prematurely
incur large inactivation costs, currently estimated at almost $1
billion each, for the early inactivations of these Nimitz-class
carriers. 

The plan maintains approximately the same employment level at NNS as
the BUR baseline force structure option through fiscal year 2001 (see
fig.  2.4).  Between fiscal years 2010 and 2034, the plan maintains
an average total employment level above the projected level for the
BUR option.  Except for declines in total employment in fiscal years
2003-5, 2017-18, and 2029-31, this option maintains shipyard
employment between 15,000 and 23,000 after fiscal year 2001 due to
the consistent 4-year construction interval. 

Although the outlays are slightly lower than those in the BUR option
in the near term (1995-99) due to a 1-year delay in CVN-77, the
outlays for the mid-term (fiscal years 1995-2015) and long term
(fiscal
years 1995-2035) are higher than those in the BUR option due to the
consistent 4-year new construction interval and the additional
premature inactivations of Nimitz-class carriers.  Total outlays for
fiscal
years 1995-2035 total almost $59 billion, about $2.5 billion higher
than the cost in the BUR option. 



(See figure in printed edition.)Figure 2.3:  Force Structure for the
Navy's Recapitalization Plan Option



(See figure in printed edition.)Figure 2.4:  Total Employment Level
at NNS Under the Navy's Recapitalization Plan Option


      ALTERNATIVE 1A:  MAXIMIZE
      BUDGETARY SAVINGS THROUGH A
      NUCLEAR CARRIER REPLACEMENT
      RATE STRATEGY
-------------------------------------------------------- Chapter 2:1.3

Using this force structure option, the Navy builds a new carrier only
to replace a carrier that has to be inactivated at the end of its
service life (see fig.  2.5).  The U.S.S.  Independence (CV-62) is
the last carrier to be decommissioned before the end of its service
life to maintain a 12-carrier force level when the U.S.S.  United
States (CVN-75) enters the force.  All Nimitz-class carriers will use
their entire projected 50-year service lives, which will require that
each receive a nuclear refueling complex overhaul at 23 years.  This
option's construction schedule leads to a variable build interval;
construction starts may be anywhere from 3 to 10 years apart. 
Construction for CVN-76 begins in fiscal year 1999, and the ship will
replace the U.S.S.  Kitty Hawk (CV-63) in fiscal year 2006. 

Figures 2.5 and 2.6 show that although the Navy receives the full
value of its carrier force investment, workforce management is
complicated by several short-term surges in total employment and then
large drop-offs because of the varying build intervals.  Those
changes in employment levels are similar to those in the BUR baseline
force option, although the drop-off between fiscal years 1996 and
2000 under this option is much more drastic, with the employment
level falling below 10,000.  The workload gap could be filled by
having the government direct other work to the shipyard or reschedule
delivery of work under contract.  Employment at the shipyard improves
under this option in the mid- and long terms.  Between fiscal years
2001 and 2015, the total employment level at NNS is generally at a
higher level than in the BUR option.  After fiscal year 2020, this
option's total employee level has fewer major shifts over the
remaining 15 years of the period we analyzed than the BUR option. 

Since new ship construction and inactivations occur only when needed
under this option, money is not outlaid prematurely for procurement
and major investment costs.  Outlays are less than half of those
incurred under the BUR option for fiscal years 1995-99 but are only
$161 million less than those between fiscal years 1995 and 2035
because, in the long term, the BUR maintains a similar replacement
rate new carrier construction strategy.  \4 Outlays for this option
in the long term are higher then those in the options delaying
CVN-76's construction start to fiscal years 1998 and 2000; however,
in the near term, this option requires over $530 million less outlays
than the option that builds CVN-76 in fiscal year 1998



(See figure in printed edition.)Figure 2.5:  Force Structure Option
1A--Nuclear Carrier Replacement Rate Strategy



(See figure in printed edition.)Figure 2.6:  Total Employment Level
at NNS for Option 1A--Nuclear Carrier Replacement Rate Strategy


--------------------
\4 Our present value analysis of each option's outlays shows no
relative difference from the constant dollar analysis of outlays used
throughout the report (see table II.1). 


      ALTERNATIVE 1B:  MAXIMIZE
      BUDGETARY SAVINGS THROUGH A
      CONVENTIONAL CARRIER
      REPLACEMENT RATE STRATEGY
-------------------------------------------------------- Chapter 2:1.4

The government will receive the full value of its investment in
aircraft carriers under this option because both conventional and
nuclear carriers will remain in the active fleet until the end of
their expected service lives (see fig.  2.7).  Nimitz-class nuclear
carriers receive nuclear refuelings and complex overhauls after 23
years and are inactivated at the end of their 50-year service lives. 
Conventional carriers remain active for 45 years, entering the
service life extension program after 30 years of service.  After
fiscal year 1994, only the U.S.S.  Independence (CV-62) is
inactivated before the end of its projected service life so that the
U.S.S.  United States (CVN-75) can be commissioned into the fleet in
fiscal year 1998.  This early inactivation will allow the Navy to
maintain the 12-carrier force level, and carriers will only be built
to replace others. 

The next carrier, CVA-76, is programmed to begin construction in
fiscal year 2000 at NNS, and new construction start intervals would
fluctuate between 3 and 10 years, similar to the BUR baseline force
structure option.  Figure 2.8 shows that this fluctuating new
construction start rate results in a total employee level profile
similar to that in the BUR option.  During the near-term period of
fiscal years 1995-99, the employment level under this option ranges
from 7,500 to 10,000 compared with 11,000 and 15,000 under the BUR
option.  The decrease in the employment level could be mitigated by
other shipyard work being directed by the government to NNS or by
bidding for projects in the commercial shipbuilding market, such as
liquified natural gas tankers or cruise ships.\5

Since this option requires new ship construction and decommissioning
only when needed, major procurement and investment costs are not
incurred prematurely.  Therefore, this option has the lowest value of
outlays in the long term.  Outlays for this option are over $2
billion less between fiscal years 1995 and 2015 and $6.5 billion less
between fiscal years 1995 and 2035 than the option that transitions
to conventional carrier construction with CVA-77.  Also, this
option's outlays are approximately one-third less than those for the
BUR baseline force structure option for fiscal years 1995-2015 and
approximately 37 percent less than those



(See figure in printed edition.)Figure 2.7:  Force Structure Option
1B--Conventional Carrier Replacement Rate Strategy



(See figure in printed edition.)Figure 2.8:  Total Employment Level
at NNS Under Option 1B--Conventional Carrier Replacement Strategy


--------------------
\5 NNS has had no major commercial shipbuilding projects under
contract since the early 1980s, but it recently signed a letter of
intent to build up to four tankers for a Greek company.  In the late
1970s, commercial production represented approximately 40 percent of
the shipyard's work.  The basis of NNS' shipbuilding and conversion
revenue shifted during the 1980s, and the shipyard's revenue became
dependent almost solely on federal government contract work. 


      ALTERNATIVE 2A:  MAXIMIZE
      NEWPORT NEWS SHIPBUILDING
      EMPLOYMENT LEVEL STABILITY
      THROUGH A NUCLEAR CARRIER
      SUSTAINING RATE STRATEGY
-------------------------------------------------------- Chapter 2:1.5

This option emphasizes maximizing the stability of NNS' employment
level through a sustained rate of new carrier construction,
regardless of cost (see fig.  2.9).  New nuclear carrier construction
starts begin in fiscal
year 1995 at a historical rate of every 3 years.\6 All nuclear
carriers receive their nuclear refuelings and complex overhauls but
are retired early, after approximately 37 years.  Conventional
carriers in the fleet, the
U.S.S.  Independence (CV-62), the U.S.S.  Kitty Hawk (CV-63), and the
U.S.S.  Constellation (CV-64), are retired before the end of their
expected service lives as well. 

The benefit of this option is that NNS could sustain a workforce
averaging over 20,000 employees with very few shifts in the overall
employment level (see fig.  2.10).  Employment levels remain above
those under the BUR option throughout the 1995 to 2035 time frame. 

Constructing new nuclear carriers every 3 years is extremely
expensive, and the outlays are significantly greater than those in
the BUR baseline force structure option in the near term (fiscal
years 1995-99), mid-term (fiscal years 1995-2015), and long term
(fiscal years 1995-2035).  This option requires more outlays because
maintaining a 12-carrier force level at this construction rate
requires the Navy to retire all of its carriers early, most with 25
percent of their service life remaining.  Therefore, the Navy will
need to fund costly nuclear carrier inactivations prematurely.  This
option procures 14 carriers between fiscal years 1995 and 2035,
compared with 10 carriers under the BUR plan.  This investment
strategy represents the long-term investment implications of building
carriers at historical rates to protect



(See figure in printed edition.)Figure 2.9:  Force Structure Option
2A--Nuclear Carrier Sustaining Rate Strategy



(See figure in printed edition.)Figure 2.10:  Total Employment Level
at NNS for Option 2A--Nuclear Carrier Sustaining Rate Strategy


--------------------
\6 For the past 4 decades, NNS has averaged 3 years between new
carrier construction starts, including all Nimitz- class carriers,
for which construction began in fiscal year 1968.  This 3-year
construction interval is intended to procure carriers at what the
Navy calls "economic production rates" to take advantage of the
extensive skills and efficient manufacturing capabilities developed
over decades of an unbroken construction period. 


      ALTERNATIVE 2B:  MAXIMIZE
      NEWPORT NEWS SHIPBUILDING
      EMPLOYMENT LEVEL STABILITY
      THROUGH A CONVENTIONAL
      CARRIER SUSTAINING RATE
      STRATEGY
-------------------------------------------------------- Chapter 2:1.6

To support a sustained-rate construction program, the Navy would need
to inactivate eight Nimitz-class nuclear carriers prematurely with 20
percent of their useful service life remaining.  The new conventional
carrier construction start is programmed for fiscal year 2000, and
the follow-on conventional carriers have construction starts every 3
years.  (See fig.  2.11.) No nuclear carriers are built after the
completion of the U.S.S.  United States (CVN-75).  The nuclear
capabilities at NNS would be sustained through a series of nuclear
refuelings and complex overhauls of the Nimitz-class carriers through
fiscal year 2024, some or all of the decommissioning work of the
nuclear carrier fleet, and other nuclear repair and maintenance work. 
None of the remaining conventionally powered carriers would be
decommissioned early except for the
U.S.S.  Independence (CV-62) to maintain a 12-carrier force when the
U.S.S.  United States (CVN-75) is brought into service in fiscal year
1998. 

NNS will have a severe drop-off in its workload between fiscal years
1996 and 2000 (see fig.  2.12) unless other work is directed to the
shipyard.  Consolidating all Atlantic Coast-based nuclear
shipbuilding and overhaul work at NNS would help maintain nuclear
capabilities and help mitigate the severe drop-off in the workload. 
Between fiscal years 2000 and 2014, the employment level at the
shipyard averages about 17,500 employees, and between fiscal years
2015 and 2025 the employment level averages about 22,000 employees. 
In fiscal year 2026, the shipyard's workforce level drops below
15,000 employees and does not return to the 15,000-employee level
until fiscal year 2027. 

Due to the frequent new construction starts and the earlier
decommissioning of the Nimitz-class nuclear carriers, this option
costs approximately $8 billion more in the long term (fiscal
years 1995-2035) than the conventional replacement rate strategy. 
During the near-term period (fiscal years 1995-99) this option still
costs less than the conventional carrier option that builds CVA-77 in
fiscal year 2002 because this option delays the new construction
start and cancels the construction of CVN-76.  Maximizing the NNS
employment levels through a high-production rate is a very costly
approach to maintaining a carrier force level in the long term, and
the value of the total outlays is higher during this period than in
any other conventional option.  However, this option is still $11.5



(See figure in printed edition.)Figure 2.11:  Force Structure Option
2B--Conventional Carrier Sustaining Rate Strategy



(See figure in printed edition.)Figure 2.12:  Total Employment Level
at NNS for Option 2B--Conventional Carrier Sustaining Rate Strategy


      ALTERNATIVE 3:  OPTIMIZE
      BUDGET SAVINGS AND NEWPORT
      NEWS SHIPBUILDING EMPLOYMENT
      LEVEL STABILITY
-------------------------------------------------------- Chapter 2:1.7

This option is consistent with DOD's plan to request funding for
CVN-76 in fiscal year 1995.  The next ship, however, would be a new
design conventional carrier as shown in figure 2.13.  The BUR report
recommended the deferment of the advance procurement funding beyond
fiscal year 1999 for the carrier after CVN-76 pending the completion
of an evaluation of alternative aircraft carrier concepts for the
next century, including the conventional carrier force option. 

Under this option, the construction start for CVA-77 is in fiscal
year 2002.  New starts for follow-on conventional ships are at 4-year
intervals, which would support a sustained rate production program at
NNS.  The employment level under this option is projected to have
fewer extreme increases and drop-offs than in the BUR plan.  Nuclear
carriers currently in the fleet will have 45- to 48-year service
lives, requiring all of them to undergo nuclear refuelings and
complex overhauls.  Both the
U.S.S.  Independence (CV-62) and the U.S.S.  Kitty Hawk (CV-63) will
be inactivated 6 and 3 years, respectively, before the end of their
estimated service lives.  The plan requires that the U.S.S.  John F. 
Kennedy (CV-67) remain in the active fleet 5 years longer than
currently planned.\7 This longer service life may be feasible for the
ship in its new role as the reserve/training carrier because it will
have a reduced tempo of operations, resulting in a reduced amount of
"wear and tear."

This option maintains the workforce at NNS above the 10,000-employee
level throughout fiscal years 1995-2035.  The shipyard maintains a
very stable employment level after fiscal year 2006--the workforce
fluctuates between approximately 15,000 and 20,000 employees in
fiscal years 2006-7, with only one significant drop in employment in
fiscal year 2015.  After fiscal year 2027, the employment level
ranges between 11,900 and 16,500.  (See fig.  2.14.)

Since this option requires building CVN-76 in fiscal year 1995, the
near term outlays are similar to those in the BUR baseline option. 
However, in the mid-term (fiscal years 1995-2015) and long term
(fiscal
years 1995-2035), the outlays are approximately 25 percent less than
those in the BUR option.  These savings could help reduce the Navy's
Recapitalization Plan projected annual funding shortfall



(See figure in printed edition.)Figure 2.13:  Force Structure Option
3--Optimize Budget Savings and NNS Employment Level Stability



(See figure in printed edition.)Figure 2.14:  Total Employment Level
at NNS for Option 3--Optimize Budget Savings and NNS Employment Level
Stability


--------------------
\7 The BUR considered extending the U.S.S.  John F.  Kennedy's
service life, but rejected this option because it "would require an
additional, unplanned, and costly overhaul." This problem could be
managed through more innovative approaches, such as the adoption of
an incremental maintenance strategy whereby maintenance is
incrementally managed over a number of years, an option that is
considerably less expensive than building a new ship for $4 billion
to $6 billion. 


      ALTERNATIVE 4A:  DEFER
      CONSTRUCTION OF CVN-76 UNTIL
      FISCAL YEAR 1998
-------------------------------------------------------- Chapter 2:1.8

If the construction start for the next nuclear carrier--CVN-76-- is
delayed 3 years to fiscal year 1998, the Navy could maintain a
12-carrier force and maximize the service lives of its nuclear
carriers.  (See fig.  2.15.) All nuclear carriers will be refueled
and overhauled, extending each carrier's service life over 23 years
to its full 50-year service life.  This option creates fewer drastic
shifts in the overall employment level than the BUR option because it
has a new carrier construction start rate of every 4 to 5 years
compared with the BUR rate of 3 to 7 years.  Two conventional
carriers, the
U.S.S.  Kitty Hawk (CV-63) and the U.S.S.  Constellation (CV-64), are
retained in the active fleet for several years longer than projected
in the BUR option and are inactivated closer to or at the end of
their projected useful lives.  This alternative also retains the
U.S.S.  John F.  Kennedy (CV-67) in the fleet 7 years past the BUR
option's plan.  This ship, in its new role as the reserve/training
carrier, will have a reduced tempo of operations and thus a reduced
amount of wear and tear.  Other carriers are replaced when required
to meet force structure needs. 

Under this option, NNS' employment level drops to around 7,500
employees and remains below the critical 10,000-employee level for
about 3 years.  As shown in figure 2.16, overall employment is more
stable during fiscal
years 2005 through 2034 than under the BUR option.  Increased
stability in shipyard employment requires fewer adjustments to the
workforce over time.  Compared to the BUR option, this option's
employment troughs are significantly smaller in fiscal years 2004,
2018, and 2025-26.  The Navy could mitigate the employment decline in
fiscal year 1998 by redirecting other shipbuilding and maintenance
work to the yard, or, as the BUR suggested, by rescheduling the
delivery of carriers under contract, overhauls, and other work. 

DOD's financial investment requirement for this option is less than
in the BUR option for the near term (fiscal years 1995-99), mid-term
(fiscal
years 1995-2015), and long term (fiscal years 1995-2035).  The
difference in outlays from fiscal years 1995 to 1999 for this option
are approximately $1.6 billion less than the BUR



(See figure in printed edition.)Figure 2.15:  Force Structure Option
4A--Defer Construction of CVN-76 Until Fiscal Year 1998



(See figure in printed edition.)Figure 2.16:  Total Employment Level
at NNS for Option 4A--Defer Construction of CVN-76 Until Fiscal Year
1998


      ALTERNATIVE 4B:  DEFER
      CONSTRUCTION OF CVN-76 UNTIL
      FISCAL YEAR 2000
-------------------------------------------------------- Chapter 2:1.9

Under this option, the Navy generally retains each nuclear carrier to
the end of its useful 50-year service life and therefore will need to
refuel each nuclear carrier after 23 years (see fig.  2.17).  Two
conventional carriers, the U.S.S.  Kitty Hawk (CV-63) and U.S.S. 
Constellation (CV-64), are retained in the active fleet to the end of
their expected service lives.  Also, the
U.S.S.  John F.  Kennedy (CV-67) will remain in the active fleet for
a total of
50 years, 7 years longer than projected in the BUR option.  This
should be feasible, since the carrier will have a reduced tempo of
operations as the reserve/training carrier.  Only two nuclear
carriers are retired before the end of their useful service
lives--the U.S.S.  Enterprise (CVN-65) 1 year early and the U.S.S. 
Nimitz (CVN-68) 2 years early.  In addition, this option builds new
carriers to replace carriers that are at the end of their service
lives, which will lead to a stable new construction start rate every
4 to 5 years.  DOD considered delaying the construction of CVN-76
until fiscal year 2000.  However, the BUR concluded that, as a result
of the delay, existing contracts would not be completed until the
mid-1990s, and a lack of subsequent orders would threaten NNS'
viability by 1997. 

NNS will need to fill in a large gap in workload between fiscal years
1996 and 2001.  The shipyard does have the capability to construct
nuclear submarines and other surface ships and therefore could
complete other types of shipyard work to compensate for the drop-off
in workload.\9 The shipyard will begin the nuclear refueling complex
overhaul of the
U.S.S.  Nimitz (CVN-68) in fiscal year 1998 while it completes
construction work on the U.S.S.  United States (CVN-75), scheduled
for commissioning in fiscal year 1998.  This work will enable NNS to
sustain a nuclear-capable workforce. 

Figure 2.18 shows that the overall employment level at NNS is at or
below the critical 10,000-employee level in fiscal years 1996-2001. 
This option does not have as large a drop-off in the projected total
workforce beginning in fiscal year 2014 than either the BUR option,
in which employment level drops below 10,000, or the option to start
construction of CVN-76 in fiscal year 1998. 

The financial outlays required for this option are less than any of
the nuclear carrier force structure options for the near term (fiscal
years 1995-99) and long term (1995-2035).  In the near term, the
outlays are less than half of those required for the BUR



(See figure in printed edition.)Figure 2.17:  Force Structure Option
4B--Defer Construction of CVN-76 Until Fiscal Year 2000



(See figure in printed edition.)Figure 2.18:  Total Employment Level
at NNS for Option 4B--Defer Construction of CVN-76 Until Fiscal Year
2000


--------------------
\9 NNS submitted a bid to the Navy for the fast sealift ship
contracts, but it lost out to National Steel and Shipbuilding
Company, San Diego, California, and Avondale Shipyards, New Orleans,
Louisiana.  NNS is currently completing modernization work on fast
sealift ships already in the Navy's fleet. 


      ALTERNATIVE 4C:  DEFER
      CONSTRUCTION OF NEW
      CONVENTIONAL CARRIER
      (CVA-76) UNTIL FISCAL YEAR
      2002
------------------------------------------------------- Chapter 2:1.10

Using this option the Navy would not build a nuclear carrier before
the transition to a conventional carrier construction program in
fiscal year 2002, with the start of CVA-76.  This option provides a
7-year design period, sustains a steady new carrier construction
start interval of 3-1/2 years, and fully utilizes the service lives
of almost all of the conventional carriers in the fleet.  (See fig. 
2.19.) The delay in the construction start enables several
conventional carriers in the active force to remain in service longer
than in the BUR plan.  This option also provides for longer service
lives for most carriers currently in the active fleet than under the
Navy's Recapitalization Plan. 

The U.S.S.  Kitty Hawk (CV-63) and U.S.S.  Constellation (CV-64)
remain active slightly beyond their estimated notional lives,
enabling these ships to complete a last deployment within their last
maintenance cycle.  The U.S.S.  John F.  Kennedy (CV-67) is
programmed for a 50-year service life because of its reduced tempo of
operations as the reserve/training carrier.  Nimitz-class nuclear
carriers remain in the fleet for 47 to 50 years.  This option
requires all Nimitz-class nuclear carriers to undergo nuclear
refuelings and complex overhauls. 

As shown in figure 2.20, deferring construction of the next carrier
until fiscal year 2002 results in continuing near-term declines in
employment levels at NNS.  The only carrier program work expected in
the shipyard during that time period is the completion of
construction of the
U.S.S.  United States (CVN-75) and the nuclear refueling complex
overhaul of the U.S.S.  Nimitz (CVN-68), which begins in fiscal year
1998.  NNS would need other work to bring levels above the critical
10,000-employee level between fiscal years 1996 and 2001.  After this
period, employment levels average from 15,000 to 20,000 persons
through fiscal year 2024. 

This option requires fewer outlays than any other option we examined
except for option 1B's (conventional carrier replacement rate)
long-term estimate.  The reduction in outlays is a result of delaying
the construction start of the next aircraft carrier until fiscal year
2002, building conventional carriers that have a much lower
procurement cost, and retaining carriers longer in the active fleet. 
The near-term outlays (fiscal years 1995-99) are approximately 35
percent of the BUR option's outlays for the same period.  In the long
term (fiscal years 1995-2035), this option will save almost $19
billion in outlays over the amount projected to be spent for the BUR
option.  This option costs approximately $4.5 billion less in the
long term than the option that begins



(See figure in printed edition.)Figure 2.19:  Force Structure Option
4C--Defer Construction of New Conventional Carrier (CVA-76) Until
Fiscal Year 2002



(See figure in printed edition.)Figure 2.20:  Total Employment Level
at NNS for Option 4C--Defer Construction of New Conventional Carrier
(CVA-76) Until Fiscal Year 2002


SCOPE AND METHODOLOGY
=========================================================== Appendix I


   FORCE STRUCTURE ALTERNATIVES
--------------------------------------------------------- Appendix I:1

We reviewed the administration's rationale for structuring its
carrier force of 11 active aircraft carriers plus 1 reserve/training
carrier.  We analyzed the BUR and the Navy Recapitalization plans to
determine their effect on the carrier force structure, financial
resource requirements, and the Newport News Shipbuilding total
employment level.  In addition to the BUR and the Navy
Recapitalization plans, we analyzed eight other alternatives for
stucturing a 12-carrier force to achieve one of the following
objectives:  maximize budgetary savings through a carrier replacement
rate strategy, maximize stability in the Newport News Shipbuilding
employment level through a sustained rate construction and
refueling/complex overhaul strategy, optimize both budgetary savings
and employment level stability, or defer near-term budgetary outlays
and reduce overall carrier program costs.  These options were
developed to emphasize the trade-offs between budget requirements and
Newport News Shipbuilding's overall employment levels.  We made
similar comparisons of the trade-offs for the BUR recommendation and
the Navy Recapitalization Plan. 

Each of our force structure options was based on one of four basic
force planning guidelines (see ch.  2).  There are numerous ways to
structure the carrier force under each option, but to be
representative of a specific planning goal, we generally chose one
nuclear and one conventional alternative for each scenario.  For
example, to maximize NNS' employment stability through a sustained
rate construction and refueling/complex overhaul program, our nuclear
carrier option proceeds with the construction of CVN-76 in fiscal
year 1995 and then continues to build a new nuclear carrier every 3
years.  This stabilizes employment at NNS between fiscal years 1995
and 2035.  Other options that maximize employment stability might
build carriers at intervals ranging from 2-1/2 to 4 years. 
Therefore, actual costs could differ, and the overall employment
level at NNS could shift slightly depending on the option chosen to
analyze for a certain planning goal. 

Force structure modernization decisions--procurements, service life
extensions, nuclear refuelings and overhauls, and
decommissionings--are made during a 2-year defense budget cycle. 
This 2-year cycle includes the year DOD internally prepares its
budget request and the following year when the Congress considers
DOD's request. 

Force structure planning for aircraft carriers requires that several
explicit assumptions be made about the projected baseline useful
service life, procurement periods, and midlife modernization and
service life extension.  These assumptions were used to develop each
of our force structure options.  Planning is made particularly
challenging because of the substantial investment costs, the 2-year
defense budget cycle, the long lead time required to build and
deliver a carrier, and the carrier's lengthy useful service life. 
Planning flexibility is also complicated because nuclear fuel is a
fixed expense that commits planners to a 23-year period and becomes
an expensive sunk cost once it has been purchased. 

Notional baseline planning factors used to develop the force
structure options are shown in tables I.1 and I.2.  The procurement
period includes the advance procurement and procurement periods.  For
example, the nuclear aircraft carrier includes a 2-year advance
procurement period for the acquisition of long lead nuclear
components plus a 7-year production period, culminating in delivery. 
The baseline service life for conventional carriers is the design
life of the carrier; for nuclear carriers, it is the estimated amount
of time the initial fueling will last.  The actual longevity of the
nuclear cores depends on the consumption rate of the carrier and
other factors. 



                          Table I.1
           
            Notional Baseline Planning Factors for
                Nimitz-class Nuclear Carriers

            (Fiscal year 1993 dollars in billions)


Planning factors                                        Cost
------------------  ------------  --  ------------  --------
Procurement period                               9      $3.8
Active service
 life
Baseline service          23-1/2                          \a
 life
Midlife                        3                         1.8
 modernization
Service life added        23-1/2                          \a
============================================================
Subtotal                                        50        \a
Inactivation                                     3       0.9
 period
============================================================
Total                                           62      $6.5
------------------------------------------------------------
Note:  Costs do not include nuclear fuel.  Nuclear fuel costs were
removed to make the nuclear carrier investment costs comparable to
the conventional carrier costs.  Initial nuclear fueling costs of
$291 million were excluded from the ship procurement cost, and
nuclear fuel costs of $238 million were excluded from the nuclear
refueling complex overhaul cost.  The service life added after the
midlife modernization is dependent on the carrier's tempo of
operations (i.e., the rate of fuel depletion). 

\a Not applicable. 



                          Table I.2
           
            Notional Baseline Planning Factors for
                    Conventional Carriers

            (Fiscal year 1993 dollars in billions)


Planning factors                                        Cost
------------------  ------------  --  ------------  --------
Procurement period             6                        $2.1
Active service
 life
Baseline service              30                          \a
 life
Midlife                        3                         1.0
 modernization
Service life added            15                          \a
============================================================
Subtotal                                        48        \a
Inactivation                                     1       0.1
 period
============================================================
Total                                           55      $3.2
------------------------------------------------------------
Note:  Carriers are in the Kitty Hawk and John F.  Kennedy classes. 

\a Not applicable. 

The midlife modernization period represents the service life
extension program for conventional carriers and the nuclear refueling
complex overhaul for nuclear carriers.  A service life extension
program includes repairs to the basic hull, power generation systems,
and auxiliary systems; upgrades of basic support systems to meet
present and future weapon system requirements; and upgrades of
aircraft launch and recovery systems.  A refueling complex overhaul
includes refueling the reactor plant, making propulsion plant
repairs, and performing the mandatory modernization of aircraft
launch and recovery systems and ship electronics and communications
systems. 

The inactivation period includes removing functioning, but not
obsolete, equipment from the carrier and then scrapping or recycling
the hull.  For nuclear carriers, this period also includes defueling
the reactors, reactor plant inactivation, removal and disposal of all
radiologically contaminated reactor plant systems and structure
(including removal of some equipment for reuse), and sending the
contaminated components to a Department of Energy facility in either
Hanford, Washington, or Savannah River, Georgia.  The residual
nuclear fuel is removed from the reactor, placed into a shielded
transfer container, and then shipped in a specially designed
transport container to the Department of Energy's expended core
facility in Idaho Falls, Idaho. 


   INVESTMENT RESOURCE ANALYSIS
--------------------------------------------------------- Appendix I:2

We analyzed the investment resource implications of each of the force
structure options, including the BUR and the Navy's Recapitalization
Plan options.  We developed a projected budget authority profile that
included the following costs:  advance procurement, procurement,
outfitting, post-delivery, complex overhauls for both conventional
and nuclear carriers, nuclear refuelings, decommissioning, and
disposal.  Projected outlay profiles were generated for each budget
authority profile based on official outlay rates from the Office of
the Secretary of Defense and the Navy.  We also performed a present
value analysis of each force structure option's outlays to account
for the time value of money, since each investment alternative has a
different annual outlay profile.  This analysis showed no relative
difference from the constant dollar analysis of outlays used
throughout the report (see app.  II).  Our estimates provide a
general measure of the financial impacts of various force structure
plans at a 12-carrier force level, but the actual costs incurred may
vary depending on several factors, including the actual dates of new
carrier procurement; overhauls and decommissionings; new carriers'
performance characteristics; and changes in the overhead/labor rate,
projected escalation rate, and vendors. 

Our investment resource profile either included or excluded certain
costs to provide a reasonable estimate of major investment costs to
sustain a 12-carrier force.  The investment analysis included the
following cost items:  research and development (new design
conventional carriers); advance procurement, procurement,
post-delivery, and outfitting; midlife modernization (service life
extensions for conventional carriers and refueling complex overhauls
for nuclear carriers); and inactivation and disposal.  We excluded
the cost of nuclear fuel for both new nuclear carrier procurement and
nuclear refueling to allow an appropriate investment comparison
between nuclear and conventionally powered carriers. 

Decommissioning and disposal costs were included because the
investment required to inactivate a Nimitz-class nuclear carrier is
estimated at $750 million to $900 million, almost one-quarter the
cost of procuring a new Nimitz-class carrier.  (These costs are
normally funded in the Navy's operations and maintenance
appropriation account.) The nuclear carrier inactivation cost is
approximately 20 times the cost estimated for the decommissioning and
disposal of conventional carriers currently in the fleet. 

Navy officials were unable to provide us with an estimate of the
change in carrier procurement cost due to loss of learning, shipyard
reconstitution, and changes in the overhead rate for funding delays
greater than 1 year.  Therefore, we included an allowance for an
increase in cost due to industrial and vendor base impacts, overhead
escalation, and changes in direct construction costs for the nuclear
carrier options that delay authorization of the next nuclear carrier
to fiscal years 1998, 1999, or 2000.  These cost increases are based
on an interpolated straight-line adjustment to the BUR's estimated
increase of $2.1 billion for the next nuclear carrier, CVN-76, if
construction were delayed to fiscal year 2000.  We did not verify the
reasonableness of the detailed information DOD used to create this
cost increase estimate. 

Navy officials, citing a variety of factors, were unable to provide a
cost estimate of procuring a conventional carrier and project general
performance characteristics of a new conventional carrier.  Our
estimate of the cost of procuring a new design, conventional aircraft
carrier was based on the best available information we could obtain
from the Naval Sea Systems Command, the Naval Center for Cost
Analysis, the Office of the Assistant Secretary of Defense for
Program Analysis and Evaluation, and the Center for Naval Analysis,
as well as our own analysis.  Since a conventional aircraft carrier
has not been built in almost 25 years, many unknowns are involved in
creating a rough estimate of the current cost of constructing this
type of carrier.  We developed our cost estimate for a new design
conventional carrier by applying the cost per ton ratio of the U.S.S. 
John F.  Kennedy (CV-67) and the U.S.S.  Nimitz (CVN-68) to the
Navy's projected cost per ton of CVN-76.  The resulting ratio was
then multiplied by the new design conventional carrier's
displacement.  The U.S.S.  John F.  Kennedy, the last conventional
carrier built for the Navy and the largest conventional carrier in
the active fleet, was used as a proxy for the new design carrier. 
This size carrier is capable of employing air wings comparable in
size to those currently utilized and planned for the fleet.  We also
assume that a 5- to 7-year research, development, and design period
is a sufficient amount of time to develop and design a new
conventional aircraft carrier. 

Since our carrier force structure model includes planning,
construction, and ship modernization and overhauls for fiscal years
1995 through 2035, the accuracy of our estimates, especially after
fiscal year 1999, is subject to change and uncertainty. 


   NEWPORT NEWS EMPLOYMENT LEVEL
   ANALYSIS
--------------------------------------------------------- Appendix I:3

To examine the impact of each of the force structure options on NNS'
overall employment level for the period we analyzed, the Navy created
employment level curves based on information we provided on the BUR,
the Navy's Recapitalization Plan, and our force structure options. 
The data we provided were entered into the Navy's standard program
for calculating shipyard employment levels.  These curves include
work at the shipyard related to the carrier construction and
maintenance program and other DOD-funded shipbuilding and conversion
work currently under contract or expected to be under contract in the
future at NNS.  For example, we included new carrier construction,
nuclear carrier refueling complex overhauls, East Coast-based
aircraft carrier complex overhauls, and nuclear carrier
inactivations.  We also identified, but did not include in this
report, other Navy shipbuilding and conversion work that NNS could
compete for or could be directed to NNS as well as commercial
shipbuilding work that NNS could bid for, such as liquified natural
gas carriers.  We did not examine the impact of our alternative
investment strategies on Newport News Shipbuilding's nuclear carrier
industrial base, nuclear construction-related skills, and vendors,
and we did not assess the need to preserve this base. 


   INFORMATION SOURCES
--------------------------------------------------------- Appendix I:4

To develop the force structure options and budget authority and
outlay profiles, we reviewed pertinent documentation, including DOD's
Report on the Bottom-Up Review and the aircraft carrier force
structure plan that implements the BUR's recommendations; the Navy's
Recapitalization Plan aircraft carrier force structure; the Navy's
cost, schedule, and outlay rate estimates for various major
investments such as new carrier construction, refueling complex
overhaul of nuclear carriers, and carrier inactivations; the
Department of the Navy 1994 Posture Statement; and Highlights of the
FY 1995 Department of the Navy Budget. 

We obtained information from DOD and Navy officials on the BUR
recommendation and the Navy's Recapitalization Plan, the assumptions
used to develop these options, estimates for the various
investment-related costs, outlay rates for the relevant appropriation
accounts, and total employment over time at Newport News Shipbuilding
for various force structure options.  We discussed other issues with
these officials, including current and future carrier force levels,
force structure and planning assumptions, carrier inactivations,
learning curves involved in carrier construction, carrier maintenance
strategies, and new carrier designs (including propulsion systems). 

We performed our work between April 1993 and July 1994 in accordance
with generally accepted government auditing standards. 


   LOCATIONS OF FIELDWORK OR
   CONTACTS
--------------------------------------------------------- Appendix I:5

Offices and locations visited or contacted during this assignment
include the following: 


      DEPARTMENT OF DEFENSE
------------------------------------------------------- Appendix I:5.1

Office of the Secretary of Defense, Washington, D.C.
 Deputy Under Secretary of Defense for Policy
 Deputy Under Secretary of Defense for Acquisition
 Director, Tactical Systems (Maritime Systems)
 Assistant Secretary of Defense (Production and Logistics)
  Industrial Engineering and Quality
 Assistant Secretary of Defense (Program Analysis and Evaluation)
  General Purpose Programs (Naval Forces)
  Resource Analysis

Department of the Navy, Washington, D.C.
 Comptroller
  Naval Center for Cost Analysis
 Assistant Secretary of the Navy (Research, Development, and
  Acquisition)
 Office of the Chief of Naval Operations
  Deputy Chief of Naval Operations (Logistics)
  Deputy Chief of Naval Operations (Resources, Warfare
  Requirements, and Assessment)
  Programming Division (Program Plans and Development)
  Director, Air Warfare

Naval Sea Systems Command
 Comptroller Directorate (Cost Estimating and Analysis Division)
 Deputy Commander for Ship Design and Engineering (Future Ship
  Concepts Division)
 Industrial and Facilities Management Directorate (Supervisor of
  Shipbuilding, Conversion, and Repair Management Group)
 Nuclear Propulsion Directorate
 Aircraft Carrier Program
 Surface Combatants Ship Program

Naval Surface Warfare Center
 Carderock Division, Carderock, Maryland
 Dahlgren Division, White Oak, Maryland


      OTHER
------------------------------------------------------- Appendix I:5.2

Department of Transportation, Washington, D.C.
 Maritime Administration (Office of Ship Construction)

Center for Naval Analyses, Alexandria, Virginia

Shipbuilders' Council of America


PRESENT VALUE ANALYSES
========================================================== Appendix II


   PRESENT VALUE ANALYSES
   METHODOLOGY
-------------------------------------------------------- Appendix II:1

Investment options normally involve incurring different costs at
different times.  To compare two or more options on an equal economic
basis, it is necessary to consider the current costs of each option
or its "present value." For our analysis, we determined the Navy's
outlays for each option after accounting for the time value of money. 
We used present value techniques to convert future dollar outlays
into their value at the midpoint of fiscal year 1993.  A present
value analysis makes the options' outlays comparable despite each
option's differing outlay profiles.  Table II.1 shows the projected
budget authority, outlays, and our present value analysis for each of
the 10 force structure options we analyzed.  The figures cover three
time periods:  the near term (fiscal years 1995-99), mid-term (fiscal
years 1995-2015), and long term (fiscal years 1995-2035). 


   DISCOUNT RATE COMPARISON
-------------------------------------------------------- Appendix II:2

Although present value analysis is a generally accepted practice,
selecting an appropriate discount rate has been the subject of much
controversy.  For federal government investment analysis and
decision-making, arguments have been presented for discount rates
ranging from the cost of borrowing by the Treasury to the rate of
return that can be earned in the private sector.  Since the Treasury
meets most government funding requirements, we maintained that its
estimated cost to borrow was a reasonable basis for the discount rate
used in present value analysis.  Accordingly, for our analysis, we
used the average yield on outstanding marketable Treasury obligations
that had remaining maturities similar to the time period involved in
our analysis.  We subtracted a 20-year average of the projected gross
domestic product deflator from the average yield on outstanding
marketable Treasury obligations and applied the resulting discount
rate to the 1993 constant dollar outlay values.  DOD uses the Office
of Management and Budget (OMB) Circular A-94's prescribed present
value method, which applies a flat 7-percent discount rate to
constant dollars. 

Despite the differences in the two methodologies, the end results are
very similar.  Both present value analyses of the outlays for the 10
force structure options show approximately the same relative value to
the outlays for the BUR baseline force structure option.  Table II.2
shows the comparisons of the different methodologies. 



                                    Table II.1
                     
                      Budget Authority, Outlays, and Present
                          Value Analysis for Nuclear and
                       Conventional Carrier Force Structure
                                     Options

                      (Fiscal year 1993 dollars in billions)


Carrier   FY 95-  FY 95-  FY 95-  FY 95-  FY 95-  FY 95-  FY 95-  FY 95-  FY 95-
option        99      15      35      99      15      35      99      15      35
--------  ------  ------  ------  ------  ------  ------  ------  ------  ------
Nuclear
--------------------------------------------------------------------------------
BUR--       $5.6   $31.1   $62.9    $4.2   $26.0   $56.2    $3.7   $17.8   $28.9
 Buy
 CVN-76
 in
 fiscal
 year
 1995
Navy's       5.1    31.1    62.2     4.2    26.4    58.6     3.7    17.6    29.8
 Recapit
 alizati
 on Plan
1A--         6.3    28.4    62.7     2.1    26.9    56.0     1.9    18.1    28.7
 Replace
 all
 carrier
 s at
 retirem
 ent
 with
 nuclear
 carrier
 s
2A--         9.5    40.5    85.1     5.1    36.2    79.3     4.5    24.4    40.6
 Build
 nuclear
 carrier
 s at a
 sustain
 ed rate
 of
 product
 ion
4A--         6.0    28.4    58.1     2.6    25.6    54.7     2.3    16.9    27.9
 Defer
 CVN-76
 until
 fiscal
 year
 1998
4B--         1.9    29.1    58.7     1.9    26.5    54.3     1.7    17.4    27.9
 Defer
 CVN-76
 until
 fiscal
 year
 2000

Conventional
--------------------------------------------------------------------------------
1B--         2.2    20.1    37.0     1.6    18.2    35.4     1.4    12.0    18.5
 Replace
 all
 carrier
 s at
 retirem
 ent
 with
 convent
 ional
 carrier
 s
2B--         2.2    24.2    45.8     1.6    19.6    44.6     1.4    12.7    22.5
 Build
 convent
 ional
 carrier
 s at a
 sustain
 ed rate
 of
 product
 ion
3--Buy       5.1    23.3    42.6     4.2    20.4    41.9     3.7    13.9    22.2
 CVN-76
 in
 fiscal
 year
 1995
 but
 transit
 ion to
 a
 convent
 ional
 carrier
 constru
 ction
 program
 with
 CVA-77
4C--         1.9    20.3    37.8     1.5    17.3    37.4     1.3    11.2    19.0
 Defer
 CVA-76
 until
 fiscal
 year
 2002
--------------------------------------------------------------------------------


                          Table II.2
           
            Constant Dollar and Two Present Value
           Analyses of Outlays for Force Structure
              Options for Fiscal Years 1995-2035

            (Fiscal year 1993 dollars in millions)

                                Outlays\  Treasury       OMB
Carrier option                         a    rate\b    rate\b
------------------------------  --------  --------  --------
Nuclear
------------------------------------------------------------
BUR--Buy $ CVN-76 in fiscal     56,154 $  28,910 $    15,109
 year 1995
Navy's Recapitalization Plan      58,600    29,821    15,180
1A--Replace all carriers at       55,993    28,678    14,706
 retirement
 with nuclear carriers
2A--Build nuclear carriers at     79,275    40,611    20,910
 a
 sustained rate of production
4A--Defer CVN-76 until fiscal     54,667    27,875    14,128
 year 1998
4B--Defer CVN-76 until fiscal     54,317    27,918    14,154
 year 2000

Conventional
------------------------------------------------------------
1B--Replace all carriers at       35,410    18,505     9,551
 retirement
 with conventional carriers
2B--Build conventional            44,630    22,455    11,020
 carriers at a
 sustained rate of production
3--Buy CVN-76 in fiscal year      41,873    22,198    11,892
 1995 but
 transition to a conventional
 carrier
 construction program with
 CVA-77
4C--Defer CVA-76 until fiscal     37,393    18,962     9,376
 year 2002
------------------------------------------------------------
Note:  Estimates do not include the cost of nuclear fuel. 

\a Outlays are in fiscal year 1993 dollars. 

\b The present value analyses are also presented in fiscal year 1993
dollars.  The present value of each option is as of the midpoint of
fiscal year 1993. 


LIST OF AIRCRAFT CARRIER HULL
NUMBERS AND NAMES
========================================================= Appendix III

CV-59  U.S.S.  Forrestal
CV-60  U.S.S.  Saratoga
CV-61  U.S.S.  Ranger
CV-62  U.S.S.  Independence
CV-63  U.S.S.  Kitty Hawk
CV-64  U.S.S.  Constellation
CV-66  U.S.S.  America
CV-67  U.S.S.  John F.  Kennedy
CVN-65  U.S.S.  Enterprise
CVN-68  U.S.S.  Nimitz
CVN-69  U.S.S.  Dwight Eisenhower
CVN-70  U.S.S.  Carl Vinson
CVN-71  U.S.S.  Theodore Roosevelt
CVN-72  U.S.S.  Abraham Lincoln
CVN-73  U.S.S.  George Washington
CVN-74  U.S.S.  John C.  Stennis
CVN-75  U.S.S.  United States


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Richard J.  Herley, Assistant Director
Roderick W.  Rodgers, Evaluator-in-Charge
Edna Thea Falk, Evaluator
Dale O.  Wineholt, Evaluator
Charles Perdue, Senior Economist
Karen Blum, Communications Analyst

OFFICE OF THE CHIEF ECONOMIST

Harold J.  Brumm, Senior Economist


RELATED GAO PRODUCTS
============================================================ Chapter 1

Attack Submarines:  Alternatives for a More Affordable SSN Force
Structure (GAO/NSIAD-95-16, Oct.  13, 1994). 

Future Years Defense Program:  Optimistic Estimates Lead to Billions
in Overprogramming (GAO/NSIAD-94-210, July 20, 1994). 

Navy Modernization:  Alternatives for Achieving a More Affordable
Force (GAO/T-NSIAD-94-171, Apr.  26, 1994). 

Navy Carrier Battle Groups:  The Structure and Affordability of the
Future Force (GAO/NSIAD-93-74, Feb.  25, 1993). 

