U.S. Markets open in 4 hrs 40 mins
  • S&P Futures

    3,256.50
    -45.75 (-1.39%)
     
  • Dow Futures

    26,186.00
    -371.00 (-1.40%)
     
  • Nasdaq Futures

    11,127.00
    -215.75 (-1.90%)
     
  • Russell 2000 Futures

    1,542.30
    -16.10 (-1.03%)
     
  • Crude Oil

    36.26
    +0.09 (+0.25%)
     
  • Gold

    1,870.90
    +2.90 (+0.16%)
     
  • Silver

    23.37
    +0.01 (+0.04%)
     
  • EUR/USD

    1.1670
    -0.0008 (-0.0700%)
     
  • 10-Yr Bond

    0.8350
    0.0000 (0.00%)
     
  • Vix

    39.24
    -1.04 (-2.58%)
     
  • GBP/USD

    1.2917
    -0.0006 (-0.0478%)
     
  • USD/JPY

    104.3700
    -0.2400 (-0.2294%)
     
  • BTC-USD

    13,270.23
    -103.95 (-0.78%)
     
  • CMC Crypto 200

    259.99
    +17.31 (+7.13%)
     
  • FTSE 100

    5,578.69
    -3.06 (-0.05%)
     
  • Nikkei 225

    22,977.13
    -354.81 (-1.52%)
     

Navy’s Frigate Seen Busting Goal by 40% at $1.2 Billion Each

Tony Capaccio
·3 mins read

(Bloomberg) -- The first 10 vessels in the Navy’s new frigate program may cost $12.3 billion, or 40% more than the service calculated, according to the nonpartisan Congressional Budget Office, a new sign of looming trouble for plans to expand the U.S. fleet.

The assessment released late Tuesday projects the frigates will cost an average of $1.2 billion apiece in inflation-adjusted dollars in contrast to the Navy’s estimate of $870 million each. It’s an early setback for a ship billed as a more versatile and better-armed replacement for the troubled Littoral Combat Ship, a program that was truncated because of mechanical flaws, light armament and vulnerability to attack.

The Navy is counting on an affordable frigate as a key component in its effort to meet President Donald Trump’s goal of 355 deployable ships by 2035, up from about 299 today. Defense Secretary Mark Esper set out an even more ambitious goal last week of a 500-ship Navy by 2045 that would included unmanned vessels of unknown weight, capabilities and cost.

“If the Navy’s procurement cost estimates” for the frigate “prove accurate, the ship would be, by far, the least expensive surface combatant that the Navy has bought since 1970 -- measured in cost-per-thousand tons of displacement,” the budget office said. “That would apply to both the lead ship and the average cost of the first 10 ships.”

The Navy already has its own doubts.

Its fiscal 2021 cost estimates for the second through 10th frigates “are at the very low end of the range” established at the outset of a competition that was won by Fincantieri SpA in April, according to the Congressional Budget Office. The Navy also told CBO there’s a 50% chance the first two ships would exceed their cost estimates and a 60% chance the third through 10th ships would as well.

Littoral Ships

Esper’s vision calls for a fleet of 60 to 70 “small surface combatants” that includes the frigates -- which will be equipped with guided missiles -- and Littoral Combat Ships, a quantity the Congressional Research Service said implies buying more than the 20 frigates currently planned.

Despite the decision to cut short the Littoral Combat Ship program, the Navy still has 35 on contract, with 19 delivered as of March. The LCS is built in two versions: One by Trieste, Italy-based Fincantieri in a joint venture with Lockheed Martin Corp. based in Bethesda, Maryland, and the other by Henderson, Australia-based Austal Ltd.

CBO compared the frigate’s estimated cost with ships of similar tonnage and examined arguments supporting the Navy’s estimate, such as Fincantieri’s long experience building small surface combatants vessels including, in this case, a design that’s been in production for years for the French and Italian navies.

It also looked at elements that “suggest the Navy’s estimate is too low,” such as the service’s star-crossed history in which “costs of all surface combatants since 1970, as measured per-thousand-tons, were higher” than initial estimates.

“Historically the Navy has almost always underestimated the cost of the lead ship, and a more expensive lead ship generally results in higher costs for the follow-on ships,” the budget analysts said.

The report cited the cost growth over initial estimates for the lead ship in other Navy programs, from 155% for one version of the Littoral Combat Ship, 84% on the San Antonio-class amphibious warfare vessel, 44% for the DDG-1000 Zumwalt destroyer and 25% on the Gerald R. Ford aircraft carrier, the costliest warship ever.

Compared with the design on which it’s based, the frigate “will be more densely built and will have somewhat more complex weapon systems,” CBO said.

For more articles like this, please visit us at bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.