United States General Accounting Office

GAO National Security and International

Affairs Division

January 1995 NAVY’S AIRCRAFT

CARRIER PROGRAM

Investment Strategy

Options

GAO/NSIAD-95-17

Preface

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

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.

Page 1 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Preface

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

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).

Page 2 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Preface

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

Page 3 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Contents

Preface 1

Chapter 1 

Overview

8

Key Findings From Investment Options Analysis 8

Nuclear and Conventional Carrier Propulsion Issues 10

Agency Comments and Our Evaluation 10

Chapter 2 

Analysis of Aircraft

Carrier Investment

Strategy Options

12

Force Structure Option Analyses 12

Bottom-Up Review Baseline Force Structure Option 14

Navy’s Recapitalization Plan Option 16

Alternative 1A: Maximize Budgetary Savings Through a Nuclear

Carrier Replacement Rate Strategy

18

Alternative 1B: Maximize Budgetary Savings Through a

Conventional Carrier Replacement Rate Strategy

20

Alternative 2A: Maximize Newport News Shipbuilding

Employment Level Stability Through a Nuclear Carrier Sustaining

Rate Strategy

22

Alternative 2B: Maximize Newport News Shipbuilding

Employment Level Stability Through a Conventional Carrier

Sustaining Rate Strategy

24

Alternative 3: Optimize Budget Savings and Newport News

Shipbuilding Employment Level Stability

26

Alternative 4A: Defer Construction of CVN-76 Until Fiscal Year

1998

28

Alternative 4B: Defer Construction of CVN-76 Until Fiscal Year

2000

30

Alternative 4C: Defer Construction of New Conventional Carrier

(CVA-76) Until Fiscal Year 2002

32

Appendixes Appendix I: Scope and Methodology 34

Appendix II: Present Value Analyses 42

Appendix III: List of Aircraft Carrier Hull Numbers and Names 45

Appendix IV: Major Contributors to This Report 46

Related GAO Products 48

Tables Table 1.1: Effect of Force Structure Options on Outlays,

Production Starts and Intervals, Lost Useful Service Life, and

Newport News Shipbuilding Employment Levels

9

Page 4 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Contents

Table 1.2: Annual Operating and Support Costs for Nuclear- and

Conventionally Powered Carriers

11

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

Nuclear Carriers

35

Table I.2: Notional Baseline Planning Factors for Conventional

Carriers

36

Table II.1: Budget Authority, Outlays, and Present Value Analysis

for Nuclear and Conventional Carrier Force Structure Options

43

Table II.2: Constant Dollar and Two Present Value Analyses of

Outlays for Force Structure Options for Fiscal Years 1995-2035

44

Figures Figure 2.1: Force Structure for BUR Option 15

Figure 2.2: Total Employment Level at NNS Under BUR Option 15

Figure 2.3: Force Structure for the Navy’s Recapitalization Plan

Option

17

Figure 2.4: Total Employment Level at NNS Under the Navy’s

Recapitalization Plan Option

17

Figure 2.5: Force Structure Option 1A—Nuclear Carrier

Replacement Rate Strategy

19

Figure 2.6: Total Employment Level at NNS for Option

1A—Nuclear Carrier Replacement Rate Strategy

19

Figure 2.7: Force Structure Option 1B—Conventional Carrier

Replacement Rate Strategy

21

Figure 2.8: Total Employment Level at NNS Under Option

1B—Conventional Carrier Replacement Strategy

21

Figure 2.9: Force Structure Option 2A—Nuclear Carrier

Sustaining Rate Strategy

23

Figure 2.10: Total Employment Level at NNS for Option

2A—Nuclear Carrier Sustaining Rate Strategy

23

Figure 2.11: Force Structure Option 2B—Conventional Carrier

Sustaining Rate Strategy

25

Figure 2.12: Total Employment Level at NNS for Option

2B—Conventional Carrier Sustaining Rate Strategy

25

Figure 2.13: Force Structure Option 3—Optimize Budget Savings

and NNS Employment Level Stability

27

Figure 2.14: Total Employment Level at NNS for Option

3—Optimize Budget Savings and NNS Employment Level

Stability

27

Figure 2.15: Force Structure Option 4A—Defer Construction of

CVN-76 Until Fiscal Year 1998

29

Page 5 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Contents

Figure 2.16: Total Employment Level at NNS for Option

4A—Defer Construction of CVN-76 Until Fiscal Year 1998

29

Figure 2.17: Force Structure Option 4B—Defer Construction of

CVN-76 Until Fiscal Year 2000

31

Figure 2.18: Total Employment Level at NNS for Option

4B—Defer Construction of CVN-76 Until Fiscal Year 2000

31

Figure 2.19: Force Structure Option 4C—Defer Construction of

New Conventional Carrier (CVA-76) Until Fiscal Year 2002

33

Figure 2.20: Total Employment Level at NNS for Option

4C—Defer Construction of New Conventional Carrier

(CVA-76) Until Fiscal Year 2002

33

Abbreviations

BUR Bottom-Up Review

DOD Department of Defense

NNS Newport News Shipbuilding

OMB Office of Management and Budget

Page 6 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Page 7 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 1 

Overview

Key Findings From

Investment Options

Analysis

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.

Page 8 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 1 

Overview

Table 1.1: Effect of Force Structure Options on Outlays, Production Starts and Intervals, Lost Useful Service Life, and

Newport News Shipbuilding Employment Levels

Outlays

Fiscal year 1993 dollars in millions

Carrier option FY 95-99 FY 95-15 FY 95-35

Next

carrier

(FY)

Building

start

interval

(years)

Useful

service

life losta

(years)

Newport News

Shipbuilding

employment levelsb

Nuclear

BUR—Buy CVN-76 in

fiscal year 1995

$4,235 $26,005 $56,154 1995 2-7 7 Stays above 10,000 in the

near term

Navy’s Recapitalization

Plan

4,212 26,432 58,600 1995 4 18 Stays above 10,000 in the

near term

1A—Replace all carriers at

retirement with nuclear

carriers

2,116 26,901 55,993 1999 3-10 0 Drops to 7,500 in the near

term

2A—Build nuclear carriers

at a sustained rate of

productionc

5,137 36,205 79,275 1995 3 83 Stays above 10,000 in the

near term; averages

21,500 in the long term

4A—Defer CVN-76 until

fiscal year 1998

2,649 25,579 54,667 1998 4-5 3 Drops to 7,500 in the near

term

4B—Defer CVN-76 until

fiscal year 2000

1,890 26,515 54,317 2000 4-5 3 Drops to 7,500 in the near

term

Conventional

1B—Replace all carriers at

retirement with

conventional carriers

1,561 18,168 35,410 2000 3-10 0 Drops to 7,500 in the near

term

2B—Build conventional

carriers at a sustained rate

of productionc

1,561 19,612 44,630 2000 3 40 Drops to 7,500 in near

term

3—Buy CVN-76 in fiscal

year 1995 but transition to

a conventional carrier

construction program with

CVA-77

4,215 20,363 41,873 1995 4 23 Drops just below 12,000

in the near term

4C—Defer CVA-76 until

fiscal year 2002

1,501 17,332 37,393 2002 3-4 9 Drops to 7,500 in the near

term

Note: Cost estimates do not include the cost of initial nuclear fueling or refueling.

aProjected 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.

bThe Navy estimates the minimum sustainable employment level at Newport News Shipbuilding to

be 10,000 to 15,000 people.

cSustaining rate options buy carriers at a sustaining interval based on historical procurement

rates.

Page 9 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 1 

Overview

Nuclear and

Conventional Carrier

Propulsion Issues

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

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.

Page 10 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 1 

Overview

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

Carrier type Annual cost

Nimitz-class nuclear carrier $235.4

Kitty Hawk/John F. Kennedy class conventional carrier 196.3

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.

Page 11 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Force Structure

Option Analyses

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 discussion of alternative 3.)

Page 12 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

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 and overall employment levels at NNS.

Page 13 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Bottom-Up Review

Baseline Force Structure

Option

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 outlays than the BUR baseline force model (see discussion of

alternative 2A).

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.

Page 14 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.1: Force Structure for BUR

Option

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S) t t t

CV-64 (S) t

CV-66

CV-67 (S) n n

CVN-65 n

CVN-68 n n n t t t

CVN-69 n n n

CVN-70 n n n

CVN-71 n n n

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVN-76 B B B B B B B B n n n

CVN-77 B B B B B B B n n n

CVN-78 B B B B B B B n n

CVN-79 B B B B B B B

CVN-80 B B B B B B B

CVN-81 B B B B B B B

CVN-82 B B B B B B B

CVN-83 B B B B B B

CVN-84 B B B

CVN-85 B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Note: SLEP, service life extension program; RCOH, refueling complex overhaul

Figure 2.2: Total Employment Level at

NNS Under BUR Option

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

Fiscal year

Total employment

Page 15 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Navy’s Recapitalization

Plan Option

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.

Page 16 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.3: Force Structure for the

Navy’s Recapitalization Plan Option

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S) t t t

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n t t

CVN-68 n n n t t t t

CVN-69 n n n t t t

CVN-70 n n n t t t

CVN-71 n n n t t t

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVN-76 B B B B B B B B n n n

CVN-77 B B B B B B B n n n

CVN-78 B B B B B B B

CVN-79 B B B B B B B

CVN-80 B B B B B B B

CVN-81 B B B B B B B

CVN-82 B B B B B B B

CVN-83 B B B B B B B

CVN-84 B B B B B B

CVN-85 B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.4: Total Employment Level at

NNS Under the Navy’s Recapitalization

Plan Option

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan Recapitalization Plan

Fiscal year

Total employment

Page 17 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 1A: Maximize

Budgetary Savings

Through a Nuclear Carrier

Replacement Rate Strategy

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 due to the

additional 1-year delay in CVN-76’s construction start.

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).

Page 18 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.5: Force Structure Option

1A—Nuclear Carrier Replacement Rate

Strategy

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S)

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n

CVN-68 n n n

CVN-69 n n n

CVN-70 n n n

CVN-71 n n n

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVN-76 B B B B B B B n n n

CVN-77 B B B B B B B n n n

CVN-78 B B B B B B B

CVN-79 B B B B B B B

CVN-80 B B B B B B B

CVN-81 B B B B B B B

CVN-82 B B B B B B B

CVN-83 B B B B B B

CVN-84 B B B

CVN-85 B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.6: Total Employment Level at

NNS for Option 1A—Nuclear Carrier

Replacement Rate Strategy

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan CVN Replacement Rate Plan

Fiscal year

Total employment

Page 19 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 1B: Maximize

Budgetary Savings

Through a Conventional

Carrier Replacement Rate

Strategy

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 between fiscal years 1995 and 2035.

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.

Page 20 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.7: Force Structure Option

1B—Conventional Carrier

Replacement Rate Strategy

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S)

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n

CVN-68 n n n

CVN-69 n n n

CVN-70 n n n

CVN-71 n n n

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVA-76 B B B B B B B

CVA-77 B B B B B B

CVA-78 B B B B B B

CVA-79 B B B B B B

CVA-80 B B B B B B

CVA-81 B B B B B B

CVA-82 B B B B B B

CVA-83 B B B B B

CVA-84 B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.8: Total Employment Level at

NNS Under Option 1B—Conventional

Carrier Replacement Strategy

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan CVA Replacement Rate Plan

Fiscal year

Total employment

Page 21 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 2A: Maximize

Newport News

Shipbuilding Employment

Level Stability Through a

Nuclear Carrier Sustaining

Rate Strategy

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 the carrier shipbuilding industrial base and employee levels.

Page 22 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.9: Force Structure Option

2A—Nuclear Carrier Sustaining Rate

Strategy

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S) t t t

CV-64 (S) t

CV-66

CV-67 (S) n n

CVN-65 n t t t t t t t t t t

CVN-68 n n n t t t t t t t t t t t

CVN-69 n n n t t t t t t t t t t t

CVN-70 n n n t t t t t t t t t t t t

CVN-71 n n n t t t t t t t t t t t t t

CVN-72 n n n t t t t t t t t t t

CVN-73 n n n t t t t t t t

CVN-74 B B n n n t t t t

CVN-75 B B B B n n n t

CVN-76 B B B B B B B B n n n

CVN-77 B B B B B B B n n n

CVN-78 B B B B B B B n n n

CVN-79 B B B B B B B n

CVN-80 B B B B B B B

CVN-81 B B B B B B B

CVN-82 B B B B B B B

CVN-83 B B B B B B B

CVN-84 B B B B B B B

CVN-85 B B B B B B B

CVN-86 B B B B B B B

CVN-87 B B B B B B B

CVN-88 B B B B B

CVN-89 B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.10: Total Employment Level at

NNS for Option 2A—Nuclear Carrier

Sustaining Rate Strategy

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan CVN Sustained Rate Plan

Fiscal year

Total employment

Page 23 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 2B: Maximize

Newport News

Shipbuilding Employment

Level Stability Through a

Conventional Carrier

Sustaining Rate Strategy

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 billion less than the BUR option over the long term.

Page 24 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.11: Force Structure Option

2B—Conventional Carrier Sustaining

Rate Strategy

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S)

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n

CVN-68 n n n t t t t

CVN-69 n n n t t t t t t t t t t

CVN-70 n n n t t t t t t t t

CVN-71 n n n t t t t t t t t t

CVN-72 n n n t t t t t t

CVN-73 n n n t t t

CVN-74 B B n n n

CVN-75 B B B B n n n

CVA-76 B B B B B B B

CVA-77 B B B B B B

CVA-78 B B B B B B

CVA-79 B B B B B B

CVA-80 B B B B B B

CVA-81 B B B B B B

CVA-82 B B B B B B

CVA-83 B B B B B B

CVA-84 B B B B B B

CVA-85 B B B B B B

CVA-86 B B B B B B

CVA-87 B B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.12: Total Employment Level at

NNS for Option 2B—Conventional

Carrier Sustaining Rate Strategy

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan CVA Sustained Rate Plan

Fiscal year

Total employment

Page 25 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 3: Optimize

Budget Savings and

Newport News

Shipbuilding Employment

Level Stability

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 of $3.5 billion in

fiscal years 1999 and beyond.

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.

Page 26 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.13: Force Structure Option

3—Optimize Budget Savings and NNS

Employment Level Stability

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S) t t t

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n t t t

CVN-68 n n n t t t t t

CVN-69 n n n t t t t

CVN-70 n n n t t t t

CVN-71 n n n t t t t

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVN-76 B B B B B B B B n n n

CVA-77 B B B B B B B

CVA-78 B B B B B B

CVA-79 B B B B B B

CVA-80 B B B B B B

CVA-81 B B B B B B

CVA-82 B B B B B B

CVA-83 B B B B B B

CVA-84 B B B B B B

CVA-85 B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.14: Total Employment Level at

NNS for Option 3—Optimize Budget

Savings and NNS Employment Level

Stability

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan CVA-77 Plan 

Fiscal year

Total employment

Page 27 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 4A: Defer

Construction of CVN-76

Until Fiscal Year 1998

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 option.

Page 28 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.15: Force Structure Option

4A—Defer Construction of CVN-76

Until Fiscal Year 1998

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S) t

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n

CVN-68 n n n t t

CVN-69 n n n

CVN-70 n n n

CVN-71 n n n

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVN-76 B B B B B B B n n n

CVN-77 B B B B B B B n n n

CVN-78 B B B B B B B

CVN-79 B B B B B B B

CVN-80 B B B B B B B

CVN-81 B B B B B B B

CVN-82 B B B B B B B

CVN-83 B B B B B B

CVN-84 B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.16: Total Employment Level at

NNS for Option 4A—Defer

Construction of CVN-76 Until Fiscal

Year 1998

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan FY 1998 Plan 

Fiscal year

Total employment

Page 29 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 4B: Defer

Construction of CVN-76

Until Fiscal Year 2000

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 option because of the delay in

the construction start of CVN-76.

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.

Page 30 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.17: Force Structure Option

4B—Defer Construction of CVN-76

Until Fiscal Year 2000

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S)

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n t

CVN-68 n n n t t

CVN-69 n n n

CVN-70 n n n

CVN-71 n n n

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVN-76 B B B B B B B n n n

CVN-77 B B B B B B B n n n

CVN-78 B B B B B B B

CVN-79 B B B B B B B

CVN-80 B B B B B B B

CVN-81 B B B B B B B

CVN-82 B B B B B B B

CVN-83 B B B B B B

CVN-84 B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.18: Total Employment Level at

NNS for Option 4B—Defer

Construction of CVN-76 Until Fiscal

Year 2000

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan FY 2000 Plan 

Fiscal year

Total employment

Page 31 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Alternative 4C: Defer

Construction of New

Conventional Carrier

(CVA-76) Until Fiscal Year

2002

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 conventional carrier construction

with CVA-77.

Page 32 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Chapter 2 

Analysis of Aircraft Carrier Investment

Strategy Options

Figure 2.19: Force Structure Option

4C—Defer Construction of New

Conventional Carrier (CVA-76) Until

Fiscal Year 2002

Aircraft Fiscal year

carrier 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

CV-59 (S) t t t t t t

CV-60 (S) t t t t t t t

CV-61

CV-62 (S) t t t t t t

CV-63 (S)

CV-64 (S)

CV-66

CV-67 (S) n n

CVN-65 n

CVN-68 n n n t t t

CVN-69 n n n t t

CVN-70 n n n t t

CVN-71 n n n t t

CVN-72 n n n

CVN-73 n n n

CVN-74 B B n n n

CVN-75 B B B B n n n

CVA-76 B B B B B B B

CVA-77 B B B B B B

CVA-78 B B B B B B

CVA-79 B B B B B B

CVA-80 B B B B B B

CVA-81 B B B B B B

CVA-82 B B B B B B

CVA-83 B B B B B B

CVA-84 B B B B

Key: 

Conventionally powered carriers (S) Conventionally powered carriers with a SLEP

Nuclear-powered carriers n Midlife modernization period (RCOH or SLEP)

B New carrier building period t Unused useful service life

Figure 2.20: Total Employment Level at

NNS for Option 4C—Defer

Construction of New Conventional

Carrier (CVA-76) Until Fiscal Year 2002

0 

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

1995 2000 2005 2010 2015 2020 2025 2030 2035

BUR FY 1995 Plan FY 2002 CVA Plan 

Fiscal year

Total employment

Page 33 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

Force Structure

Alternatives

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

Page 34 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

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 Number of years

Fiscal year 1993 dollars in billions

Planning factors Cost

Procurement period 9 $3.8

Active service life

Baseline service life 23-1/2 a

Midlife modernization 3 1.8

Service life added 23-1/2 a

Subtotal 50 a

Inactivation period 3 0.9

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).

aNot applicable.

Page 35 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

Table I.2: Notional Baseline Planning

Factors for Conventional Carriers

Number of years

Fiscal year 1993 dollars in billions

Planning factors Cost

Procurement period 6 $2.1

Active service life

Baseline service life 30 a

Midlife modernization 3 1.0

Service life added 15 a

Subtotal 48 a

Inactivation period 1 0.1

Total 55 $3.2

Note: Carriers are in the Kitty Hawk and John F. Kennedy classes.

aNot 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.

Page 36 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

Investment Resource

Analysis

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,

Page 37 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

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.

Page 38 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

Newport News

Employment Level

Analysis

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 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).

Page 39 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

We performed our work between April 1993 and July 1994 in accordance

with generally accepted government auditing standards.

Locations of

Fieldwork or Contacts

Offices and locations visited or contacted during this assignment include

the following:

Department of Defense 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

Page 40 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix I 

Scope and Methodology

Naval Surface Warfare Center

 Carderock Division, Carderock, Maryland

 Dahlgren Division, White Oak, Maryland

Other Department of Transportation, Washington, D.C.

 Maritime Administration (Office of Ship Construction)

Center for Naval Analyses, Alexandria, Virginia

Shipbuilders’ Council of America

Page 41 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix II 

Present Value Analyses

Present Value

Analyses Methodology

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

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.

Page 42 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix II 

Present Value Analyses

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

Options

Budget authority Outlays Present value

Fiscal year 1993 dollars in billions

Carrier option FY 95-99 FY 95-15 FY 95-35 FY 95-99 FY 95-15 FY 95-35 FY 95-99 FY 95-15 FY 95-35

Nuclear

BUR—Buy CVN-76 in fiscal

year 1995 $5.6 $31.1 $62.9 $4.2 $26.0 $56.2 $3.7 $17.8 $28.9

Navy’s Recapitalization Plan 5.1 31.1 62.2 4.2 26.4 58.6 3.7 17.6 29.8

1A—Replace all carriers at

retirement with nuclear

carriers 6.3 28.4 62.7 2.1 26.9 56.0 1.9 18.1 28.7

2A—Build nuclear carriers

at a sustained rate of

production 9.5 40.5 85.1 5.1 36.2 79.3 4.5 24.4 40.6

4A—Defer CVN-76 until

fiscal year 1998 6.0 28.4 58.1 2.6 25.6 54.7 2.3 16.9 27.9

4B—Defer CVN-76 until

fiscal year 2000 1.9 29.1 58.7 1.9 26.5 54.3 1.7 17.4 27.9

Conventional

1B—Replace all carriers at

retirement with conventional

carriers 2.2 20.1 37.0 1.6 18.2 35.4 1.4 12.0 18.5

2B—Build conventional

carriers at a sustained rate

of production 2.2 24.2 45.8 1.6 19.6 44.6 1.4 12.7 22.5

3—Buy CVN-76 in fiscal

year 1995 but transition to a

conventional carrier

construction program with

CVA-77 5.1 23.3 42.6 4.2 20.4 41.9 3.7 13.9 22.2

4C—Defer CVA-76 until

fiscal year 2002 1.9 20.3 37.8 1.5 17.3 37.4 1.3 11.2 19.0

Page 43 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix II 

Present Value Analyses

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

Carrier option Outlaysa

Treasury

rateb OMB rateb

Nuclear

BUR—Buy CVN-76 in fiscal year 1995 $56,154 $28,910 $15,109

Navy’s Recapitalization Plan 58,600 29,821 15,180

1A—Replace all carriers at retirement

with nuclear carriers 55,993 28,678 14,706

2A—Build nuclear carriers at a

sustained rate of production 79,275 40,611 20,910

4A—Defer CVN-76 until fiscal year 1998 54,667 27,875 14,128

4B—Defer CVN-76 until fiscal year 2000 54,317 27,918 14,154

Conventional

1B—Replace all carriers at retirement

with conventional carriers 35,410 18,505 9,551

2B—Build conventional carriers at a

sustained rate of production 44,630 22,455 11,020

3—Buy CVN-76 in fiscal year 1995 but

transition to a conventional carrier

construction program with CVA-77 41,873 22,198 11,892

4C—Defer CVA-76 until fiscal year 2002 37,393 18,962 9,376

Note: Estimates do not include the cost of nuclear fuel.

aOutlays are in fiscal year 1993 dollars.

bThe 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.

Page 44 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix III 

List of Aircraft Carrier Hull Numbers and

Names

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

Page 45 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix IV 

Major Contributors to This Report

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

Page 46 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Appendix IV 

Major Contributors to This Report

Page 47 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
Related GAO Products

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).

(701000) Page 48 GAO/NSIAD-95-17 Navy’s Aircraft Carrier Program
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