Ep 172: Eric Chewning and Thomas Moore on the Warship Production Crisis
Eric Chewning and Thomas Moore of HII join the show to discuss America’s military shipbuilding challenges, and their potential solutions.
Aaron MacLean:
Everyone agrees that we have a crisis with America's defense industrial base. There isn't enough of one in the hour, it seems maybe getting late. The problem is particularly acute in the realm of shipbuilding. What does it take to build a warship in America in 2025 and what needs to be done to fill the alarming gaps that exist? Let's get into it.
Aaron MacLean:
For more, follow School of War on YouTube, Instagram, Substack, and Twitter, and feel free to follow me on Twitter @AaronBMacLean. Hi, I'm Aaron MacLean, thanks for joining School of War. I'm delighted to welcome to the show today, two very distinguished guests, Eric Chewning and Thomas Moore. Eric is Executive Vice President of Strategy and Development for HII. Thomas Moore is Corporate Vice President of Customer Affairs there. He's also a 39 veteran of the United States Navy or Vice Admiral there. Eric was Chief of Staff to the US Secretary of Defense. He was in the army, done a lot of other things. Gentlemen, thank you so much for joining the show.
Eric Chewning:
Great. Well hey Aaron, thanks for having us on. I'm a real big fan of the podcast and it's a treat to be on with you and my friend Tom Moore, particularly since we're going to discuss what it takes to make American shipbuilding great again.
Aaron MacLean:
That's our subject for today. Tom, you spent a lot of time on board ships. Tell us a bit about your career, that kind of commands you had, the kind of experiences you had and how that gives you insight to the kind of work you do today?
Tom Moore:
Sure, thanks for the question. I started as a nuclear trained officer, interviewed with Hyman Rickover in fall of 1980. That's just great stories there. It's not the first 13 years of my career on nuclear cruisers, nuclear aircraft carriers. We actually had nuclear-powered cruisers back then in those days, and lateral transferred over what's called the engineering duty community. I went to MIT, got a degree in nuclear engineering, and then spent really the next 25 years doing ship acquisition, ship design, and principally in the aircraft carrier world for most of it, and the last four years was the head of the Naval Sea Systems Command, which owns a ship design, ship construction life cycle management of all the Navy's ship submarines and combat systems.
Aaron MacLean:
Since you raised it, I have to ask you about your Rickover interview. I taught at Navy for a few happy years. There was a Rickover Hall.
Tom Moore:
Yeah.
Aaron MacLean:
I assume there wasn't one in the time we're talking about?
Tom Moore:
No, Rickover, I'm not that old. We had a Rickover Hall as the engineering hall back then. It's in fact a little dilapidated right now. We probably need to update it a little bit. Yeah, I mean it's an interesting day. He was an interesting figure, and if you think about as we get into shipbuilding and talk about shipbuilding today, from design concept to delivering the Nautilus, it was six years. So from the time he thought about building a nuclear-powered submarine to actually putting and operating a nuclear-powered submarine. So really to kind of set the bar for a lot of what we should be thinking about today as we need to accelerate shipbuilding, but yeah, the interview was he spent most of the day with his staff doing technical interviews, asking you things like derive the air, recircle, things of that nature, and then they put you in an outer office and you wait and then his inner office and you wait, and then eventually his secretary comes and gets you and go in for this interview.
And before they have a handler that goes in with you, some navy commander at the time who's supposed to be there to help you, but basically he's there to just make sure that any commitments that you made to the Admiral, they write down. So when you come back five years later, they can see if you kept your promises, and so I went in, my interview was very short in hindsight, I wish it had been longer, but I was so terrified that I was happy to get out of there. He just asked me three questions, "Why do you want to be in my program? Are you getting married and do you study enough?" And then he said, "That's all." And when he said that's all, it was like The Wizard of Oz and the lion just coming out of the hall and I bolted for the cover.
Aaron MacLean:
These are famous, aren't they, for sort unconventional questions and off the wall stuff. It sounds like you must've met him in a soft moment or something like that.
Tom Moore:
Yeah, it was the end of the day. You go in, at the time he was 82, he's got this massive desk, this massive oak chair and he was in this gray suit, kind of a shriveled up 82-year-old man, and he put you in this chair that they had sawed off the front of the legs and so you're kind of leaning forward and I just remember sitting down and looking up at him and my first reaction was I would almost laugh because he was so small and he's just shuffling paperwork around and the next thing you know he starts firing those three questions, but yeah, I got off easy. A good friend of mine, a roommate of mine didn't answer one of the questions right and got sent into one of the broom closets to sit and think about what he had said wrong for a couple hours before he got called back in for his interview.
So you could read some of the books about Rickover, but he was famous for if somebody called in that was a senior officer handing the phone to some midshipman saying you a lot about leadership, why don't you tell this admiral what leadership's all about and put you on the spot. But to your point, he just was really interested in seeing how you were going to think on your feet, and that was really kind of the hallmark of his program. He could train you well and he wanted decisions to be made at the lowest possible level and people that were willing to make decisions and that's what he wanted to challenge and see if you could do that.
Aaron MacLean:
Eric, tell us a bit about your time in Iraq and then as your career extended, you started to work on these industrial based questions while you were at the Pentagon. So just tell us a bit about it.
Eric Chewning:
Sure. Yeah, no, well so I guess I entered this ecosystem a bit differently than Tom. So I started off as an investment banker. So I was doing M&A and corporate finance at Morgan Stanley and then September 11th happened, and then I enlisted in the army. So enlisted in the army, went and [inaudible 00:05:58] for candidate school, was commissioned, ended up serving with the first Calvary division out of Fort Hood, was deployed to Iraq for all of 2004, first part 2005 as the intelligence officer for the unit.
And it was remarkable time to be in Iraq because it was just the tail end of OEF-1 kind of start up to OEF-2 and you could begin to really feel the army beginning to transition itself from that initial high intensity fight to what the counter-insurgency was going to expand and evolve into, and so I had a very innovative Italian commander that gave me a lot of freedom to set up what we were doing in the area and we were in the northwest court water of Baghdad and Khamenei district, and we actually used that to pioneer a lot of concepts, really relearning how to do counter-insurgency that we then codified myself and our battalion S3 later for an article of military review that then became kind of the basis around which was used for the surge planning in 2007.
Aaron MacLean:
Got it. So when you were at the Pentagon, I think it was 2018, you did a review of the defense industrial base.
Eric Chewning:
Yep.
Aaron MacLean:
I think there's more conversation about it now in the public sphere perhaps than there was then. What did you discover when you looked under the hood, the dib?
Eric Chewning:
So it's interesting, right? So just to maybe fill in the 11-year gap. So when I got out of the army, went to business school and then after business school went into management consulting, was a partner of McKinsey and then got asked to join the Trump administration as the Deputy Assistant Secretary of Defense for industrial policy, and one of the first things I did was partner with the White House. Peter Navarro at the time was writing his office of trade manufacturing policy and the Trump administration's instincts initially were, "We're going to have to do a lot to address the decline in US manufacturing that occurred over the past 20 years. We can talk a bit about the policy choices that were made to de-industrialize the country." But there was an instinctive recognition that we needed to re-industrialize America and that a way to do that was to focus on the impact we would have on the defense industrial base.
So I led that review. It was the largest review of the defense industrial base since the Eisenhower administration, and the thing that I found was so surprising was we did not have a strong sense for what was going on in the sub-tier of our industrial base. So everyone thinks about the large primes and there's a very clear path between the department and management of large defense primes. But once you get into the tier three, tier four, tier five, the defense industrial base, the fragility of that defense industrial base, how tied in it was with the broader US manufacturing economy and as US manufacturing eroded, how that erosion caused weakness and fragility in a lot of social or supply relationships, and then increasingly how Chinese state-sponsored activity was effectively incorporating itself in very important and very nefarious ways into the sub-tier of our industrial base, right?
And that you could see Chinese policy, whether it was through their Chinese made in 2025 or civil military fusion programs as really trying to go in and see where they could develop dependencies within our system on China. So one of the things I had the opportunity to do as we got that 13806 report finished was then begin to work on policy actions to address some of these things. One of the primary ones we drove was FIRRMA, which was the Foreign Investment Risk Review Modernization Act, which was an update to CFIUS because at the time we recognized that Chinese policy was we're going to go and buy US companies and then we're going to use that as what we call it an investment-driven technology transfer.
And that the CFIUS legislation at the time wasn't strong enough to stop that. So we got CFIUS modernized, we worked to expand the Defense Production Act and the authorities of the Defense Production Act, we could begin to use that in a meaningful way to begin to address some of these single points of failure like rare earth processing is one that folks talk a lot about, but there are hundreds of others that systematically we have to go and try and address, and I think so often like it is in the Pentagon, once you're in a job and you really feel your momentum underneath you, you're put into a new job.
And so that's when I got pulled up in 2019 to be the Chief of Staff initially for Pat Shanahan and he was the acting Defense Secretary and then we had a couple of actings, so Secretary Esper and he was the acting, Richard Spencer when he was the acting, and then stayed on as Secretary Esper's Defense Secretary until January of 2020 when I returned to the private sector.
Aaron MacLean:
So Eric, Tom, either both of you, what's it like to build ships in America in 2025?
Eric Chewning:
Yeah, maybe let me kind of paint the picture about how we got here first because I think that's probably an important perspective and then Tom can certainly come in and help provide his view, but if you rewind the tape back to the last time we were in a position of great power competition, right? So think about us versus Soviet Union and the Reagan buildup in the late '80s. We had US industry marching towards or sailing towards a 600 ship fleet. Okay, then the geopolitical context changed, and then in the early '90s and the 2000s, there were a series of policy decisions that had cascading effects that we're living with today, right? So for example, the US Navy went on a procurement holiday and stopped procurement of submarines. So effectively we were in the Seawolf production at the time ended Seawolf, but it wasn't just the Defense Department's procurement holiday, it was also then the trade policies that the country was pursuing, right?
So you had stated policy where we effectively were de-industrializing the American economy and then promoting manufacturing growth and lower cost countries like the People's Republic of China. Right? China had sent the WTO in 2000 and so as a direct result of this, you saw the domestic manufacturing base that are in industry that was supporting the military. Again, not just at the prime level, but importantly the workers in the sub-tier significantly erode, and then you saw the commensurate demand signal from the military also go down. So you effectively saw the Navy's fleet shrink to about 271 ships in 2015. Okay, so then you say all right, those profound industrial-based impacts resulted in things like six of the 12 major shipyards closed. When you close a shipyard, you trigger a cascading reduction investment in supply chain workforce to technology modernization. The supply base shrank, so it's five base for submarines for example, shrank by 80%.
So 80% of the suppliers in the industry left, right? You saw about 50% of the workforce go away because there just wasn't anything for them to do, and then because the business case has gone, those that stayed in the industry weren't making capital investments to upgrade their manufacturing technologies because there wasn't a business case to do it because there wasn't demand. You began to see the movie change a little bit in the later 2000s when the geopolitical environment began to change some in 2008 when we did the Ford procurement, and then you saw the doubling of Virginia or the demand signal to double the Virginia class submarine production in 2011, and then Columbia class SSBN productions during in 2020, and that demand signal began to help revitalize the industrial base. But then you had COVID happen in 2019, and then the impact of COVID effectively has brought us back to the point where we've got to rebuild because the impact it's had on our workforce, most importantly, but also on our supply chain.
Aaron MacLean:
The numbers that you gentlemen both have talked about are pretty harrowing in terms of the rates at which things were built. You cited it just now Eric, but I've got them here somewhere, but going from what producing something like four Los Angeles class submarines a year towards the end of the Cold War, now we're at about one Virginia class attack submarine a year.
Eric Chewning:
Right.
Aaron MacLean:
And that period at the end of the Cold War, it wasn't a hot war. We were just keeping up with what we felt were the competitive demands of the Cold War. I saw a report this morning that the Chinese are building five Mulberry Harbor style piers essentially, or barges or call them what you want know. Mulberries are as you gentlemen know, that these are the harbors, the artificial harbors that we built in World War II to do the Normandy landing. These ships look to be pretty similar. I mean, I can't think of too many uses for these things besides an invasion scenario.
Tom Moore:
Something that's about 40 miles off their coast.
Aaron MacLean:
Exactly. You could have concerts on them floating homeless shelters, but we could have a shooting war here. At which point, and obviously your company builds very high quality products and we have an excellent navy to operate them, but some of that stuff's going to go, like the enemy will get a boat and the enemy will score some points, and the numbers that we're talking about are not just numbers to compete. They're theoretically the numbers, the capacity we have available to fight, and that's a concerning thought.
Tom Moore:
Yeah, I think the shipbuilding is a long-term endeavor. When I first started earlier in my Navy career and was at Newport News Shipbuilding as a naval officer, I had provide you some of that we built from the keel to delivery. We built five aircraft carriers in 17 years, and the next four we're going to build are going to take 28 years. The difference was when we were in serial build on things that we knew, this is at the end of the Reagan build-up, and we had a workforce that was very mature, and I remember being at Newport News Shipbuilding and remarking how many times you would see somebody, a father that was working there and his son was working there, and it was really kind of a badge of honor in Newport News. It was a generational thing that people worked in the shipyards.
And so they were very productive. We had stable signs, we were able to turn things out pretty quickly. You mentioned Los Angeles class submarines, and then we turned the spigot off, and the other thing that happened during that period of time that we turned the spigot off up to the analogy or the timeline that Herkin Stead talked about is the manufacturing makeup of the United States started to change, and so if you go to the shipyard today, you don't see Generational families there. It has not become like it used to be where you worked there, your father worked there, your grandfather worked there, and today it's different.
So we've lost some of the manufacturing capability just about the same time we need to ramp back up on building the ship. So not only do we have the challenge of having to grow a more productive workforce, but manufacturing by itself is not nearly as, I don't want to use sexy, but it's a different country today than it was 25 years ago when blue-collar workforce was really valued, and I think some of the things that we're trying to address with SAWS is to really get back to addressing that imbalance, and that imbalance is not just in shipbuilding. I mean look at Boeing, look at Intel, look at manufacturing giants in this country, General Electric that have really are struggling today for the same reasons that ship building has challenges today as well.
Aaron MacLean:
I want to talk about solutions, but just to linger on the problem for another minute or two, what's going on here? Because if you pay attention to the policy conversation in Washington, or honestly the political conversation nationwide, people decry deindustrialization. They're upset about it. Every politician wants good manufacturing jobs back in the United States, and yet where we actually have them, there's a struggle to fill them. What is actually going on here?
Eric Chewning:
So there's a lot of stuff going on. So I think maybe just to pull on the China threat a bit, because it's part of the problem here, so we talked about what happened to US shipbuilding near that period of time, compare that with the Chinese had done, right? So the Chinese have as we all know, state capitalism. So the economy is driven by government injected investments because they haven't transitioned to a consumption driven economy yet. They come out with their five-year plan. Consistently, their five-year plan is prioritized shipbuilding, right? So they're made in China 2025 plan when they're still laboring under prioritized commercial building. Now, shipbuilding for the Chinese makes a lot of sense. It's an export driven economy, right? So if they can subsidize transport ships, it helps the exports to then all the other that are importing Chinese goods. So it has that knock-on effect to the other parts of their policy.
63% of Chinese shipbuilding capacity is government-owned facilities. So when you hear statistics thrown out there about how much larger Chinese shipbuilding capacity is than the rest of the world is, yes, the Chinese intentionally created that capacity and it's gotten so large now that has distorted global shipbuilding economics for everybody so that other countries that want to have domestic shipbuilding industries, the Koreans, the Japanese most notably because they're also export-driven economies to stay somewhat competitive with what the Chinese have done, they have to do massive state subsidization as well.
So that's what's happened with the erosion around commercial shipbuilding. When you look at commercial shipping, I'll talk about military shipbuilding in a minute, Aaron. When you talk about commercial shipbuilding, just to do as a bit of a point of comparison, right? If you were to build a transport ship in the United States, it's going to cost like 6X more than it would if you did it in say, an Asian, like a Korean or a Japanese shipyard, right? Because the factors of production that we're working with here, and I guess to your point around what's going on more broadly, let's just talk labor as an example of one of the inputs that we're all struggling with now. We've seen in the post-COVID, post-COVID economic space and over 20% increase in manufacturing wages.
Okay, you see that across the board in different manufacturing ecosystems, right? Issues Boeing was having for example, with their machinist union. As a country, we have prioritized sending folks to college through various state subsidizations for four-year degrees, and we have under-invested in having people go to trade schools to learn a trade. So you think about a Pell Grant, if you wanted to go learn music at a university, the government will give you money to go learn music.
Aaron MacLean:
Greek philosophy.
Eric Chewning:
Exactly.
Aaron MacLean:
And across the street [inaudible 00:19:41]the Navy [inaudible 00:19:44]
Eric Chewning:
If you wanted to go learn to be a welder, right? You couldn't use a Pell Grant to get a two-year associate's degree to be a welder, and so companies like ours have stepped into the breach. We have an apprentice school that was founded in 1919, we'll go in and recruit folks. It's a degree-giving school, and they have multiple courses of study across next 19 shipbuilding trades that are two, five or eight year courses of study, right? You can go through that program. It's a wonderful apprentice school program. They'll pay you to go to school, we'll give you a job in the shipyard.
We use that because a significant investment for us per individual. That's what we do to fast-track folks to be foremen. Separately, we maintain a relationship with 80 different trade skill trade schools across the country to try and generate this trade manufacturing interest at two-year degree schools. We can bring folks in, but at the end of the day, there is a significant manufacturing workforce shortage in this country. And until you get that equation fixed, you're not going to be able to re-industrialize. Now, there's ways to limit the amount of manufacturing workforce you need through automation and other things, but at the end of the day, you need the workforce.
Aaron MacLean:
And in other words, it's not just flipping the switch like Congress and the Navy and everyone can kind of get on board today and say, "Here are the resources go build." And you would struggle.
Eric Chewning:
Well just for some of these more exquisite, you think about the work in Newport News, right? With Newport shipbuilding, to be a nuclear welder, it's going to take eight years of training. So to your point around flipping the switch, I may be able to flip the switch and get someone into a program so they can start to learn what it's like to be a nuclear welder, but that proficiency is going to have to be accumulated over years.
Aaron MacLean:
Tom, this is sort of in the weeds nerdy question, and maybe nobody here is qualified to answer it. I'm the furthest from it. You may be the closest to it with your Rickover interview, but what takes eight years? I mean what are you learning as a nuclear welder?
Tom Moore:
Well, I mean the specs and the precise nature of what you've got to do to meet the welding specs we have in the nuclear world, it's an art and there's a proficiency issue here. Just like playing the piano, it takes you a while to get really good at it and to be able to do it solo without a bunch of supervision on top of it. So what we're finding today is you go hire somebody, you can go give them training at the apprentice school, but it'll take them five years or so to get to the point where they're proficient enough that they could go off and do something that's really critically important from a reactor safety standpoint on their own, and so we'll start using them immediately, but there's an overhead cost associated because you're going to provide more supervision, and so as we ramp back up, there's an element that's going to tell you that look, initially, there's actually your productivity levels were probably going to go down a little bit.
But that's the price you're going to have to pay, green labor as we call it, in order to reestablish that proficiency and the problem with the way we have ordered chips over the last 25 years is industry has responded rationally. If the demand cycle drops, it only takes you one to three years to downsize the workforce, and then once you've lost them, you've lost them and it'll probably take five to seven years to recreate that workforce. And so to your analogy on flip the light switch when people said, "Hey, all of a sudden we need more ships." It wasn't that simple. You couldn't say overnight, "Hey, I needed to build 4.9 submarines a year like you did in the '90s when you had this mature, very productive workforce." And that's some of what we're struggling with today.
And then you add on top of that the fact that where does that workforce exist? A lot of people like to talk about Arthur Horan's book about the industrialization during World War II, Freedom's Forge as if all we have to do is recreate that, but if you read the book, you'll notice that by the way, that wasn't a light switch either. It took him several years to be really ramped up, and by that time, the war was almost over, but we also did that during a period coming out of the depression where there was plentiful that people wanted to work, and we had a massive amount of investment. So it's different today than it was back in the '40s, and the other thing is we don't have the luxury. If we were get into a fight with China of having all of our allies do the fighting while we ramp up the industrial base, we're going to fight with what we have today.
And so I think we're at it today, but it is going to take us five to seven years to really get to the point where we can start cranking these things out at a productive level and start massively change the size of the force from the 290 to 300 we're at today to the 381 that the Navy would like to be at tomorrow, and the other point along that side is everybody says, Hey, we got to 600 ship during the Reagan buildup, but we started at 490, so we only had to go a 100 ships and we had stable designs of the productive mature workforce. We have to go about the same number of ships today, but we're starting from a deficit in terms of where we are from a manufacturing standpoint.
Aaron MacLean:
That's a harrowing historical reflection that occurred to me as I was thinking about our conversation today was with the industrial base that our country had in the early-1940s, which was pretty robust. All the cars we were building just across the board. After the disaster at Pearl Harbor, took the Navy about two years really before it was able to properly go on offense. I mean we were down in the Solomons and operated down there, but to really make that cut across the Central Pacific and take the fight to the Japanese, that's the end of 43 into 44. So two years, and that's what that industrial base.
Tom Moore:
And people forget that the ships that were building back then, they didn't have air conditioning. Sailors were sleeping in hammocks. The combat systems were not nearly as, we didn't have networks, we didn't have fiber optic cables, and a lot of people like to talk about, "Hey, we took Yorktown in 45 days, sent it back out to sea and she was sunk later." So the ships that we build today are a lot more complex, a lot more battle-hardened to take a lick. So it's not the same type of shipbuilding that we had back in World War II is the other thing.
The ships, we were probably a lot more willing to take losses back in World War II than we would be today. I mean if you'd listen to the war gaming, people will say, "Well, geez, I got into a war game with China and we eliminated a lot of the ships, but I lost two carriers. Oh my God, I can't afford to lose two aircraft carriers. I spent $14 billion for them." I'm like, "Okay, if you're going to get in fight with China, you better recognize you're probably going to lose some ships, but is the nation willing to go have that discussion?"
Aaron MacLean:
Yeah, and I mean, this has a procurement dimension to it as well of course. I mean I think we're all familiar with Elon Musk's comments about the F-35. I mean you can apply that reasoning to the maritime space in the same way and ask whatever your conclusion is, ask what is the value of these very high-end platforms? And maybe there's two ways I'd like to go from here, and we can do it either order. I want to keep talking about the workforce and the solutions there and the SAWS plan that you guys mentioned, but I do want to talk about this idea of what role does mass production of things that are less exquisite, whether they're unmanned or maybe just more or less good stuff, but we need it. It's got the core stuff that you need, but nothing else. So Eric, Tom.
Eric Chewning:
Yeah, so why don't we talk a little bit about the solution. I do think there is a story of redemption here, and then we can talk a bit about how we think about force structure going forward because you may not be aware, but we're also the largest producer of EUVs globally. So in addition to producing high-end capabilities like aircraft carriers and submarines, we also are the largest producer of autonomous and uncrewed vehicles. So we've got I think a unique perspective both on how they can play an important role, but then also the integration of the manned unmanned teaming capability and say an undersea environment and what that could look like going forward.
So maybe just on how do we put out of here to a place where we're executing at a rate the country needs us to. As we think about it, there's really five areas we've got to focus on. The first is growing and retaining that world-class workforce and the biggest piece of that problem for us right now is wages. So when you think about the economics of shipbuilding. Economics of shipbuilding are driven by a handful of very large multi-year contracts. The vast majority of contracts that we're currently operating under, and this would be true for other US shipbuilders. We're all established pre-COVID. That means all the contract economics were established. These are firm fixed price incentive contracts. So they do not have the protections in place that you'd expect for what we saw from the pandemic, which was the shock around 20% plus labor increases, and so as a result, we need innovative contracting methodologies to get us out of this problem.
So we can give that workforce a wage and stem some of the double-digit attrition that we're seeing in the shipyards because a machinist or a welder is a highly fungible skill set that if they're not doing it for ships, they can do it for a variety of other manufacturing things, right? And so we find this position where we're training the workforce and that workforce will leave, and what we need to be able to do is provide wage increases to help support that. Tom mentioned SAWS, I'll just touch on it now briefly if that's all right, Aaron. So there was an initiative that we had worked with the Navy called the Shipbuilder Accountability Workforce Support Initiative, which was an innovative approach to contracting for service and support costs. So the way it works now, when the Navy does a block by, let's say on submarines, they'll appropriate money for submarines that you're currently not building.
What SAWS would enable us to do is access some of those funds as relates to service and support costs, and pull that forward to make increases and capital investments to improve productivity and do wage increases to keep the workforce working, and then that would enable productivity gains throughout the block, right? So you'd make up for the investment associated with that. We think that's an important element of getting us to the build rates that we need to be to be competitive with China. The other things that we need to focus on, right? Investment in new technologies drive deck plate performance. One of the big differences than the Freedom Forge era was this advent of industry 4.0 technologies, right? Added manufacturing digital design tools. You've seen radical adaption to these technologies and say the automotive industry or commercial aerospace, shipbuilding is further behind in adaption of those technologies.
So what are we doing to drive those technologies to drive deck plate efficiencies? The third thing we're focused on is modernization of infrastructure and expansion of capacity, right? So in some areas there are the need for additional capacity. What are we doing to expand capacity and then modernize that infrastructure? You go to the Newport News Shipyard for example. It was built in 1883. It's laid out like a Victorian shipyard, you know what I mean? The big castings house we have there actually predates the shipyard that's still being used for one of a kind castings that you can't do anywhere else in America. So being able to modernize and invest to modernize the infrastructure. The two final pieces are rebuilding the supply chain. So I talked about the consolidation of the supply chain that occurred because of the drawdown that happened as part of the Last Supper.
It's to the point now where when you think about our material spend on sequence critical items, so things that if they don't show up in sequence will delay the construction of a ship. 70% of our material spend on items like that are to only one supplier because there's only one supplier left who can meet that spec, right? So systematically we need to go through, and this is something that the 13806 report talked about to then expand industrial capacity in that tier two, tier three of the supply chain to help increase throughput because that's where we have bottlenecks and those were disrupted during COVID, and then the final piece to this is how do we think about integration of the allied industrial base? AUKUS has gotten a lot of attention. I think AUKUS plays an important role as we think about integration of the submarine industrial base across the United States and the United Kingdom, but there are other places in Australia, of course, but there are other places where we can work with allies and partners to help expand.
Aaron MacLean:
I want get to the unmanned stuff in that area, but can we stick with this for a second? The allies side of things. I mean it's striking that China's the world's biggest shipbuilder, but then they're followed by the Japanese and the Koreans, right? We're too sort of embarrassing sitting here in the United States of America. We have these great countries, big economies, close allies, but smaller countries than the United States by a pretty significant margin, and yet there they are building significant numbers of ships, president Biden's ambassador to Japan. Rahm Emanuel has been pretty outspoken in his views about co-production and things like that. What does all this look like from your point of view in terms of allied capacity partnership?
Eric Chewning:
Let me touch on the commercial dimensions of that and then Tom could probably talk about the military specific stuff. So as I talked about earlier, it comes back to industrial policy that Japanese and the Koreans as export driven economies had significant state subsidization of their shipyards commercially because again, as an export-driven economy, it made sense for them to subsidize the cost of the things that physically moved the goods from Japan or Korea to the United States or European markets. So they'd maintain commercial subsidization of commercial shipbuilding applications, right? Tom can speak of great lengths the difference between building a commercial transport ship versus a destroyer, and the approach is taken very generally about how that's done. The other thing to kind of think focus on this conversation is requirements for military shipbuilding as opposed to commercial shipbuilding, right? Because investments that the Japanese and the Korean governments have made in their commercial shipyards wouldn't necessarily translate to certain military applications.
Tom Moore:
Yeah, well I think there's two dimensions to it. I mean I've been paying pretty close attention to what Ambassador Emanuel was talking about. First was talking about hey, we could do more maintenance over in Japan and doing maintenance over there would relieve our shipyards and allow us to build more submarines. He's kind of mixing apples and oranges. He's talking about repairing non-nuclear-powered surface ships, and we would do a lot of that in the ship repair facility in [inaudible 00:33:51]. We have the capacity here in the United States to do surface ship repair, but taking work over there would not relieve the two problems we have today, which is building enough new constructions of submarines, and then two, maintaining the ones that we have and you've probably seen reports that up to 40% of our current attack submarines are in maintenance at any one time, so we only use 60% of the fleet.
So I think we ought look carefully at anything that would improve our capacity in the short term, but I think it's an oversimplistic view of how you would fix the problem. The other part is commercial shipbuilding is completely different from military shipbuilding. I've watched pretty closely the Ships for America Act that representative Walz, who's going to be the next security adviser has put out in conjunction with the senator from Arizona, and I think there's merit in us improving our commercial shipbuilding. From a policy perspective, there's things that we probably have to go look at, but Eric has alluded to most of it. The reason that we don't build commercial ships even if you set aside if we had the workforces, because the cost is 6X, and so nobody wants to build commercial tankers here. In fact, the last time we tried to build commercial tankers in the early 2000s at Newport Shipbuilding, we did it at a significant loss.
So there's not a business case to build commercial shipbuilding. And some of them, I think what we're doing in the Ships for America Act would do that. On the military side of the house, we build the ships to be pretty robust for a reason, and I can give you a laundry list of ships from Colt to Princeton to McCain to Fitzgerald to San Francisco to Connecticut submarines, surface ships that in the last 20 years have either taken a hit in a military environment through a mine and the two submarine cases, run into undersea mounds or had collisions most recently with Fitzgerald and McCain. In each and every one of those cases, ships were able to make it back into port and I can tell you from being the commander of Navy SOSUS command, the way we build and design these ships is done for a very specific reason, and it's to make sure they can get back to port If they were to get in battle damage, and I don't mean to disparage any of the other ship holders around the world, but they don't build ships to the same specifications that we do.
We do that for a good reason, and I don't think we would want to relax those design specifications. When we get into the unmanned world, which I know you wanted to get into next, that's a completely different era and you can build things that are attributable, can throw them away, and I think that's a perfectly good way to go reduce some of the requirements and get us the numbers we want, but in terms of the military warships we built today, we build them that way for a reason and I can only imagine if we were to get into a fight after relaxing the specs and we were to lose a bunch of sailors or lose a ship, the recriminations would be pretty loud.
Aaron MacLean:
Yeah, I think we're all going to have to get ready for that. I saw Admiral Paparo make some comments six weeks ago maybe, something like that. It was really harrowing, talked about it on the show here before. Someone was asking him at a public event about the replicator initiative and are these solutions that are applicable on the strait, and I will paraphrase his response as being something along the lines of, "Yeah, it's all great. Fine, I'm for drones, it's great." But I have to get the stuff from here, the United States to there, the Western Pacific and this replicator thing, my word's not his, but his meaning. It doesn't do anything for me on that front. You're not thinking about the whole problem. You're thinking about the tactical application in the last a hundred meters as it were and so it's hard to imagine scenarios when you're thinking about the whole problem where we simply go unmanned where there isn't a role for larger platforms. I think that's true. That's an opinion that I have.
Eric Chewning:
I can give you a good example. So when you think about the HI portfolio broadly, right? So obviously I'll pick two of our divisions. So Newport News, which would be responsible for part of our Virginia class submarine fleet, and then we have a Mission Technologies business. The Mission Technologies business is the largest producer of UVS globally. So what we've created is a solution called Yellow Moray, which is with the fleet today, which is our ability to do a torpedo tube launch recovery of an unmanned system off of a Virginia class sub.
So when you think about that kind of capability, you're beginning to address the war fighting challenges that however Paparo indicated, which is how do I take a capability that can get to the fight, but that I get the benefit of that manned unmanned [inaudible 00:38:22] teaming when I can then launch a very capable UV platform that has significant range to it, go do things that I may not want the submarine to do, expose itself to things that I may not want the submarine to expose itself to, and then get recovered back by the submarine, right? If you liken that a bit to say like a collaborative combat aircraft relationship between say an F-35 and a CCA, that capability won't be with the Air Force until 2030, right? We've got that capability undersea today.
Aaron MacLean:
What does this all look like and I'll pick a number here, 20 years. What is the technological balance between manned and unmanned at sea look like? What are the future operating concepts that you think about?
Tom Moore:
Well, if you look at the Navy's most recent shipbuilding plan, it's about 25% unmanned and about 75% manned. So they're calling for a battle force of 381 ships and about a mix of 134 unmanned. Undoubtedly, unmanned is going to play a key role going forward. Some of what Admiral Paparo talked about is spot on, but we're not going to get to the point where unmanned is going to work completely replace in what we do with the military. It can take some missions away from us. For instance, today we have to use a super hornets to tank to get the more extended range on our plane. So we take fighter jets and we put tanks on them and we send them out and they act as a tanker. Now you can envision an unmanned tanker just loitering out there that any plane could go onto, and I think you're going to see that happen.
So I think if you look at where we are today, unmanned aerial is pretty mature. You can see where we're using it in the Middle East. You can see where we could use that. Fighting unmanned undersea as Eric alluded to is pretty mature. We already are using it on missions. You may have seen an article today that talked about the USS Michigan, one of our SSGNs that had notably used some unmanned technology to do some pretty interesting stuff in some parts of the world, and we're going to go expand that out even more.
Unmanned surface is I think kind of the weak link right now where the Navy has struggled. We figured out what the concept of operations and has really not decided, what do we want this to be? Do we want it to be really large ship, 10,000 tons that carries a bunch of, or do we want it to be a super small ship? You've got to get to the fight, that's a long way to go. Are we comfortable with putting munitions on an unmanned vessel that could somebody could then come attack? Are we comfortable with unmanned platforms using AI, deciding when to shoot munitions? I think those are all elements of the fight that we're working our way through today that know Admiral Paparo has probably alluded to.
Aaron MacLean:
Another question that has much to do with operating concepts as with manufacturing, it's about operating concepts at import. So relevant to your guys' day to day, we've seen the Ukrainians who, I don't know the numbers, I couldn't give you an overview of their order of battle at the start of the war, but we've seen them do a lot of damage to the Russian Navy without much of a Navy of their own to speak of, which is really interesting, and a lot of the hits, they've sort of been with Russian ships by the pier and I expect if we went back to the 1940s here in the United States, if you went to San Diego, you went to the port of San Diego, you would've seen security, nets, watches, patrols. You would've seen some pretty intense port security. The Chinese pretty clearly have in mind broad operating concepts, strategic concepts maybe if the balloon goes up in the Western Pacific that affect the American homeland, they have that as an option.
How do you guys think about securing stuff in port, securing what you're manufacturing? I mean obviously don't divulge anything. Anyone can listen to this podcast, they don't divulge anything you shouldn't, but as an issue, are we taking that, not HI, we'll put you in a position to asking you, is HI taking it seriously? Is America taking that issue seriously? Because it seems to me like a lot of the scenarios that could come in the Pacific involve things happening in the United States and not just on the West Coast, on the East Coast too.
Tom Moore:
Well, force protection is always a key element and unfortunately in the world that we live in, if you get it right every day, you get a sea and if you have one hiccup, you get a ship sunk. So I think it's an evolving element. I think the Navy is focused on it in the right ways, but with the advent of unmanned technology and a lot of the other things that's going on, it is going to continue to be a challenge for us going forward and something that we're going to have to continue to focus on.
Eric Chewning:
Yeah, I think just say it is public, there was the public case where there was a Chinese student who was flying a drone outside of our shipyard and that obviously the FBI was involved, prosecution of that as potential espionage case. We're mindful of the issue, and then we're taking this, Tom said, in coordination with our Navy customers, all objective measures I think are necessary for that. I think you raise a good point, Aaron, that says this is all part of, I think the mindset that we're evolving to going forward as we're facing great power competition and it's as mindful here as it is overseas.
Tom Moore:
And it's interesting, you can extend this out into a lot of areas you've seen recently, a couple of the Chinese had a commercial dragging an anchor up in the North Atlantic to damage the SOSUS cables, and so some of what we're doing with unmanned vehicles today is to build unmanned vehicles that can actually go very deep and can look at cables and make sure that they're intact, and then make sure that people aren't tapping into them in ways that they shouldn't be tapped into. So that's another area where I think on the unmanned side of the house, it's going to be a capability that we really need.
Aaron MacLean:
But it's something that's very much on my mind and I want to be respectful of your gentleman's time, so this comment can be in effect my last question, so respond however you see fit, but taboos about great power confrontation seem to me to be weakening substantially, and what, 10 or 20 years ago would've seemed shocking to contemplate. One nuclear power attacking targets on another nuclear power's homeland. It's like, well, probably no one's going to try that because of the obvious possibility of escalation. In 2025, I'm just not so sure. I'm as confident in the strength of that taboo and it strikes me that there are things that the Chinese for example could attempt in our shipyards, whether through cyber or whether through means that may not generate that many casualties, but would generate a lot of problems for us and our operating concepts that would likely or could very well occur in the first few hours.
And again, not just in the West coast. I mean there's no reason you couldn't try it in the Atlantic as well. If your tools are cyber, your tools are cheap, unmanned stuff, whatever, and the world feels a lot more dangerous in 2025 than it did in 2015.
Tom Moore:
Well, I think in the spectrum of warfare from soft kill cyber, some of the things all the way up to hard kill. If you re rewind the tape 20, 30 years ago during the Cold War, everything was focused on the hard kill side of the house, backfire bombers, aircraft carriers, etc. And I think today, the primary focus is on the soft kill side of the house because some of it you can do anonymously, and I think the Chinese and the Soviets would prefer we're going to dominate is on the hard kill side of the house. Our weapons are better, our people are better, and so they really don't want to get into a hard kill fight with us.
I think that's where we're at a significant advantage. On the other hand of the side of the house, a soft kill and they've put a lot of time and effort into that, I think is where you're going to see both sides was focusing today where there are some vulnerabilities and there's a little bit of anonymity that goes along with the two that would prevent you from potentially getting yourself in big trouble for doing something to another country.
Eric Chewning:
Yeah, I think the subtext of the question and really the point Aaron I think is a good one, which is listen, whether it's in the context of the great power competition, its lessons learned from what we're seeing in Ukraine or lessons learned we're seen with the Israeli actions in the Middle East, the defense industrial base is a critical component of our ability to project power and deliver advantage to the war fighter, and so we're very focused on our role in execution and delivering ships for the Navy so they could be successful in what they need to keep us all safe.
Aaron MacLean:
Yeah, I think we should take great care to make sure that in the Pacific, we are the Israelis and not Islam in terms of what happens.
Eric Chewning:
Is that a beeper on your waist?
Aaron MacLean:
Was it from the beeper to the knee, let it on will be free. That's what I enjoyed. There are so many good ones. This is before Nasrullah was killed. There was a cartoon of the Nasrullah looking person in his bathroom staring at his electric tube warily.
Eric Chewning:
But though it also gets to the point earlier about the need to understand the providence of microelectronics in our supply chain and sub-tier.
Aaron MacLean:
Right. Eric Chewning, Tom Moore of HII, really interesting conversation. Thank you to both of you gentlemen, really appreciate it.
Eric Chewning:
Absolutely.
Tom Moore:
Thanks for having us.
Aaron MacLean:
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