Posted on December 8, 2020
Who wants to win the contract for one of the Navy’s cheapest warships?
The U.S. Navy’s Gerald R. Ford-class nuclear aircraft carrier is the most expensive warship in the world, weighing it at an estimated $12 billion per ship — and that’s just the cost of the ship itself. Factor in the cost of the 65 warplanes on board, and each individual aircraft carrier will set back the American taxpayer by a cool $18.5 billion.
But what if we could build something a bit smaller, a bit cheaper, and a bit better-suited to the challenges that the Navy expects to face in the 21st Century?
Introducing a $100 million (really small) aircraft carrier
As a matter of fact, this is exactly what the Navy is considering doing as part of its Light Amphibious Warship project, first referenced earlier this year.
As reported by USNI News last month, the Navy and Marine Corps are working with “about six industry teams” to design and build a 200-foot to 400-foot long amphibious warship, displacing anywhere from 1,000 to 8,000 tons. (For comparison, Ford class aircraft carriers are more than 1,100 feet long and displace 100,000 tons, while smaller America-class “mini aircraft carriers” are more than 800 feet long and displace 45,000 tons.)
The Light Amphibious Warship, or LAW, is therefore being envisioned as a much smaller ship — but this is commensurate to its task. As part of its new “distributed maritime operations” strategy, the Navy wants LAW to carry small units of Marines to capture small islands, launch attacks on enemy naval forces from those islands, and then quickly scoot off to different islands to launch still more attacks before the enemy can respond.
To this purpose, LAW will be designed with a small crew of 40, and will carry and house a “reinforced platoon” of 75 Marines, along with as much equipment as can be crammed into 8,000 square feet of cargo space. It will likely have a shallow draft (no more than 12 feet), and a top sailing speed of 14 or 15 knots. Rather than launch beach landing craft to capture an island, the mothership itself would both beach and later depart from the beach. Mockups of the proposed vessel show that it will probably also include a helicopter deck, multiple .50 caliber machine guns, and perhaps a 30 mm chain gun.
LAWs will thus be real ocean-going combat vessels, and while they will depend on larger warships (such as destroyers and cruisers) for much of their defense, they will be substantial enough to count toward the Navy’s goal of building a 355-ship “battle fleet.”
What it means to investors
LAW may be small, but it will also be cheap. The Navy is asking defense contractors to propose designs that can be built for $100 million to $130 million apiece, and ideally closer to the former than the latter. Across a planned fleet of perhaps as many as 30 ships, this suggests a total program cost of perhaps $3 billion to just under $4 billion. More importantly, the Navy wants these ships designed and built quickly, such that all 30 ships could be in the water by the end of 2026 — and this is where investors might want to start paying attention.
Compared to the USS Gerald R. Ford, LAW-class warships are being developed at a lightning pace. Construction of the Ford began way back in 2005 (and planning for it predated even that). The vessel wasn’t completed and commissioned, though, until 2017 — and isn’t expected to deploy before 2024. Tally that up, and we’re talking probably a 20-year span between concept and deployment of the Navy’s flagship, versus — with luck — no more than six years for the LAW.
It’s enough to make an investor think that the Navy has finally realized that constrained defense budgets mean it needs to work faster, and cheaper, if it wants to reach its goal of getting a 355-ship Navy. And if this truly is the case, it could open up some interesting possibilities for investment — perhaps even the IPO’ing of new, publicly traded defense companies that are nimble enough to satisfy the Navy’s desire for faster ship development.
Which companies might these be? Realistically, you have to assume that the Navy’s primary military shipbuilders, General Dynamics (NYSE:GD) and Huntington Ingalls (NYSE:HII), will pull out all the stops to try and win the LAW contract. But as the Congressional Research Service recently pointed out, “the LAW as outlined by the Navy is small enough that it could be built by any of several U.S. shipyards” — so this is not necessarily a contract that will go to either General Dynamics or Huntington Ingalls. It could easily be awarded to a defense contractor experienced with partnering with more specialized shipbuilders (such as Lockheed Martin) to a foreign-owned shipbuilder (such as Austal), or even to a smaller up-and-coming U.S. shipyard such as Bollinger Shipyards or Vigor Marine.
With $3 billion in Navy money in their pocket, an IPO for one of those wouldn’t be out of the question.
Where to invest $1,000 right now
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