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U.S. Navy aims to smooth impact of fiscal 2015 cut to ship orders

The United States littoral combat ship USS Coronado is shown during a media tour in Coronado, California April 3, 2014. The ship will be com
The United States littoral combat ship USS Coronado is shown during a media tour in Coronado, California April 3, 2014. The ship will be com

By Andrea Shalal

WASHINGTON (Reuters) - The U.S. Navy hopes to smooth out the impact on Lockheed Martin Corp and Australia's Austal of a budget-driven decision to order three Littoral Combat Ships instead of four in fiscal year 2015, the Navy's top weapons buyer said on Thursday.

The Navy had planned to buy two of each of the different small warships built by Lockheed and Austal in fiscal 2015 and 2016, but it scaled back those orders to three ships a year as a result of budget cuts mandated by Congress.

Assistant Navy Secretary Sean Stackley told members of the Senate Armed Services Committee's seapower subcommittee that Navy officials would now meet with both companies, and evaluate their schedules, material purchases, expenditures and performance before deciding how to divvy up the orders this year.

"What we are striving for is an outcome that has zero impact to either builder and the vendor base," Stackley told reporters after the hearing. "We're going to arrive at what we think is the best outcome between the two builders and the split of ships between 2015 and 2016," he told reporters.

Stackley said the decrease in orders for 2015 would have some effect on the cost of the ships, but the Navy hoped to minimize that impact by working closely with the shipbuilders.

The Pentagon is reassessing the $34 billion Littoral Combat Ship (LCS) program and whether to buy all 52 of the fast, agile warships planned, or whether to modify the designs to give the ships more firepower and increase their ability to survive.

Stackley said he was confident that the Navy's orders for the ship orders could be timed to maintain both shipyard's production schedules, but he was less confident about smaller vendors that provide materials to the larger contractors.

Both companies are under contract to build a total of 10 ships for the Navy, and the final four ships were to be ordered in fiscal 2015, bringing the total built to 24.

Stackley said the contracts were contingent on the availability of funding from Congress, but any changes to the contracts would require bilateral agreements, he said.

In addition to the budget cuts, Defense Secretary Chuck Hagel has ordered the Navy to halt orders for the smaller, more agile warships after 32 ships, and to study ways to better protect the ships and give them more firepower.

A high-level Navy task force is to deliver recommendations on the issue by July 31, in time to inform the Navy's fiscal 2016 budget deliberations, Stackley told the committee.

Senator John McCain, a senior Republican on the committee who has urged the Navy to halt the LCS program after 24 ships, renewed his criticism of the program at the hearing on Thursday.

Stackley acknowledged the program encountered sharp cost increases shortly after it began in 2005 but said that was largely due to changes in Navy requirements. He said costs were now far below congressional cost caps, and development was progressing on separate interchangeable equipment packages.

Stackley said the ship had some ability to protect itself, but would generally be deployed together with other ships that could provide greater protection against airborne threats.

He said the ships were also far more "survivable" than the mine-hunting ships they were replacing, which had no self-defense capability.

(Reporting by Andrea Shalal; Editing by Ken Wills)

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