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NAVY—A $35-BILLION ANNUAL MARKET The Outlook For U.S. Navy Shipbuilding and Ship Repair by James R. McCaul, President IMA Associates, Inc. Sales of equipment and services to the U.S. Navy continue to be the major source of business for marine equipment manufacturers. The U.S. Navy represents an annual sales market totaling $35.0 billion—ex- cluding aircraft procurement, per- sonnel and other non-relevant ex- penditures. Despite recent efforts to cut the growth of overall defense expenditures, the Navy maintains a strong position. There continues to be tremen- dous opportunities for increased product, sales and market expan- sion as a result of the huge amount of business generated by the Navy ongoing purchases. OVERALL DEFENSE BUDGET In January, President Reagan submitted a defense budget request for $315.2 billion in FY 1990 and $330.8 billion in FY 1991. This rep- resents a rate of increase of about 5 percent per year over current spend- ing—or 2 percent per year if infla- tion is taken into account. Details for budget authority and outlays are shown in Exhibit 1. President Bush will make EXHIBIT 1- changes to this budget request, which likely will result in a reduc- tion in proposed overall defense spending and stretch-out of some major programs. These changes are not known at time of publication. NAVY BUDGET The proposed Navy budget is $101.7 billion in FY 1990 and $105.1 -PROJECTED DEFENSE SPENDING (billions of $) 1989 1990 1991 1992 1993 1994 BUDGET AUTHORITY DcD 290.2 305.6 320.9 335.7 350.7 365.6 DoE & Other 8.6 9.6 9.9 10.4 10.7 11.0 TOTAL 298.8 315.2 330.8 346.1 361.4 376.6 OUTLAYS DoD 289.8 293.8 304.7 316.2 329.3 343.4 DoE & Other 8.5 9.2 9.7 10.2 10.6 10.9 TOTAL 298.3 303.0 314.4 326.4 339.9 354.3 Source: Department of Defense billion in FY 1991. This would rep- resent a three to four percent in- crease over current spending. De- scribed below are Navy's plans and budget for major program activities over the next several years. SHIPBUILDING Navy has requested $10.4 billion in FY 1990 to fund construction of 20 new ships and two major conver- sions. The amount of $9.8 billion is requested in FY 1991 to build 14 ships—including two follow ships in the SSN 21 attack submarine pro- gram. Exhibit 2 shows a ten-year pat- tern of spending for ship construc- tion. One column shows total obliga- tional authority—the figure which essentially sets the limit on the agency's contractual authority. The other column shows the actual out- lays in each year—representing pay- (continued) March, 1989 25 1
