Inflation in the Costs of Building Aircraft Carriers
In 2013, the Navy raised by $3.4 billion the cap, set in 2006, on the amount it could spend on a Ford class carrier. Most of that increase resulted from increases in the prices of labor and materials, which averaged 3.96 percent since 2006.
The Department of Defense (DoD) submitted to the Congress the Navy’s 2016 shipbuilding plan for fiscal years 2016 to 2045 in April 2015. As detailed in that plan, the Navy intends to purchase six CVN-78 Gerald R. Ford class aircraft carriers over the 2016–2045 period. Construction of the lead ship, the Gerald R. Ford, is nearly finished. The next carrier in the class will be the John F. Kennedy (CVN-79). Funding for that ship began in 2007, the Congress officially authorized its construction in 2013, and appropriations for it are expected to be complete by 2018.
In 2006, the Congress placed a limitation (hereafter referred to as a cost cap) of $8.1 billion on the amount the Navy could spend on the second and following ships in the Ford class. That amount could be adjusted to account for economic inflation and other factors. (The legislation did not clearly define “economic inflation,” but the Navy has interpreted it to mean increases in the prices of labor and materials after 2006 for the carrier program.) As a result of such adjustments, the Navy—in 2013—raised the cost cap to $11.5 billion.
Actual inflation in the prices of labor and materials was the most important contributor to the rise in the cost cap, accounting for $2.5 billion of the $3.4 billion increase, according to analyses by both the Navy and CBO. From 2007 to 2013, economic inflation specific to the carrier program totaled 31 percent, an average annual rate of 3.96 percent, slightly less than the 4.18 percent rate the Navy had projected in 2006. This CBO report examines the Navy’s inflation estimates, as directed by the conference report for the National Defense Authorization Act (NDAA) for Fiscal Year 2016 (S. 1356, which became Public Law 114-92).