Aircraft Carrier Costs: Nimitz vs Ford

The much-maligned USS Gerald Ford (CVN-78)

The United States Navy's new Gerald Ford-class aircraft carriers, like virtually all modern military equipment, have come under intense criticism for their supposedly exorbitant cost. Accusations of their costing 2-3 times as much as their predecessors, the venerable Nimitz-class have been thrown around and many believe that the Navy would have been better off not developing the Gerald Ford-class.

However, I believe these criticisms are entirely unjustified and (as with the F-35, which I previously wrote about) stem from the media's ignorant if not outright dishonest use of non-comparable costs and a poor understanding of timelines. When put into proper context, I believe that the ships of the Gerald Ford-class are actually only marginally more expensive than those of the Nimitz-class.

First the numbers. The Navy's budget submissions reveal the exact costs of three carriers: the final member of the Nimitz-class, USS George Bush (CVN-77), as well as the first two members of the Gerald Ford-class, USS Gerald Ford (CVN-78) and USS John Kennedy (CVN-79).



These are the figures most commonly given, and they do indeed paint a picture of a staggering cost increase from the Nimitz-class to the Gerald Ford-class. However, these costs are effectively meaningless because they are "then year dollars" - i.e. the exact amount of money spent unadjusted for inflation. This is particularly critical when one stops and considers the timeline in which these three carriers were funded, with the first dollars for CVN-77 being spent in 1998, while the last dollars for CVN-79 being spent in 2018 - a span of no less than 30 years.

According to the this inflation calculator from the Bureau of Labor Statistics, $1 in 1998 was the equivalent to $1.53 in 2018. Thus, at the very least, the above costs absolutely need to be adjusted for inflation before they are in any way relevant to the discussion. Because every individual carrier is funded over a decade or more (1998-2009 for CVN-77, 2001-2018 for CVN-78, and 2007-2018 for CVN-79), I have chosen not to simply adjust the total cost for each carrier by her official year of procurement (2001, 2008, and 2013, respectively), but to instead independently adjust the money spent each year. Using this method, I have arrived at the following.



As can be seen, simply adjusting for inflation makes a significant difference in the relative costs of the three carriers. For instance, rather than costing 94% more than CVN-77, CVN-79 now only costs 47% more. The large cost savings from CVN-77 to CVN-79 is also even clearer, better reflecting the massive learning curve between the first and successive ships in a class. However, I believe that even these figures still overstate the relative cost of the Gerald Ford-class carriers.

The reason for this is because measuring inflation is a rather imprecise science and different markets are all effected differently (the military actually maintains its own inflation indexes, although how much more accurate they are is open to question). This is particularly true of the defense sector, which is only loosely connected with the broader economy and is almost entirely dependent on a single customer. In that environment, especially for extremely high cost / extremely low volume items like aircraft carriers, cost simply doesn't mean what it means with common goods. There are no alternative suppliers for the customer and there are no alternative customers for the supplier. Both supply and demand are effectively fixed, resulting in the virtual suspension of the traditional rules of economics.

Further, government spending already operates on an entirely different plane than private spending. The ability to create money out of thin air by raising taxes or manipulating currency means that the dollar value of something is simply not as relevant. The only limit on a government is the overall economic power of its country. Therefore, I believe that a better method for determining the true cost of massive projects like aircraft carriers is to consider them in terms of fraction of the GDP. This effectively represents the effort the government needed to divert from the economy in order to complete the project. When considering the three carriers as fractions of the GDP, we get the following (again, these are calculated from the funds spent each year, rather than from the final total).



We now find that in terms of economic effort, CVN-78 cost 67% more to produce than CVN-77, while CVN-79 cost 20% more.  Given that the 39% higher cost of CVN-78 when compared to CVN-79 represents a perfectly normal learning curve for the first and second ships of a class, this reinforces the idea that the Gerald Ford-class does indeed cost around 20% more per hull than the Nimitz-class. If accurate, this means that the choice was never between a $12 billion ship and an $8 billion ship, but between a $12 billion ship and a $10 billion ship.

However, in addition to the more advanced technology on the Gerald Ford-class, there is one final factor to consider behind its higher price - build time. When President Obama took office in 2009 (the same month CVN-77 commissioned), he dramatically slowed down aircraft carrier construction in order to reduce the overall shipbuilding budget. This slowdown can be seen in the fact that while CVN-77 took 64 months from keel-laying to commissioning (a fairly average figure for the Nimitz-class), CVN-78 took 92 months - a 44% increase in build time. Although CVN-79 has not yet commissioned, the current schedule calls for a build time of 109 to 111 months. While it is impossible to calculate exactly how much this glacial construction has increased costs, I suspect that it accounts for a substantial portion of the 20% cost growth from the Nimitz-class to the Gerald Ford-class.

Therefore, if the Navy had continued to build Nimitz-class carriers instead of switching to the Gerald Ford-class, it is likely that the only money that would have been saved is the development costs and the first in class premium for CVN-78 herself. Although that would still have amounted to several billion dollars in savings, it should be remembered that the Nimitz-class is a 1960's design that is considerably more expensive to operate than the Gerald Ford-class. Given that initial procurement represents far less than half of the total life cycle costs of a carrier, advances such as the 10% smaller crew needed to operate the Gerald Ford-class will more than compensate for the slightly higher procurement cost and actually save money in the long run - just as the Navy has said from the beginning of the program.