Munitions sector 'in trouble,' despite new funds: Defense department warned about problems with declining supplier base. (Analysis).

An influx of new money at the Pentagon will help replenish cruise missiles and satellite-guided bombs, but it will not necessarily fix industrial base problems in the ammunition sector, sources said.

Companies such as Raytheon and Boeing are working to ramp up production of the Tomahawk cruise missile and the satellite-guided Joint Direct Attack Munition, two of the weapons most heavily used in the air war against Afghanistan, in Operation Enduring Freedom.

But funding shortfalls in conventional ammunition accounts will remain, even though the Defense Department received a $20 billion supplemental appropriation after the September 11 attacks, said industry officials. The United States still has large stocks of conventional ammunition in storage--left over from the Cold War--which would be needed to fight an extended conflict on the ground. But U.S. and allied commanders in charge of the war in Afghanistan so far have relied heavily on precision-guided weapons for air strikes. Massive land forces are not in the near-term plans.

Even though the United States has an abundant supply of conventional ammunition and sufficient smart bombs for the current conflict, there are "broader issues" in the industrial base that should be of concern to the Defense Department, said Rich Palaschak, director of the Munitions Industrial Base Task Force, which represents ammo manufacturers.

Palaschak and other experts interviewed for this article pointed to various sub-sectors of the ammunition industrial base where domestic suppliers are dwindling. In the short term, this may not affect the Defense Department's ability to modernize its weaponry and replenish inventories, these experts said, but the trend could worsen in the years ahead.

The U.S. engineering and production capabilities for cruise missiles and precision-guided munitions are adequate, despite the consolidation of the industry in recent years, Palaschak said. "The problem with precision-guided munitions is not the health of the industry, but the fact that they can't produce them fast enough to replenish the inventories after a conflict."

After the Gulf War, he noted, "it took us a long time to replenish precision-guided bombs and cruise missiles."

During his confirmation hearing in August as chief of staff of the U.S. Air Force, Gen. John Jumper said that the service has a $2 billion shortfall in its munitions accounts.

Pentagon officials have not discussed publicly any long-term spending plans, citing post-Sept. 11 budget reviews. They also asked defense contractors to not disclose information about their munitions manufacturing capabilities or ramp-up production plans.

It is no secret, however, that the U.S. ammunition industrial base has been shrinking rapidly, as a result of post-Cold War downsizing. The Defense Department spent about $6 billion on munitions in fiscal 2001, compared to $16 billion in 1991.

Responding to a reporter's question about expected munitions expenditures in Operation Enduring Freedom, Pentagon comptroller Dov Zakheim said, "We don't know what munitions we are going to expend. What I am concerned about is that I not be the stumbling block, that people don't come to me and say, my God! We've run our of munition X and munition Y."

The munitions industry includes manufacturers of missiles, rockets, bombs, bullets and projectiles, as well as makers of associated products such as propellants, fuzes and pyrotechnics.

Even though there are still significant amounts of conventional ammunition in war reserve, the stockpile is aging and needs to be modernized, said Col. James Naughton, deputy chief of staff for ammunition at the Army Materiel Command.

In a briefing to industry executives in February, Naughton said that there is not enough money to remanufacture obsolete ammunition stockpiles. Outdated ammunition not only poses a safety hazard, but also is unusable for combat.

According to statistics provided by the Munitions Industrial Base Task Force, the U.S. military munitions accounts are under-funded by more than $400 million in fiscal year 2002.

At the briefing, officials from the Industrial Committee of Ammunition Producers said that the Defense Department should be concerned about the "availability of product or re-supply" during a conflict and the "ability to replenish inventories" after a conflict.

Since the Gulf War, so-called smart munitions have gained prominence as symbols of modern warfare. They made up only 8 percent of the bombs fired against Iraq in 1991, but amounted to 84 percent of the cost of munitions for that operation. By 1999, precision-guided munitions were used in more than 90 percent of NATO air strikes against Yugoslavia.

Autonomously guided munitions are expensive (guided cruise missiles cost about $1 million each, and laser-guided bombs about $30,000 each), so they are produced in smaller quantities than "dumb" bombs. This generally prompts concerns at the Pentagon about the ability to increase production during and after a conflict.

The industries that produce smart munitions and sophisticated guided weapons are in "relatively good shape," said Art Heyderman, president of the Iowa-Illinois Chapter of the National Defense Industrial Association.

"The problem with the base is not with the exotic stuff," he said. A more troubling situation is that "we can't even make routine, old-generation items."

In his opinion, the ammunition industrial base is "very sick" in several areas.

The United States, for example, only has one manufacturing plant that makes ammunition links (tiny metal clips) for small arms -- the Lake City Army Ammunition Plant. The company that operated the plant, Valentec, was about to go out of business, and subsequently was bought by Alliant Techsystems.

"As you go around the base, in most items, we are literally one-deep," said Heyderman. "These companies are on the jagged edge."

Many of the subcomponents in the ammo sector are military-unique items, with limited or no commercial market. The upshot is that companies have exited the business in droves, said Heyderman. Given the small production volume, he said, "it's impossible to get the tooling you need to make products" that comply with today's environmental and safety regulations, for example.

Sectors that are in the most "danger," according to Heyderman, are pyrotechnics and energetics.

Some government officials also have pointed to the fuze industry as an industry that is declining and losing expert skills.

Phil Gorman, associate director of the Army Fuze Management Office, said that the number of fuze suppliers has declined from 31 in the late 1980s to seven today. Additionally, he said, there are "areas to monitor" in supporting technologies, such as batteries, electro-explosives, gun hardened electronics, turbine alternators and liquid crystal displays.

Another Army official, who did not want to be quoted by name, said that the problems in the fuze industrial base affect not just the Army but the other services as well.

The "main issue," he said, is that "we are not buying enough ammunition." The Defense Department wants to maintain a "robust base, but nobody has defined the number of companies that represent a robust base," said the official.

One product line that is difficult to find suppliers for is power sources, he added. "For everything we are developing for smart projectiles and smart fuzes, you need a power supply." These systems require tiny batteries, he explained. "We are pushing the state of the art of the available chemistry. There is little money from any services going to the tech base for power supplies and energetics."

Miniaturized power supplies often have no commercial application, he said. Watch batteries could be used on fuzes but they don't have the 20-year shelf life required by the Army. "The companies won't invest, because they don't see a payoff We can't guarantee them contracts."

Many of the fuzes that are in the inventory today are not adaptable for precision-guided munitions, without making major modifications, he said. "The current inventory supports dumb bullets, nor precision weapons," the official explained. "The cost of modifying old fuzes to support smart munitions would be too high [so] it would be better to buy new ones." The Pentagon spends millions on guidance systems and on the warheads, he added. "Fuze is an after thought."

RELATED ARTICLE: Costs for Operation Enduring Freedom: Up to $1B Per Month

Even though the Pentagon has not released any official cost estimates of the ongoing military campaign in Afghanistan, some experts already have speculated on the projected price tag, based on the cost of past operations.

James McAleese, an attorney who represents defense and aerospace corporations, calculated that Operation Enduring Freedom, in addition to new responsibilities for homeland defense since September 11, could require an annual increase of $60 billion to the Pentagon's budget during the next two to three years. That number potentially could go up to $100 billion, said McAleese.

He explained the figures are derived from the cost of previous military campaigns.

Operation Desert Storm/Desert Shield, which lasted about seven months, cost the U.S. government $7.3 billion. Only 8 percent of the weapons were precision-guided bombs. But the cost of the PGMs represented 84 percent of the total cost of the munitions used.

McAleese cites some examples of sortie costs from the Gulf War:

* F-117 Air Force stealth fighter: $15,700 per typical sortie.

* F/A-l8 Navy strike aircraft: $17200 per typical sortie.

* 210,004 unguided bombs cost $432 million.

* 9,342 guided bombs cost of $298.2 million.

* 332 cruise missiles cost of $913.8 million.

Operation Allied Force (over Kosovo), which lasted 78 days, cost between $2 billion and $3 billion, said McAleese.

Last month, the Center for Strategic and Budgetary Assessments, an independent think tank in Washington, D.C., said that the U.S. military campaign against Taliban and al Qaeda forces in Afghanistan cost some $400 million to $800 million in its first 25 days (October 7-31).

If operations continue at roughly the same tempo and with roughly the same forces, the Department of Defense is likely to incur additional costs of some $500 million to $1 billion a month for the duration of the operation, said CSBA's Steve Kosiak.

"Estimating the costs of military operations is an inherently difficult and uncertain task," he said. "It is made even more difficult in this case, because the operation is ongoing and because the Defense Department has so far provided fewer details concerning this campaign than it did during some past military operations (such as the 1991 Gulf War and the 1999 war in Kosovo)."

In addition, said Kosiak, the U.S. military has incurred other costs related to Operation Noble Eagle, which focuses on homeland defense. That includes the activation of 41,000 reserve personnel since the terrorist attacks of September 11. A "ballpark" estimate, he said, "might be in the range of one hundred to several hundred million dollars a month."