The Joint Systems Manufacturing Center in Lima, Ohio, is building Abrams tanks the Army says it doesn't need. (General Dynamics Land Systems)
Sep. 8, 2013 - By PAUL McLEARY – Defense News
STERLING HEIGHTS, MICH. — The US Army has set itself a Dec. 15 deadline to brief Congress on the results of a comprehensive study of its ground vehicle industrial base that it began in 2012, according to a draft document obtained by Defense News.
The Army contracted with consulting firm AT Kearney to do the study early last year, and service leaders hope it will shed more light on which defense companies are most at risk and, more importantly, which key second- and third-tier suppliers must be supported in order to keep their lines running during the coming vehicle-procurement lull.
The 18-page July document, titled “M1 Abrams Tank Upgrade and Bradley Fighting Vehicle Industrial Base Study Preliminary Findings,” says that when it comes to heavy manufacturing capacity the US defense sector actually “exceeds known demand for current programs and for planned future programs.”
The problem, according to military vehicle manufacturers like General Dynamics Land Systems and BAE Systems, is that the demand for ground vehicles is about to take a serious — and dangerous — dip once Abrams and Bradley new builds end in 2015.
The report recognizes that, saying “the demand profile for programs within the Army’s ground combat systems indicate a significant decrease in demand between 2015 and 2019” as many programs transition from production to sustainment. If programs like the Joint Light Tactical Vehicle (JLTV), Ground Combat Vehicle (GCV), Armored Multi-Purpose Vehicle (AMPV) and the new Marine Corps amphibious vehicles survive the coming budget ax, production will ramp up sharply in 2019. But until then, “the industrial base’s current manufacturing network has a significant amount of overcapacity.”
Overall, the Pentagon will have to gut its budget by about $20 billion in fiscal 2014 if the sequestration cuts are unchanged by a deal between the White House and Congress, Frank Kendall, the undersecretary of defense for acquisition, technology and logistics, told the Reuters Aerospace and Defense Summit on Sept. 4.
Speaking at an event in Washington on July 29, Army Chief of Staff Gen. Raymond Odierno warned that none of the above programs are safe. Due to sequestration, the Army may be forced to delay or even cancel the GCV program. Since the Army is having a hard time figuring out how to take savings out of personnel accounts, “we have to consider everything,” he said.
When it comes to the health of the ground vehicle industrial base, “one of the impacts that is most overlooked is the effect on small businesses” said Mark Signorelli, vice president and general manager of vehicle systems for BAE Systems.
During a tour of the company’s engineering and prototyping center in Sterling Hills, Mich., Signorelli called the shuttering of some small, specialized businesses that supply parts to the defense industry “a major loss.”
He added that the Army understands the concerns of industry and the two are working together to try to retain key capabilities that will be difficult to maintain absent new domestic or foreign orders before 2019.
“We’ve mitigated the major risks” in fiscal 2014 for the company’s Bradley Fighting Vehicle line, he said, “but we still can’t support the entire supply base. There will be layoffs.”
While there have already been layoffs among the major defense suppliers as wartime production demands have waned, “I don’t think we’ve seen the effects of sequestration yet,” he warned.
Signorelli said the company’s Bradley manufacturing line at York, Pa., will run out of work in the middle of 2015, barring any extra reset or new build work. That would leave it dormant for more than two years before any GCV or AMPV work comes along, providing the company wins either contract.
Even if the GCV makes it to full production, however, it “would be impacted” by any damage done to the supplier base that makes up the Bradley industrial base, said Deepak Bazaz, head of GCV design and development for BAE.
Another critical manufacturing base, the Joint Systems Manufacturing Center in Lima, Ohio, where General Dynamics manufactures the Abrams tank, actually received an injection of $181 million more than the Army requested in fiscal 2013, which the service is using to buy more tanks — vehicles the Army has repeatedly said it doesn’t want or need.
But lobbying by General Dynamics has paid off in the form of $114 million to buy 12 new Abrams M1A2 Systems Enhancement Program tanks for the National Guard by December 2015. The Army will also purchase 48 more transmissions from Allison Transmission for $26 million and spend $41 million on additional forward-looking infrared sensors to keep those segments of the industrial base warm through the end of 2015.