Prolonged budget uncertainty and the possibility of a long continuing resolution poses a threat to the munitions industrial base, creating the possibility of consolidation, particularly second- and third- tier companies, an industry panel said Monday.
With wars in Iraq and Afghanistan winding down, the demand for small- and medium-caliber munitions has lagged, said Nicholas Perry, executive director of the Munitions Industrial Base Task Force. Perry spoke as part of Monday's State of the Munitions Industrial Base roundtable, hosted by Defense News and sponsored by Chemring North America.
Delivered munitions are down 38 percent this year compared to with last year for the $4.4 billion munitions industry, Perry said.
"The industrial base is in trouble, and most of those are second or third tier suppliers," he said. "When you look at budget fluctuations, those guys get hit the hardest."
Many of the 200 munitions companies have been were forced to lay off anywhere between 3 percent to 40 percent of their workforce, resulting in 40,000 total layoffs, he said.
Larger, more diverse companies are better equipped to deal with reduced munitions sales, said Juan Navarro, president of Chemring North America, a branch of the UK-based defense contractor.
"Our emphasis is really on diversification," he said. "As the business on the munitions base has decreased, our emphasis has been more on sensors and electronics."
As a foreign-based company operating in the US under a special security agreement, Chemring is well positioned to capitalize on foreign sales, often through "coopetition" with erstwhile competitors, he said.
"We first have to meet the US demand" for munitions, Navarro said. "After that, you look at how do you move products overseas."
Much of Chemring's business is focusing on sensors and electronics, including counter measures, he said.
Jeffery Roncka, a senior partner with Renaissance Strategic Advisors who previously served in the Office of the Under Secretary of Defense for Acquisitions and Technology, said the challenge for the government is striking the right balance between stockpiling enough munitions to be prepared for any contingency while maintaining a healthy industrial base once that requirement has been met.
"There's a need for portfolio balancing within the base," he said. In a flat budget environment, that's how you build surge capacity and protect the industrial base, he said.
But smaller munitions companies are the most vulnerable to downsizing and consolidation, he said.
"Globalization is one of the key ways to mitigate the challenge of your corporate strategy," he said. "They don't have the ability to go target the international market the same way that bigger companies do."
Email: aclevenger@defensenews.com
