Ammo Makers Face Uncertain Future

Ammunition producers saw tremendous growth with the conflicts in Iraq and Afghanistan, but some wonder what will happen when the fighting stops.

WASHINGTON (AP) - The Lake City Army Ammunition Plant in Independence, Mo., produces nearly 1.4 billion bullets a year, a dizzying figure driven by the demands of war.

''It's actually mind-boggling,'' said Karen Davies, Lake City's general manager.

The question is, for how long? Although no one knows when the conflicts in Iraq and Afghanistan will end, Davies and other ammunition industry executives understand the heavy orders won't last forever.

So as they churn out the military's most essential pieces of hardware—and millions hope for an end to the war—ammunition makers are preparing for a downturn in business.

They worry about a return to the post-Cold War period when the Pentagon slashed spending for small-caliber rifle rounds and other munitions, forcing suppliers to cut payrolls, mothball manufacturing equipment and lose hard-to-get environmental permits. Some closed their doors.

''The demand is fast when it comes, and then it can drop off very quickly,'' Davies said.

After the Sept. 11 attacks, when the need for ammunition spiked, the Pentagon scrambled to meet requirements. Nearly $93 million in taxpayer money was spent overhauling domestic facilities. Foreign suppliers, including one from Israel, were called in to fill the gaps.

Military officials now talk about a need to protect the industrial base, but they also say it makes no sense to spend money for bullets and bombs the troops might not need.

''We have to recognize we aren't producing ammunition for the sake of producing ammunition,'' said Bob Kowalski, business manager for maneuver ammunition systems at the Army's Picatinny Arsenal in northwest New Jersey.

President Bush is under pressure to begin withdrawing U.S. troops from Iraq early next year. The 2008 elections, which could result in Democrats running both the White House and Congress, add to the uncertainty.

''You don't want to go down to nothing and then say, 'Oh my gosh! We've got to ramp up again,''' said Davies.

While high-profile weapon systems such as tanks, jet fighters and aircraft carriers dominate the public's attention, the U.S. military would be unable to fight without rifle cartridges, grenades, mortars and other explosives lacking the cachet of their costlier cousins.

Producing this firepower is a network of public and private facilities that has changed dramatically over the past three decades.

In 1978, there were 318 plants in the United States involved in ammunition production. By 1995, six years after the Berlin Wall fell, there were fewer than 100, according to Loren Thompson, a defense analyst with the Lexington Institute in Arlington, Va.

U.S. spending for ammunition dropped 78 percent.

''Anytime the industry shrinks, you lose expertise and skill,'' said Thompson, who more than a dozen years ago co-authored a study of the ammunition industry.

Officials at the military's Joint Munitions Command in Rock Island, Ill., say there are now more than 170 commercial ammunition companies that make everything from gunpowder to grenades.

Adding to that base are 10 weapons production plants, including Lake City, that are owned by the government but managed by contractors. Three others are owned and run by the government.

Of these 13 facilities, four will close by 2011, victims of the military base closing round conducted by the Pentagon in 2005.

The experience at Lake City illustrates the renewed attention paid to ammunition producers. Built in 1941, Lake City is operated by Alliant Techsystems, a multibillion-dollar weapons company headquartered in Edina, Minn.

Spread over nearly 4,000 acres, Lake City is the largest producer of the small-caliber ammunition used by the Army and the other military branches. General Dynamics manufactures an additional 300 million rounds a year.

The bullets come in different types and sizes; the 5.56 mm round, used in the standard-issue M-16 rifle, is the most frequently fired by U.S. forces.

When Alliant began managing Lake City in April 2000, it had 650 employees there making 350 million small-caliber rounds annually. After the United States invaded Afghanistan, orders increased and continued to escalate after the war in Iraq began in 2003.

Alliant now has 2,500 workers in Lake City making four times as much ammunition as it did seven years ago. Current output is 120 million rounds a month—nearly 4 million bullets a day.

Profits have gone up as well. In May, Alliant's Ammunition Systems Group, which also operates a government plant in Radford, Va., reported sales of $1.28 billion, a 15 percent increase over the prior fiscal year, and an operating profit of $113 million.

Every gun round coming out of Lake City costs an average of 35 cents to make, according to military officials.

The Lake City deal is Alliant's largest single contract, accounting for 14 percent of the company's total sales.

Alan Beuster, chief of the Joint Munitions Command's industrial preparedness division, said his office is studying plans for minimum production rates that would keep manufacturing lines viable for longer periods.

''I think it's something that needs attention and we're giving it attention,'' Beuster said. ''Are we in total desperation and ready to jump off a bridge? No.''

Paradoxically, peace may be as profitable as combat to certain sectors of the ammunition industry. The military uses more gun rounds in training than in combat, a ratio that provides a cushion for Alliant and others, according to defense industry analysts.

Alliant also can sell its bullets to the law enforcement and sporting communities, an option not available for companies manufacturing tank rounds and artillery shells.

The phrase ''soft landing'' has emerged in discussions between government and industry representatives to describe a gradual ebb in ammunition demand that would give suppliers time to prepare for the shift.

''The objective is to have a graceful decline in production,'' said Richard Palaschak of the Munitions Industrial Base Task Force, an industry group in Arlington, Va.

But that's not as easy as it sounds. Despite an annual Defense Department budget of $624 billion, there always are more programs and initiatives than there is money.

Most ammunition suppliers are smaller, specialized firms that lack the influence wielded by larger sectors of the defense industry.

''As the intensity of the conflicts decreases, it's just natural for the planners at the Defense Department to look at other places to spend money,'' said William Holmes, president of Day & Zimmerman Munitions and Defense in Philadelphia. ''It's the squeaky wheel that gets greased.''

Holmes has been on both sides of the equation. He retired from the Army in 1996 as a brigadier general; his final assignment was as deputy chief of staff for ammunition.

''We see requirements being stable for the next year or so, but we've got some concerns as we look out a few years,'' he said. ''We don't want to fall off the cliff like we did before.''