Munitions industry prepares for downturn.

• Author: Holmes, Bill
• Position: INDUSTRIAL BASE - Industry overview

* The munitions industry in recent years has seen increased budgets, mainly as a result of the demands of the wars in Iraq and Afghanistan.

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Based on historical trends, a plausible assumption is that funding for ammunition procurement will decline dramatically in the next several years as U.S. forces withdraw from Iraq.

If budgets do decline, the continued existence of a viable and responsive U.S. munitions industrial base could be at risk, as has occurred in the past. As it also has been the case before, if industrial capabilities disappear following ammunition budget cuts, any rescue efforts will be expensive and create significant turbulence in the sector.

A preferred alternative would be purposeful actions taken now by the Defense Department and industry to ensure that the sector remains in good health and able to meet the nation's needs.

The marketplace for the U.S. munitions base is principally the military establishment. Some sales, mostly small caliber ammunition, are made to the commercial sector while some portion of the munitions base output is sold to friendly foreign governments. But the largest consumer, by far, is the U.S. military. Annual production levels are dictated mainly by Defense Department and congressional budget decisions.

During periods of reduced defense spending, ammunition procurement funding has borne a disproportionate share of budget reductions. Ammunition procurement declined by nearly 80 percent between fiscal years 1985 and 1994, as a result of post-Cold War cutbacks. Little consideration was given to the effects of this funding decline on the long-term viability of the munitions base, and no planning was done to maintain munitions production capability for the longer term.

The result was a crippling of the industry. More than 75 percent of the companies included in the munitions industrial base in the mid-1980s exited the business by the mid-1990s and never returned. Total collapse was averted when the office of the secretary of defense directed yearly increases in the budget, and Congress added more funds above the budget submissions. After 9/11, ammunition procurement began to rise.

The munitions industrial base is composed of government facilities that are operated by government personnel, government facilities which are operated by contractors, large defense contractors and a wide array of small businesses. Such a diverse mix of assets complicates the policy formulation job of...