Defense News
March 13, 2012
U.S. Army Tells Congress: We Don’t Need More Tanks The U.S. Army’s plan to stop buying various combat vehicles beginning in 2014 is causing consternation on Capitol Hill and among industry stakeholders. For the Army, however, the decision simply represents the kind of tradeoff required in a budget that can no longer afford it all.
The Army’s plan to stop buying M1 Abrams tanks in 2014 is creating the most pushback from lawmakers.
Not only does the Army not need the tanks, it does not need to upgrade the ones it has until 2017, Chief of Staff Gen. Ray Odierno told lawmakers during a March 7 hearing of the House Appropriations defense subcommittee.
The fight over Abrams has it all: industrial base concerns, foreign military sales, budget tradeoffs, the evolution of warfare and the changing U.S. strategy. In many ways, it is a microcosm of the larger forces at play in the defense budget debate.
It also represents a clear but painful message for Congress, the military and industry: When you cut the budget, someone loses.
“These are hard choices,” Lt. Gen. Robert Lennox, deputy chief of staff for Army programs (G-8), said March 8 before the House Armed Services tactical air and land forces subcommittee. The Army has decided to stop buying tanks it doesn’t need and instead wants to invest in higher priorities such as aviation and providing a battlefield network, he said.
“It’s not only among modernization items, it’s actually among choices of soldiers,” Lennox said. “We’re coming down 80,000 soldiers. To put more into investment, you give up more soldiers. So these are some of the aspects that the Army took into account in making this decision.” Still, senior Army leaders continue to face a barrage of questions from lawmakers who want the service to keep buying vehicles. Their main concern is whether valuable manufacturing skills and second- and third-tier suppliers will be lost.
“If the Army and [Defense Department] have deliberately chosen to accept the risk of these line shutdowns, then the Congress needs a full explanation for the possible impacts to our economy and our future ability to produce the equipment our ground forces need,” Rep. Silvestre Reyes, D-Texas, said during the March 8 hearing.
The Army argues that it is less costly to temporarily shut down the General Dynamics Land Systems (GDLS) plant in Lima, Ohio, than to continue to buy tank upgrades it doesn’t need.
An Army analysis found that it would cost $600 million to $800 million to close and later reopen the production line, and nearly $3 billion to keep it up and running during that same time, Army Secretary John McHugh told lawmakers.
GDLS disagrees with the Army’s cost evaluation. It would cost $1.6 billion to close and reopen the Lima plant, GDLS President Mark Roualet said in an interview.
The Army and General Dynamics tend to agree on the shutdown costs. However, the Army says it can reopen the plant for $400 million, while GDLS predicts it will cost $997 million, Roualet said.
“When you shut down a plant like Lima, you’re basically shutting down a huge support structure,” he said. It is a costly and lengthy process, and industry is concerned that requalification of critical parts will make or break the small businesses that build them.
Army leaders say they understand these concerns and are trying to attract foreign buyers to fill in some of the production gaps.
“We’re teamed with Saudi Arabia and Egypt, in particular, to be able to continue to pursue some production of tank capability at Lima, Ohio,” Lt. Gen. William Phillips, military deputy to the Army’s acquisition executive, told lawmakers March 8.
He said there were some other potential buyers, but nothing had been finalized. And Roualet said Morocco is looking to buy 100 M1A1s.
However, international demand for Abrams tanks is limited. So the question remains whether foreign buys will be enough to meet the minimum sustainment level at the plant. While the Army has testified that the minimum sustainment rate to keep Lima going is 70 tanks per year, it is far more complicated than that, according to GDLS.
Work at the Lima facility includes building M1 kits for Egyptian tanks, for which most of the work occurs at a co-production plant in Egypt. GDLS also builds part of the new Stryker infantry combat vehicles at Lima and it has just started doing some of the work on the Israeli Namer armored personnel carrier. Roualet described the Israeli work as “fairly low volume, spread across a number of years.” With the additional $255 million provided by Congress for 2012, GDLS will also build about 46 M1A2 SEP upgrade tanks for the U.S. Army.
At Lima, the minimum sustainment rate is 120 full-up tanks or 150 “tank equivalents,” which include kits and SEP upgrades, Roualet said. Last year, when GDLS expected 50 vehicle sets’ worth moving through Lima, it calculated it needed 70 more tanks in 2014 to bring the sustainment rate to 120, which is where the Army got its number.
With more potential work coming in from foreign customers, GDLS has revised the 2014 production gap to 33 tanks, which the company says it needs $181 million to build. But international orders are hard to predict, Roualet said.
Complicating things is the 18-month lead time needed for an Abrams tank, which means the company has to have its orders in earlier, Roualet said.
The company is about 60 or so tanks short in 2015.
“There is nothing to fill in the gap in 2016, but it is outside the lead time, so there is time to work that,” Roualet said.
If the Army does not fill those production gaps with its own orders, GDLS might be forced to move the work it already has on contract to another location, Roualet said.
The work on Egyptian M1 kits goes through 2016, and Israel is on contract through 2014.
“I’d have to do something with that work,” Roualet said. “If I kept it there, we probably would operate at quite a loss.” On contracts that have yet to be negotiated, the cost of work would go up because overhead costs would be applied to a smaller number of orders, he said. That threatens follow-on orders.
For this reason, GDLS wants to work with the Army on a year-by-year basis and use domestic orders to fill in where international buys fall short, he said.
Meanwhile, lawmakers have heard what the Army and GDLS have to say and are asking for more analysis. According to a congressional source, an independent assessment from the Rand Corp. tilted toward the Army, but fell short of confirming either side’s evaluation.
Rep. Roscoe Bartlett, R-Md., said he is hoping the Government Accountability Office will weigh in.
In the meantime, the Army is conducting a force structure review that will likely result in the service needing even fewer tanks.
“As we go through this force structure review, we actually might reduce the requirement for heavy capabilities, and that’s something that we have to make sure we take a look at,” Odierno said.
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CQ.com
March 13, 2012
Army Plan to End Vehicle Programs Threatens Industry, Lawmakers Say Lawmakers are growing increasingly concerned about looming shutdowns at production plants around the country that build Army ground vehicles, arguing that the service’s budget plans will devastate the industrial base and potentially jeopardize future programs.
Over the next several years, production and modernization of many of the Army’s most recognizable combat vehicles — the Abrams tank, Bradley Fighting Vehicle and Stryker — will come to a halt. At the same time, the military is winding down most repairs and upgrades for the ubiquitous Humvee lightweight vehicle and ending production of the Army’s medium tactical trucks.
The programs are coming to an end at a time when many of the Army’s next vehicle modernization programs, such as the Ground Combat Vehicle, are little more than concepts, creating a yearslong production gap that could mean the loss of jobs at prime contractors such as General Dynamics Corp., as well as at second- and third-tier suppliers who make the transmissions, engines and other vehicle components.
During a series of hearings on Capitol Hill in recent weeks, Army leaders argued that they simply cannot afford to pump money into vehicles they don’t need in order to keep lines humming until new work is ready for production.
The Army, for instance, plans to end a major Abrams modernization effort in 2014 and does not expect to begin upgrades on the fleet until 2017. Service officials estimate that it would cost nearly $3 billion to keep feeding production lines at General Dynamics’ Lima, Ohio, plant, the country’s only tank production plant. Closing and reopening the line, on the other hand, would cost between $600 million and $800 million.
Meanwhile, plans to terminate Oshkosh Corp.’s Family of Medium and Tactical Vehicles in fiscal 2014 will save the Army $1.4 billion over the next five years, making it a key part of budget reduction efforts now under way within the Army and throughout the rest of the Defense Department.
But lawmakers from both parties worry that skilled workers will be forced to find employment elsewhere during the production breaks — and that, once lost, they will be gone forever. Some contractors and suppliers, meanwhile, could close up shop or change their business plans, further limiting competition in the United States’ already shrinking defense industrial base.
“These multi-year line shutdowns could have a substantial impact on the future ability of the United States to build and maintain sophisticated military combat vehicles,” Silvestre Reyes of Texas, the top Democrat on the House Armed Services Tactical Air and Land Forces Subcommittee, said at a hearing last week.
Cost-Savings Analysis Questioned
Others, including Rep. Roscoe G. Bartlett, R-Md., chairman of the Tactical Air and Land Forces Subcommittee, question the Army’s analysis of the cost savings of shutting down lines.
“I’m not sure that we’re convinced that shutting down the lines and restarting them saves money,” Bartlett said at a hearing. “It’s our industrial base, and we can’t just stop using it and expect it to be there when we want to use it again,” he added.
Bartlett also worried that the industrial base, including the suppliers, will not be able to respond to future production demands or urgent war-fighting needs. The military, he said, could be forced to pay higher costs or rely more heavily on foreign firms.
“Once the production lines go cold, these companies will simply go away or be forced to increase prices for these components and parts,” Bartlett said.
All Army procurement accounts were cut in the fiscal 2013 request, but none more than those for the ground vehicles. The service has requested $1.5 billion for those accounts next year, down from $2.1 billion this year. By comparison, the Army’s aircraft accounts will dip only slightly, from $6.5 billion this year to $6.3 billion next year.
Vehicle accounts could see further declines in the coming years, before the Army ramps up production on its future fleets. Aside from the impending Abrams shutdown, the Army plans to end Bradley modernization at the end of this year and wrap up Stryker production in 2014.
The Army hopes to fast-track its Ground Combat Vehicle program, readying it for production within the next seven years. BAE Systems Inc. and General Dynamics are vying for the lucrative program, which was delayed for months after rival bidder SAIC Inc. protested the Army’s decision to overlook the firm when it awarded a development contract.
The Army and Marine Corps, meanwhile, are still years away from production on the Joint Light Tactical Vehicle, which will ultimately replace the Humvee. Other programs, including the replacement for the M113 armored personnel carrier, are still in early development phases.
Recognizing the effect on the industrial base, service officials are trying to mitigate the blow to BAE’s York, Pa., plant by building more M8A2 Hercules recovery vehicles as Bradley production winds down.
Some lawmakers, meanwhile, would like to repurpose at least some of the $800 million in unspent Stryker money to make more of the General Dynamics vehicles more resistant to land mines.
Other options could include foreign military sales of tanks to Egypt, Saudi Arabia and several other countries that are looking to upgrade their vehicle fleets, said Army Chief of Staff Gen. Raymond T. Odierno.
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