Nation’s Ammo Industry Suffering Despite the War : Defense: Pentagon cutbacks bite deeply into the business. Some worry about future capability.

Ammunition plants were the arsenals of democracy in World War II, but they play an anonymous and beleaguered part in the Persian Gulf War.

Along a grimy industrial strip in the Los Angeles suburb of Vernon, NI Industries, the nation’s biggest producer of large-caliber ammunition, is cutting manufacturing capacity, laying off workers and auctioning machinery. A “For Sale” sign adorns one facility.

The problems confronting NI are symptomatic of the entire American ordnance industry, which is suffering through one of its worst slumps in history--despite the hot war in the Gulf. It is a low profit, heavy industry in an age when high technology wins the accolades.

Critics contend the industry’s problems reflect broader Pentagon mismanagement of the nation’s defense industrial base. Although contractors around the nation are pleading for a government policy of retaining key defense industry capabilities, the Pentagon wants to rely on the marketplace and “let the chips fall where they may,” critics say.

Ammunition orders by the Army have dropped from about $4 billion annually during the mid-1980s to about $1 billion in the fiscal 1992 budget. Less than $1 billion will be spent on ammunition the year after that. Pentagon ordnance orders have fallen so low that some producers are fleeing the industry and looking for other markets.

The military services stockpiled tons of ammunition during the 1980s, providing a large reserve for the Persian Gulf War. Nonetheless, some industry experts worry that spot shortages could develop if the war drags on for months. Particular concern has been raised about 120-millimeter and 155-millimeter artillery rounds that dispense special antipersonnel and anti-vehicle bomblets.

An Army spokeswoman declined to make any officials available for comment.

Even if the ammunition stockpiles are sufficient, however, the Pentagon will have difficulty rapidly replenishing those inventories after the war, in effect creating a gap during which the services would be unprepared, industry executives say.

And aside from the war, the long-term outlook for ammunition producers is bleak. The Pentagon is planning to trim its forces with the Cold War’s end, and a smaller military will require less ammo.

“Ammunition is something people don’t think about until it is too late,” said Lawrence Skibbie, a retired Army general and president of the American Defense Preparedness Assn.

“We are really depleting our storehouses of ammunition,” he said. “If you assume we are going to have worldwide peace after this Gulf War, then maybe we don’t need to replenish. But our experience is that we are not going to have worldwide peace. We must reconstitute our storehouses of weaponry at levels consistent with our future national security.”

The ordnance industry, however, will be in a weakened position to meet the military’s needs, Skibbie says.

Ford Motor Co., long one of the major ammunition producers in the United States, got out of the business several years ago. Honeywell, another major producer, divested its ammo operation. Chamberlain Manufacturing, a producer of artillery shells in New Bedford, Mass., has announced it will close down its plant within the next several weeks. Aerojet Ordnance in Downey is trying to cut costs and hold on to its machines, but it is running its factory at just 50% of capacity, said President Ed Davison.

Perhaps nowhere are the problems more salient than at NI Industries’ Norris division.

The firm’s 1.2-million-square-foot plant in Vernon has the nation’s largest collection of high-capacity hydraulic and mechanical presses for making artillery and rocket casings. One press is three stories tall and capable of exerting a force of 6,000 tons--roughly equivalent to the weight of a column of compact cars piled five miles high.

But the plant is operating at only 20% capacity and posted its first financial loss last year. Since 1988, the plant has laid off more than 2,000 people; today, 611 workers remain.

Norris auctioned off 200 pieces of machinery last year, sending lathes and presses to salvage yards that melted them for scrap iron. The machines represented industrial capacity that will be difficult to restore if the nation ever finds itself short of shells.

“The perception is that artillery shells are like hub caps--plenty of people can turn them out,” said Robert Toering, Norris’ president. “That is an erroneous perception.

“What we make is not high-technology stuff, and what we are hearing is that the Army intends to spend the bulk of its acquisition money on high-tech stuff,” Toering said. “Our expectation is for a continued drop-off. I am afraid the bottom will be so low that we can’t survive.”

Even in the best of times, the ordnance industry earns lower profits than electronics and other high-tech defense sectors. In recent years, ordnance contractors have averaged profits of 4% to 5% of sales. Not surprisingly, few investors want to sink money into the industry.

“It is a major dilemma we are facing,” Toering added. “The Army has the same problem nationwide. They recognize they are not going to be able to support production capacity like we have here.”

Similarly, Olin Ordnance, a St. Petersburg, Fla.-based maker of small- and medium-caliber gun ammunition, sees grim times ahead.

“There is a significant concern in the ordnance business about the industrial base,” said Ed Alber, marketing manager at Olin. “We foresee negative growth over the next three to five years.”

Olin hopes to find commercial products to make up lost business--among them environmental services, such as helping to clean up nuclear weapons plants.

“The budget has been going down since 1986,” said Howard Healey, marketing vice president at Alliant TechSystems in Hopkins, Minn., another major ordnance producer. “Ammunition has gone down faster than the overall budget.”

The explanation is in the history of bust and boom cycles that have affected the ammunition industry.

During the early years of the Reagan Administration’s defense buildup, enormous quantities of ammunition were produced and stockpiled. Now that the Pentagon plans to trim its forces, the need for ammunition has swung the other way.

The Persian Gulf War will undoubtedly lead to some replenishment of war stocks, but the long-term trend is still bleak.

With a diminished production capacity, the ordnance industry will be less prepared to supply the military in future conflicts. And although hundreds of bureaucrats study such problems, the Pentagon has yet to enunciate a broad national industrial policy on how to maintain an ordnance production capacity.

“The question for the government is what facilities it wants to keep in place if the nation needs to surge production,” said Gordon Adams, director of the Defense Budget Project, a frequent critic of Pentagon policies.

“There is a series of ad hoc decisions being made here without anybody thinking through the entire industrial-base issue,” Adams added. “This isn’t willful stupidity. There is a very strong feeling in the Bush Administration against having an industrial policy. The feeling is to let the chips fall where they may in the private sector. There is no conscious thought being given to what kind of defense industry we need to support a minimum military capability.”

Industry officials say the Pentagon needs to move quickly if it hopes to preserve certain minimum capabilities.

Says John Maniatakis, vice president for marketing at Norris: “Everybody articulates theories and we have had study group after study group, but nothing gets done. Meanwhile, the industry is dying.”

In addition to privately owned ordnance plants, the Army has 26 government-owned ammunition plants around the nation. Some of them have state-of-the-art production equipment, but others are virtual relics of the Industrial Revolution that have undergone little change since the 1930s. A number of the government plants are inactive, leaving private industry to take the brunt of the budget cutbacks, industry sources said.

A congressional expert said the current decline of the ordnance industry should come as no surprise. “It is cheaper to stockpile the inventory of ammunition than it is to stockpile the industrial capacity,” he said.

But such logic is abhorrent to industry, because it presumes that manufacturers will have the technical capability and financial incentive to get back into ammunition production after long shutdowns.

Davison, the president of Aerojet Ordnance, said it would take 12 to 18 months for a firm to restart a cold production line, assuming that it retained the machinery and special tools.

“People think of ammunition as something you get by picking up the telephone,” said Davison. “The question is who is going to be there when the Army needs to replenish?”