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.