[lbo-talk] rising war tide lifts munitions-maker boat

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Edina bullet maker can't meet Army demand
Staff and wire reports
May 7, 2004

Here's a new measure of the intensity of the fighting by the 
U.S. military.

Alliant Techsystems Inc., the Edina-based munitions maker that 
is the U.S. Army's sole supplier of bullets, said Thursday it 
can't keep up with demand from the Army, which is rising to its 
highest level since the Vietnam War.

Alliant made 1 billion rounds of small-caliber ammunition last 
year for the Army and will make 1.2 billion rounds this year. 
But the Army intends to set its annual requirement significantly 
higher, possibly as high as 2 billion rounds a year, and plans 
to look for a second supplier, Alliant Chief Executive Officer 
Daniel Murphy said.

Alliant's ammunition group "last year achieved the largest sales 
in its history," Murphy said in an earnings conference call with 
stock analysts. "At our Lake City, Mo., facility, we executed 
the greatest ramp-up in small-caliber ammunition since the 
Vietnam War." The higher bullet sales helped boost Alliant's 
fourth-quarter earnings, which increased 44 percent, the company 
said.

Murphy said that the Army's ammo demand could remain elevated 
for five years as the U.S. military, currently engaged in 
conflicts in Iraq and Afghanistan, continues to fight terrorism.

Boosting bullet production won't be easy, however.

The streamlining of military contractors not only has left 
Alliant as the sole small-caliber ammo producer, it has also 
left General Dynamics Corp. as the sole gunpowder supplier for 
making those bullets.

Gail Wilson, spokeswoman for General Dynamics, said the Falls 
Church, Va.-based company lacks production lines to make 
small-caliber ammunition and couldn't build a plant quickly 
enough to meet immediate demand.

There are few producers outside of Alliant or General Dynamics 
still capable of producing military ammunition on the scale 
required, said Loren Thompson, an analyst at the Arlington, 
Va.-based Lexington Institute, which studies national security 
issues.

"The Army's industrial base is busted," Thompson said. "A wide 
range of consumables from ammunition to armor simply can't be 
produced at an adequate rate during wartime. There is almost no 
surge capacity."

The Army tries to make up for the limited production capability 
by stockpiling material during peacetime, Thompson said. The 
strategy works when the nation enters into conflicts that turn 
out to be of short duration, but is becoming a problem as the 
war in Iraq enters its second year, he said.

Army spokesman Major Gary Tallman didn't return calls seeking 
comment.

Alliant could be the Army's best hope for replenishing its 
small-caliber firepower.

The company said it is in talks to expand its capacity by 
another 300 million rounds and will submit a proposal to the 
Army to become the supplier of the other 500 million the Army 
needs to reach 2 billion a year.

The Army has committed about $31 million to expand the Missouri 
plant and increase capacity, Murphy said.

Alliant also is evaluating the possibility of adding 
small-caliber ammunition production capacity to its Federal 
Cartridge plant in Anoka, according to company spokesman Bryce 
Hallowell. The plant employs about 750 people and mostly makes 
ammunition for hunting and other sports shooting, Hallowell said.

Alliant, which also makes a variety of larger military munitions 
and rocket boosters for NASA, said that for its fiscal fourth 
quarter ended March 31, it posted net profit of $50.9 million, 
or $1.31 per share, compared with $35.2 million, or 90 cents per 
share, a year earlier. The results included 43 cents from a tax 
benefit and a 13-cent restructuring charge.

Alliant said it expects to earn between $3.85 and $3.95 a share 
in fiscal 2005.

http://www.startribune.com/stories/535/4763567.html

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