Munitions production – an expensive business

Being self-reliant in the production of ammunition seems sensible for any country, but especially so for an island continent. However, making sure the three services have enough bullets, bombs, artillery rounds and explosives available in Australia for all realistic contingencies has been a more expensive undertaking than was anticipated in the mid-1990s when the issue first received critical analysis.

10th Dec 2012


 DMMA

Munitions production – an expensive business

Byline: Kym Bergmann / Melbourne and Canberra

Being self-reliant in the production of ammunition seems sensible for any country, but especially so for an island continent. However, making sure the three services have enough bullets, bombs, artillery rounds and explosives available in Australia for all realistic contingencies has been a more expensive undertaking than was anticipated in the mid-1990s when the issue first received critical analysis. Up until the Defence reforms of that decade, the country had a myriad of facilities that were rationalized, amalgamated and gathered under the umbrella – along with a lot of other things – of Government owned Australian Defence Industries (ADI).

Thales acquired ADI and that company is now the incumbent for the production of ammunition and explosives. This is in the form of the Strategic Agreement for Munitions Supply (SAMS) for the output of a boutique facility at Benalla and an interconnected contract for the supply of explosives and propellants from Mulwala. Benalla has been developed and is owned by Thales under a Build-Own-Operate-Transfer (BOOT) contract; Mulwala is owned by Defence and managed by the company.

This brings us to the Domestic Munitions Manufacturing Arrangements (DMMA) Project – that has the objective of replacing the above contractual arrangements with a new structure more appropriate to Defence needs and cost constraints. Both the Australian National Audit Office (ANAO) and also Defence itself have recognized for several years that it is necessary to find a better approach to munitions production.

The essence of the problem for Defence is that under SAMS it is paying Thales for the development of – and maintenance of – a capability at both Benalla and Mulwala. According to the ANAO, in 2009 Defence paid $63 million to remain able – if and when required – to produce 13 specific items of ammunition out of the approximately 830 types in the ADF inventory. In the same year under the Mulwala Agreement, Defence paid $29.7 million for the support of that capability.

Both agreements are indexed annually and Benalla is a sort of reverse mortgage structure where payments are more heavily weighted towards the end of the contract - which will expire on June 30 2015 - than in the early years. And these payments are for maintaining a capability – they do not cover the actual cost of any munitions that are actually ordered, which are sold to Defence on a time and materials basis (since Defence is already paying for the facilities).

According to the Head of Explosive Ordnance Division, Mr Anthony Klenthis, the present arrangements are an anachronism that made sense at the time they came into being but which are now costing Defence too much. A basic problem is that because of the formula where Defence is paying for the maintenance of a capability it is difficult to calculate the true cost of munitions being provided to the ADF. He estimates that for some munitions Defence is paying a heavy premium over what is available on the international market. In addition, around 22% by value of the ADF’s annual munitions needs are being provided for by SAMS – the vast majority is purchased on the open market.

What Defence now seeks to do is to come up with new contractual arrangements that will not only supply the ADF more cost-effectively but will also transform Benalla and Mulwala into exporters by incorporating them into munitions Global Supply Chains.

This almost brings the reader up to date, with Defence selecting five bidders – originally six, but two on the list have merged – after an international Invitation to Register Interest (ITR) process. Defence will take over ownership of Benalla when the BOOT contract expires and since it already owns Mulwala will offer the two facilities under a management contract to the bidder best able to integrate them into global munitions production activities. Anything else is regarded as commercially unrealistic and inappropriate.

While Defence will own the facilities, it does not plan to charge rent. Instead it is prepared to forego this in exchange for the successful bidder taking responsibility for maintenance. The logic is that if Defence charges rent, it will make the facilities less competitive in the global marketplace – which is the opposite of what is trying to be achieved.

It is therefore not surprising that all five bidders have very powerful international munitions business credentials amongst their members.

Defence has now asked for responses to the first stage of a two-stage tender process, with a number of requirements such as having an existing munitions production line; highest safety and environmental standards; an ability to satisfy present and future ADF requirements – and so on. However, at the very core is the need for prospective bidders to come up with a credible business plan for how the Australian facilities can form part of a larger global market structure.

From this, Defence plans to shortlist down to a smaller number of qualified bidders in the second quarter of 2013, and they will be invited to participate in the final stage of the tender process. Despite Defence sometimes moving slowly, this activity is being driven by the expiration of SAMS in 2015, and planning began for it in 2008.

Speaking separately with all of them at the recent Land Warfare Conference in Melbourne, APDR asked each to explain why they felt they should be considered:

Alliant Techsystems / NIOA

ATK and NIOA have teamed in a joint venture to bid for the DMMA Project. The joint venture is a natural progression of the deepening relationship between the two companies and is intended to be the foundation for ATK’s longer term business development plans for Australia.
ATK is a fortune 500 company based in the United States with principal business in the aerospace, defence and sporting markets. ATK’s defence and law enforcement capabilities relating to munitions and guided weapons transcends all of these businesses.
ATK’s munitions-related businesses operate from seven factories in the USA and have the world’s largest ammunition distribution network through 440 dealers, distributors and representative in 99 countries.
The company operates an integrated munitions manufacturing network of seven facilities including:
• the US Government owned Lake City Army Ammunition Plant (LCAAP) which produces small calibre ammunition up to .50 cal.,
• the US Government owned Allegany Ballistics Laboratory (ABL) which produces a range of large calibre munitions components, warheads , and proofing and testing services
• the New River Energetics plant as a commercial sub-lease on the Radford Army Ammunition Plant (RFAAP) site which produces commercial propellant powders (about half the capacity of the Mulwala Plant),
• ATK is also joint owner of American Ordnance, a company which operates US Government owned facilities at Milan Army Ammunition Plant (MLAAP) and Iowa Army Ammunition Plant (IIAAP) to produce high explosive artillery, 40mm grenades, smart munitions, and mortar rounds.
• ATK owns small arms ammunition plants in the US cities of Anoka and Lewiston
Combined, these plants produce 6.3 billion rounds of ammunition per annum of which 1.6 billion rounds are supplied to the military market and the remaining 4.7 billion rounds are supplied to law enforcement and sporting markets. The company also has its own research and development facilities and capabilities.
In Australia, ATK has been contracted by Lend Lease to build and commission the new propellant plant at Mulwala. The plant will be handed over to the successful DMMA bidder.
NIOA is building a DISP-accredited high security facility on a 13 acre site at the Brisbane Airport to support its activities in the supply of ammunition, propellants and weapons. As well as supplying military munitions to the Australian Department of Defence, NIOA is the largest supplier of ammunition in the Australian commercial market and supplies around 80% of all ammunition consumed by State and Territory Police forces. The company has been the largest domestic customer of the Mulwala propellant plant for the past 25 years.


BAE Systems

Across the world the full range of BAE Systems ammunition, propellants and explosives are delivering a battlefield advantage to frontline military men and women.
The company is now looking to share this global innovation, leadership and experience with the Australian Department of Defence by bidding for its Domestic Munitions Manufacturing Arrangements (DMMA).
For more than half a century, BAE Systems has been integrating systems and operating facilities for the Australian Defence Force (ADF). To meet the needs of DMMA, the company will combine this experience with its munitions businesses in the United Kingdom (UK) and United States (US). In the UK and US BAE Systems designs, develops and manufactures a wide range of propellants, explosives and munitions, including Insensitive Munitions.
The UK Global Combat Systems Munitions (GCSM) business has a strong track record of success as the primary supplier of general munitions to the UK Ministry of Defence under the Munitions Acquisition Supply Solution (MASS) contract. Under the 15 year contract, the company supplies a wide range of small and medium calibre ammunition, artillery and mortars.
To meet changing military needs, BAE Systems has made significant investments in new infrastructure, plant and re-training its people across the UK. This has enabled the company to comprehensively transform its operations from its previous World War II-era munitions sites to modern and highly automated operations.
The large volume of munitions manufactured for the MASS contract, combined with the capacities of the transformed business means the company can offer the ADF a solid basis for the potential supply of a wide range of natures.
The company’s US capability is equally as extensive. Operating as Ordnance Systems Inc (OSI), BAE Systems operate the US Army Ammunition Plants at Holston, TN and Radford, VA under Government Owned Company Operated (GOCO) contracts.

The Holston plant provides the US Army with 100 per cent of its high explosives while Radford produce a wide range of military propellants. Both facilities are prime examples of the company’s ability to successfully transition into GOCO facilities.
It is these global operations and well-established long term business models that give BAE Systems unique access to mature and wide ranging supply chains. This offers both flexibility and economies of supply for the ADF.
When combined with the company’s leading domestic manufacturing capabilities, this presents a commercially sustainable, safe and efficient operation with a level of flexibility that can adapt to meet future Defence needs at various operational tempos.
Another differentiator for BAE Systems is its ability to produce and supply a range of Insensitive Munitions (IM). The company has developed a wide range of IM solutions for artillery and mortars using a number of technologies and continues to develop new IM products.

BAE Systems Business Development Manager Kevin Kitto said: “It’s our extensive global business base and experience that establishes us as a strong contender for DMMA. We are current market leaders in the UK and US and in both cases have significant supply chains which we can leverage for the Australian customer and domestic operations.

“The significant investments we’ve made in upgrading and transitioning our munitions facilities have meant that we have been able to reduce the overall cost of production and introduce new production technologies.
To offer the maximum possible benefits to the Commonwealth of Australia, BAE Systems and EXPAL Systems have teamed to bid for the DMMA project.
EXPAL Systems is the defence arm of the MAXAM Group, a global leader in the commercial explosives and energetic material market. MAXAM operates in 150 countries with more than 80 manufacturing facilities worldwide.

EXPAL is a major European supplier of ammunition for the international market and by its strong links to South East Asian countries the team will seek to enhance export opportunities and local production.
Kevin said: “When we looked at the detailed requirements for this program, it became clear that our capabilities were highly complementary.

“The additional range of natures and demilitarisation technology which EXPAL brings together with access to export military markets fits in with our capabilities. This added to their unique access to commercial markets through MAXAM is something which we can leverage to develop more commercial opportunities for the Mulwala and Benalla regions.”
Its extensive munitions business transformation experience from the UK and track record of successfully transitioning of GOCO facilities in the US reinforces BAE Systems. In both cases, the company has delivered its customers a business model that is more effective, efficient and flexible.
The Australian customer can expect the same.


Raytheon Australia

The aim of Raytheon Australia’s team for the Domestic Munitions Management Agreement (DMMA) is to provide a fresh, new approach to the supply of ADF munitions and the management of associated Commonwealth facilities and assets at Mulwala and Benalla.
Successive reviews of the existing arrangements have highlighted substantial inefficiencies with the present system and the need to deliver new commercial arrangements for the manufacture and supply of locally produced munitions. However, the answer lies not in doing the same with less. To do so would threaten the livelihoods of a valuable regional workforce, continue to under-utilise Commonwealth assets and deny the ADF substantial potential cost savings in the production of their munitions.
Instead, the Raytheon team aims to bring out the best in the local workforce and facilities by growing new exports for Australia as part of a global munitions strategy. International expertise and additional markets beyond the ADF are fundamental to the success of such an endeavour.
Raytheon Australia’s strong DMMA team brings together three recognised global munitions companies with extensive expertise, experience, and infrastructure in the manufacture and supply of energetic materials as well as guided and non-guided munitions.
Raytheon is a global leader in the manufacture of precision guided munitions and is the primary supplier to the ADF of the majority of classes of in-service guided munitions. As a subsidiary of Raytheon Company, Raytheon Australia has an impeccable record in contract delivery and performance as well as considerable local experience in carrying out relevant transition activities.
Significantly, the Raytheon team is comprised of companies with existing global munitions strategies.
Chemring Australia is the country’s foremost manufacturer and supplier of expendable countermeasures and military pyrotechnics. Chemring Australia is part of the global Chemring Group PLC, which is the world leader in expendable countermeasures, and is a niche manufacturer of munitions components and energetic materials.
In Australia Chemring operates one of the best countermeasures sites in the world. It will be proposed that Chemring will be responsible for the Commonwealth’s Mulwala site while Raytheon Australia will operate the Benalla site. Chemring brings global expertise and access to considerable propellant demand.
Poongsan Corporation, based in the Republic of Korea, is renowned for its design, development and manufacture of small, medium and large calibre ammunition and propellant. The company is the designated general ammunition manufacturer to the South Korean Government and recognised as a leader in the provision of conventional ammunition to the global market, with an overseas customer base that spans 60 countries including the United States and Australia.
Poongsan brings enormous penetration to potential export markets as well as considerable domain technology and global supply chain expertise.
Under the Raytheon team for DMMA the Mulwala and Benalla facilities will stand on their own two feet and the Commonwealth’s production rebate will be reduced over time as the team works to broaden the existing production and services base of the local facilities. The team members will look to their own supply chains to transfer international demand to Australia for a range of goods and services. There are many new opportunities across a range of defence and commercial markets and the Raytheon team will be focused on generating new exports markets for the benefit of lower costs to the Commonwealth, greater productivity and secure local jobs.

Rheinmetall

Showcasing a wide array of ammunition products at the Land Warfare Conference 2012 in Melbourne, Rheinmetall presented itself as a major contender in the contest for the Australian Domestic Munitions Manufacturing Arrangements Project (DMMA).

As a performance-driven global player, Rheinmetall has unique expertise and innovative strength in armour, artillery, air defence, medium calibre, mortar and infantry ammunition and systems.

Besides its special knowledge and competency in the field of ammunition, many things make the Group an ideal partner for the DMMA. These include its solid track record with various operator models and successful turnaround of previously less-than-optimally-run ammunition and propellant plants within months of taking over operational control. Also meriting particular mention is Rheinmetall’s strong focus on global operations.

With more than 40 industrial sites, Rheinmetall Defence has extensive experience in plant design, ranging from development through engineering to production – an essential capability for upholding its operational excellence in Europe, North America and Africa.

The Düsseldorf, Germany-based Group supplies the world’s armed forces with customized services and an unparalleled range of products that includes environment-friendly and insensitive ammunition as well as state-of-the-art effectors. Prominent examples are the Group’s extensive portfolio of 40mm x 46 (low velocity/LV and medium velocity/MV) and 40mm x 53 high velocity (HV) ammunition, the new family of insensitive 60mm mortar bombs, medium-calibre Ahead airburst ammunition. At the larger end of the spectrum, Rheinmetall supplies 105mm and 155mm artillery ammunition and propulsion systems and, last but not least, programmable 120mm tank rounds that are fully compatible with Rheinmetall’s 120mm smoothbore gun, which of course serves as the main armament of the Abrams tank in service with the ADF.


Since its inception in 1889, Rheinmetall has been a driving force in the development and production of weapons and ammunition ranging from small arms to cutting-edge laser effectors. It also has unsurpassed experience in running international

 


Australian Munitions (Thales)
Australian Munitions is a business dedicated to providing a wide range of munitions that deliver a battlefield advantage to Australia’s warfighters. This will enable better access to new products, increased capabilities, and greater cost-effectiveness in meeting the customer’s munitions requirements. Australian Munitions is part of Thales’s global network of explosive ordnance businesses that includes Thales Advanced Weapon Systems, Thales Missile Electronics, TDA Armements, Junghans Microtec, and Forges de Zeebrugge (FZ).

For the purpose of capturing DMMA, Australian Munitions has teamed up with renowned strategic partners: US-based General Dynamics Ordnance and Tactical Systems, Nammo – a specialist munitions company headquartered in Norway, and Winchester Australia.
These world-class manufacturers are committed to delivering international capability locally, adding significant depth to domestic munitions production capacity. The team’s range covers most ADF non-guided munitions needs from small, medium and large calibre ammunition through to aircraft bombs, demolition stores and pyrotechnics. The team also has substantial services expertise from product design and development through to demilitarisation and disposal. Kevin Wall, Australian Munitions’ Executive General Manager, said: “The current SAMS contract and Mulwala Agreement are outdated, and we are now focusing on shaping the future of explosive ordnance manufacturing in Australia. Our detailed knowledge of ADF needs and our unparalleled experience in the complexities of safely operating the Benalla and Mulwala facilities means we are well placed to offer a value for money solution at lowest risk for the Commonwealth.

“Building on these strong foundations, over recent years we have continued growing our
capabilities, including through our strategic partners. These partnerships set the platform for delivering improved ADF interoperability, notably with US and NATO forces. They also provide the opportunity to leverage international scale supply chains to deliver value for money for Australian taxpayers, and offer ready pathways to technologies for future ADF needs”.

“Australian Munitions is growing our business in both defence and non-defence markets, pursuing opportunities and streamlining operations. One example is our significant investment in re- establishing 7.62mm ammunition production to satisfy renewed customer interest in this calibre, delivering a valuable self-sufficient defence capability. We have also built in added flexibility to manufacture other military and commercial calibres aimed towards growing our sales in other markets.

“On growing exports, we are leveraging our more than 20 years of success in the US civil propellants market, where our propellants are highly regarded because of their Ballistic Temperature Independence (BTI) properties that enable peak performance and accuracy in a wide range ofweather conditions. The resources we have invested in propellant, and the intellectual property we have in this area, are significant.”

Finally, Australian Munitions is taking the initiative to deliver millions of dollars of Strategic Reform Program (SRP) savings from the current munitions supply contract cost base. This is benefiting Defence in a very real way in a tight fiscal climate. Even though expiration of the current contract in 2015 will see the Commonwealth’s cost base fall by around 50% on the existing SAMS contract, Australian Munitions will continue working with the Commonwealth to seek early opportunities to further drive down the cost base before a new DMMA model is implemented.


 

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