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If size and experience are important, the Alliant Techsystems-NIOA bid for the manufacture and supply to the ADF of domestically-produced munitions, explosives and propellants will receive careful consideration – but not just yet.

A Request for Proposal (RfP) and draft Request for Tender  (RfT) for the so-called Domestic Munitions Manufacturing Arrangements (DMMA) covering the Mulwala explosives and propellant plant in southern New South Wales and the Benalla munitions facility in northern Victoria was released last July.

The then-Labor government said at the time that an RfT would be issued early in 2014, itself   several months later than originally intended given that the current agreements with Thales Australia covering Mulwala and Benalla expire in June 2015.

Although there was no public announcement, the DMO confirmed to ADM in January that the RfT had been delayed until mid-2014 but gave no other details. Observers noted the latest delay followed a worldwide market solicitation and two formal downselect and evaluation processes conducted over the past three years.

Updated demand forecast

However, according to informed sources a letter from the Director General Munitions to the three shortlisted consortia - Alliant Techsystems (ATK) of the US teamed with Australian ammunition supplier NIOA, American Ordnance and Day & Zimmerman; BAE Systems Australia teaming with Expal Systems of Spain; and incumbent Thales Australia teaming with General Dynamics-OTS, Nammo and Winchester Australia – stated that the Commonwealth had reviewed and updated its munitions demand forecast.

It had also considered the ongoing schedule and performance risks associated with the $263 million contract for the redevelopment of Mulwala, awarded to Bovis Lend Lease in 2007 with ATK as a subcontractor providing the production process design, critical equipment and startup support.  The upgrade was placed on the Projects of Concern list in December 2012.

Alone of the three contenders,  ATK – a leading US defence contractor with 17,000 employees -  went on the record expressing disappointment at the RfT delay and stating that over the past three years it had created a dynamic plan that would ensure the long term viability of the Benalla and Mulwala facilities.

Some indication of the shape this plan might take, together with the expertise and experience, on which the ATK-NIOA team can draw, emerged from an interview late last year with Andrew Crickenberger, ATK’s Director International Business Development, who pointed out that the company is the world’s largest producer of ammunition.

To be precise, some six billion rounds a year ranging from 5.56mm military and commercial rifle ammunition through to 120mm tank shells. The American Ordnance unit of ATK’s consortium partner Day & Zimmerman produces 155mm artillery ammunition while Day & Zimmerman’s own engineering capabilities include expertise in demilitarisation.

ATK currently owns and/or operates six facilities in the continental US producing small, medium and large calibre ammunition, artillery fuzes, flares and decoys, and commercial propellant.

In 2011 the company relinquished to BAE Systems a major contract to operate the US Army ammunition and propellant plant at Radford in Virginia (it subsequently retained for a further 10 years the operating rights for  the US Defence Department’s largest producer of small arms ammunition, at Lake City, Missouri).

Although ATK continues to produce 25mm and 30mm rounds and commercial propellant at Radford under a lease agreement with the US Army, having lost its military propellant capability there it is now seeking to source that from elsewhere – possibly Mulwala.

Australia is a key market for ATK with its Projectile Guidance Kit for 155mm artillery ammunition and the Advanced Anti-Radiation Guided Missile (AARGM) for the RAAF’s Super Hornets. ATK also manufactures the 25mm cannon on Army’s ASLAVs and hopes to have its 30mm Mk.44 cannon on vehicles considered for Land 400.

In addition to furnishing ATK with an operations base for its Australian and Asian business, success with DMMA would provide the company with its first overseas munitions production facilities, a challenge which Crickenberger was confident ATK’s 90 continuous years in the munitions sector would meet.

While neither ATK nor the two other DMMA contenders have been prepared to discuss the content of the draft RfT (now understood to involve a 20-year term) it’s clear that a combination of the ADF’s withdrawal from Afghanistan, Timor and the Solomons, tight budgeting and the increased use of simulation has led to a drastic reduction in Defence’s future munitions requirements.

The replacement of the 105mm Hamel gun with the 155mm M777 ultra lightweight howitzer means all artillery ammunition is now being imported via the US Foreign Military Sales (FMS) channel (from American Ordnance), as is 120mm tank ammunition. The RAN’s 5inch projectiles have been imported via FMS since the move several years ago to an insensitive filling, while low-rate production of Mk.82 bombs at Benalla can be expected to taper off prior to the introduction of the Joint Strike Fighter, which will not carry them.

Manufacture vs importing

DMMA contenders have the choice of producing the munitions required by the ADF at Benalla and Mulwala, or importing them from elsewhere. Given the twin imperatives of value for money and the Commonwealth’s interest in the retention of existing jobs and capability, the commonsense outcome would appear to be a mix of the two, with surplus capacity focused on the commercial market.

“There’s huge overcapacity globally on military ammunition but a tremendous demand right now for commercial pistol and rifle ammunition,” said Crickenberger.

“We make billions rounds of ammunition each year and less than 25 percent of those are military. Today you can walk in to any store in the US and ask for certain types of ammunition and there’s none on the shelves. So anyone can bring it in from Australia and charge whatever they like.

“But when the market rationalises, you’re going to need a global sales network; ours operates in 100 countries.”

Crickenberger accepted that labour costs in Australia were an issue; one that would be handled by volume, product selection and technology transfer.

“Instead of trying to make 1,000 each of 50 munitions you make 50 million each of two munitions, you put in efficiencies, and in the commercial space you focus on high value products,” he said.

“It’s not a huge investment to switch machines from military to commercial ammunition; the trick is in selling it.”

Crickenberger said that NIOA would be ATK’s distributor inside Australia, and outside Australia would deal with ATK’s international sales team who would select where an order would be produced.

“The Australian assets are small and agile, they’re world-class,” he commented.

“If we had the factories today, with small calibre ammunition and propellant we could have them working 24 hours a day. With NIOA as our distributor, ATK is currently one of the leading commercial ammunition suppliers in Australia as well as supplying more than 80 percent of the ammunition used by Australian law enforcement agencies.”

The Australian facilities would be an ideal expansion opportunity for ATK to service the very high demand in Asia for certain products that was currently underserved because of the strong US market, Crickenberger noted.

“The commercial risk is what will be happening in 10 years’ time, because the Australian facilities would have difficulty competing on cost against those in the US. For example, you make a small calibre round with brass; there are no brass factories like that in Australia, so that comes from the US.

“The irony is the copper is probably mined in Australia, gets shipped to the US to make brass, and it’s sent back to Australia to make ammunition. That’s your world supply chain, but it’s also a challenge.”

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