More Ammunition for the U.S. Armed Forces

by: Matthew Potter
August 11, 2011

Category: Alliant Techsystems, atk, Business Line, Companies, Contract Additions, Contract Awards, Department of Defense, Events, Federal Budget Process, logistics, Olin Corp, production program, Restructuring, Services, U.S. Army, U.S. Marine Corps | RSS 2.0

As the U.S. military has remained engaged in Iraq and Afghanistan over the last decade one area where they have spent a lot of funding is on ammunition. The U.S. Army, Marine Corps and other services have utilized large amounts of small arm ammunition as well as fire support weapons such as Apache attack helicopters, mortars, artillery and aircraft weapons. These have ranged from the very mundane to the very sophisticated but the U.S. has utilized a large amount of rounds in the 5.56mm to 30mm variety.

Different companies have benefited from this market. One of the biggest has been ATK (ATK) which has had contracts since 2001 to operate U.S. ammo plants as well as provided larger ammunition and pyrotechnics. Other companies as well have been able to win contracts due to the large demand for this product.

Recent Federal Cartridge Co. was just awarded a contract for training ammunition. As the fighting has continued the U.S. has also increased training making it more realistic and demanding which has required more consumption of ammunition for this purpose. Federal will make a special training round in 5.56mm which is the primary small arms round for the U.S. military. This is made out of polymers and is designed to fragment upon impact minimizing penetration and ricochet. The use of plastic rather then lead means it is better for the environment. The value of this contract is about $46 million.

In another announced contract Olin Corp. (OLN) announced that their Winchester division had received a contract for small arms ammunition. This includes 5.56mm, 7.62mm and .50 caliber rounds primarily used by soldiers and in vehicle mounted support weapons. The value of that contract if all options are exercised is about $300 million. The contract will begin in 2012.

One of the downsides for defense contractors is that as the U.S. withdraws from Iraq and Afghanistan the requirement for large amounts of ammo like this will be reduced. If the military is not involved in active operations they will not require large replacement stocks of consumable items like this. They will rely on what they have on hand to support training and any small operations. The large capacity built up over the last ten years of activity will not be needed.

For companies that have provided this product they will see a reduced market and a fall in orders unless they can find new products or customers to make up for the loss. The U.S. contraction in the defense industry will not just be the end of large acquisition programs but also cuts in soldiers, their support and basic items like 5.56mm training bullets and other ammunition.

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