How Quickly Can the DOD Rebuild and Recast the Munitions Industrial Base? | All About the Base

Recent analyses have identified the causes and consequences of shrinking munition stockpiles. Now is a time that policymakers and industry should turn their efforts not only rebuilding the munitions industrial base, but also recasting it for the demands of modern highintensity wars of precision and attrition. Doing so calls for both increasing the size and changing the composition of the US munitions arsenal in embracing magazine breadth as well as magazine depth through equipping the joint force with a high low mix of exquisite and affordable munitions, missiles, and interceptors. The emergence of multi-year framework agreements between the Department of Defense and contractors is very important, but they also need to be followed by appropriations from Congress, increased capital expenditures or capex by industry, and then contracts between the Department of War and companies. What is a realistic timeline for this rebuilding and this recasting of the munitions industrial base? In the following four charts, we look at the president's fiscal budget requests for 2027, subsequent initiatives, quarterly company reporting, and recent contract announcements to provide a clear picture of the planned future, as well as the obstacles that need to be overcome to achieve those objectives. As usual, I'm your host, Jerry McInn, and welcome back to another episode of All About the Base. So what is the Pentagon's plan for addressing the munition shortages that facing us today? So the Pentagon is actually pursuing pursuing both what I call magazine breadth and magazine depth. here looking based on the 2027 budget request. If we look at the highcost munitions, those are munitions that are over 600,000. Uh and the lowcost munitions are those are under uh we look at the number of units planned to be purchased in the 27 budget request for both FY 2027 and FY 2031. And what you see is we're buying a shedload of the low highc cost um munitions. That's the Tomahawk, the Patriot, uh Pack 3, um the theater um high altitude air miss air defense or THAAD um and uh numerous other high-cost munitions. The lowerc cost munitions are um um programs like the family of affordable mass munitions or FAM. uh the the MACE um program which is for hypersonic lowcost hypersonic missiles uh as well as some traditional uh some prior kind of um systems such as small diameter bram the JDAM even the Coyote these these kind of programs that have been around for a little while but if you what you see here is that even in 2027 uh in the budget request half of the numbers of munitions being uh sought by the Pentagon are lowcost munitions. And if you look at at the um by 2031 over 70% of the um the requested munitions are going to be these lowerc cost munitions. So you're seeing this change in complexion of the uh munitions industrial base. So if you talk about you know how the the that the composition of the uh munitions available to the war fighter is going to change you can see that further in this slide. So when you start out in the fir in the first year of 2027, you see the blue uh shades of blue, those are all the higher cost munitions. Um and you see they are growing substantially um in their high specifically in 2027. And then you see the lower costs become um more of a um picture going forward. So but let's focus on the higher cost, the pack three, which is um the the big um bar right here. uh the request for pack 3 has gone goes up from almost 840% from FY26 to FY27. So significant increase. Tomahawk is over 1700% increase. Uh and then THAAD which is the bottom line um is a two almost is a 27 um% um 27 thou 2,700% increase. So these kinds are tremendously um um um significant kind of changes. But what you notice is in time the composition uh shifts. Um the orange band here that is FAM the family affordable mass munitions and the first group is they're looking to buy about a thousand in 2027 and then 5,000 5,000 uh and a little bit more going forward. Um and you so you see that plus mace the hypersonic um um effort um those that percentage of the overall munitions kind of portfolio takes takes a a big big chunk as we get further down the line. So what is how is this going to affect the delivery of these systems um to the war fighter? So let's look at the uh the highost legacy systems as well as the lowcost. So what you see are kind of two different stories. So the highcost munitions and these are the again the the effective munitions we've been using um in uh in our conflicts and contingencies over the past several decades. Um they are proven. Um but the challenge with them is they were built solely for performance. they were um and they were designed you know a lot of them in the 70s and 80s. So they were not built to be produced at scale. So the the the lead time for these uh systems is 2 to four years from contract award to initial delivery. Now, uh that's part of the reason why they signed these framework agreements uh earlier this year between the Department of War and the major contractors on these is to deliver more give them more demand signal and a big part of that uh was to increase their production rates um from uh you know for THAAD for instance to increase it by 317% for the pack 3 uh by 233% and for prism um to increase that by 400%. All by but these um increments are to be completed um these production rates by towards the end by 2030 or 2033. So it's going to take a little while to get there because of the the way they're um the way they're made. Now, they may increase faster, and there's been some reports that they're um having some success with that. Uh but, you know, it it's a longer term play. Um and the good news is, uh these framework agreements were signed um earlier this year, but now you're starting to see contracts. Uh the first one out of the shoot was a $35 billion 7-year undefinitized contract action or yuka uh for THAAD. And then we've seen more recently these other contracts come in on these other um uh important munitions. So you're starting to see contracts uh being um uh being um signed and that can then that's when you can start with the production. So that's what's happening in the um the uh the higher cost munitions and let's turn now to the lower cost. So the uh ones that were in this the previous slide family of affordable mass munitions or mace um fam or mace you can see these were our new kind of initiatives um as well as let's talk about the drone dominance program. the scale is so huge it it you can't really compare the numbers because those are small sometimes handheld but very kind of uh small units and the plan um and this is more than a plan actually they're already in competition to deliver 340,000 units by the end of 2027 so that is very near-term uh likewise the affordable mass of fam uh you've got you know you've got as I mentioned earlier a thousand being delivered by 2027, 5,000 in 2028, and another 5,000 in 2029. So, they're they're coming. And as well as some of the ones that are actually not even in the president's budget request, the lowcost containerized U missiles for the Navy as well as Army lowcost interceptor and the MD U missile defense agency lowcost interceptor. all those are um you know were not in 27 budget um requests but the funds are going to be deployed um to to deliver those sooner. So the the the bottom line is that you're the lower cost munitions are schedules be to deliver earlier and at a larger scale than the legacy munitions. Now that's what's going on on the government side in terms of or on the program side in terms of you know what systems are coming on when um what funds are going to be uh available for this. But now you got to you know a big part of these framework agreements that were signed were commitments by industry. Now the the government's the industry said we need a strong demand signal to help really um uh deliver these munitions to buy um the equipment we need to make the R& research and development investments. And so u what the government did is sign you know set up these seven-year framework agreements for both the lowcost and the higher the legacy munitions. But in return, companies committed to raise their um capex or their capital expenditures as well as their other internal investments. Um so um and the question is how is that happening? I mean like some companies, you know, committed to an $8 billion kind of investment, some 1 billion over a period of time, but how is that turning out? And we can look at that um at least for the publicly traded firms we can look at that in their quarterly reporting. Uh in this slide what we look at is in quarter two uh in 2024, 2025 and 2026. And these are the publicly traded companies that um have framework agreements. And if you you can see them, you know, from Lidos, L3 Harris, Honeywell Aerospace, North of Grumman, Loheed Martin, Boeing, and RTX. Uh BA Systems is also one of those, but they're traded on the um the London Stock Exchange, so it's a little different. Um but if you look at the the increase year-over-year between last year and this year in quarter two um the capex for the the companies that are publicly traded is up 31%. So you know that is a um a a great um marker of companies putting their skin in the game quote unquote. Now this needs to be obviously carried forward. Um, and then we, you know, there's a whole lot of companies that are aren't on here that are involved in the munitions, and those are the non-traditionals in the drone dominance program in, uh, FAM, and lots of other programs. Uh, and there's a question I was like, you know, c can they deliver as well? Um, how much are they investing? And so, uh, there's there's lots of things to be done, um, to help us, uh, get to conclusion and get success. But the initial uh response at least on uh for capex on these publicly traded companies is very solid. The wars in Iran and Ukraine have shown the growing importance of air and missile defense, the accelerating pace of combat and the risk of simultaneous protracted conflicts across multiple regions that can strain the munitions industrial base. To address these challenges, the United States needs a broad portfolio of munitions from exquisite systems to lower cost missiles and drones. In short, the munitions industrial base needs to be rebuilt and recast to restore deterrence and to counter the fast evolving technologies and threats defining the character of war today. The broad trajectory that we've outlined uh is directionally on point, but requires a sustained and concerted effort by Congress, the Pentagon, and industry to send long-term demand demand signals and invest in the underlying production capacity capable of building and sustaining inventories. There is near-term risk, but lowcost systems delivering over the next 18 to 24 months and the ramping of production of exquisite systems can get the United States on the right path. The key to achieving overall objectives are adequate appropriations from Congress, continued capital investment and other investment from industry, timely and flexible contracts between the department and companies, and then execution on all fronts. We will continue to monitor and assess progress along each of these lines of effort here at the Center for the Industrial Base. Thanks so much for watching today's episode and we look forward to seeing you again soon. And remember, it's all about the bass.