FOR THE first time since the hair-trigger Cuban missile crisis of nearly 18 years ago, the United States faces the very real possibility of a military showdown with the Soviet Union. While so far President Carter has only threatened further economic reprisals if the Soviets remain in Afghanistan, he has warned the Kremlin that the United States will take military action if Russian troops invade Pakistan or Iran. To back his policy, Carter is moving to beef up U.S. firepower as fast as he thinks the economy and his domestic programs can stand the strain. If the new military budgets are approved, the nation will spend $100 billion more (in real dollars) for defense between now and 1985 than was previously planned.
But the defense speedup will be hard to accomplish. Much of the increased spending is to be for hardware -- procurement of new weapons and stepups in the production rates of operational ones. There are grave doubts in Washington and in the defense industry that, barring declaration of a national emergency, the nation has the industrial capacity to produce enough hardware soon enough to count. While many of the prime defense contractors stand ready to mobilize their own facilities, the underlying industrial base has been allowed to deteriorate since the Vietnam war. Thus, most of the industry's subcontractors, who furnish materials, components and subsystems for weapons, already have all the work they can handle.
"We are already revved up to 100 percent due to tremendous commercial demand," says Joseph R. Carter, chairman and chief executive of Wyman-Gordon Co., a major supplier of forgings. "If the military comes in on top with new requirements, there will be real problems."
Because the potential shortages cut to the core of the industrial economy, they will constrain the procurement of all types of military hardware. And there are few, if any, categories of weapons that would not need to be procured if the Cold War continues to heat up. A near-term change in the Navy's shipbuilding program is unlikely. But to project U.S. power abroad, the Pentagon says, it will need more tactical aircraft, missiles, tanks and guns, and the electronic systems to back them up. A strategic buildup now seems likely, too. And even ammunition may be a problem.
The most severe constraints, though, will be on aerospace systems, because they must compete for resources with a superheated commercial aircraft business. The key problem areas:
LARGE FORGINGS AND CASTINGS: Only three U.S. suppliers, for example, can make the big forgings that are the backbone of today's airplanes.
BEARINGS: Some military aircraft later this year will be built without engines because strikes exacerbated a shortage of qualified suppliers of these parts.
MACHINING CAPACITY: Spindle time is already short for the big, complex parts used in airframes, and new tools carry long delivery times.
SEMICONDUCTORS: A growing shortage of integrated circuits is slowing the production of military electronic systems.
METALS: Titanium, cobalt and chromium are all in critically tight supply; some specialty steels are also becoming very hard to get.
MANPOWER: Competition is already fierce for engineers, technicians and skilled labor -- especially on the West Coast.
The seriousness of the situation is indicated by the lead times on key aerospace items. Among the longest are those for heavy forgings, which can exceed two years. The wait for many castings is a year or more. Lead times for hearings and fasteners range from 30 weeks to more than three times that. Some types of machining jobs are being booked more than two years ahead.
"We have very little capability for surge production," says Gen. Alton D. Slay, who heads the Air Force Systems Command. "It would take Draconian measures to get more military aircraft out of our industry beyond what it is now producing."
Such measures may yet come. "The Russian bear is out of the cage," says Dale W. Church, deputy undersecretary of defense for research and engineering and the Pentagon's procurement boss, "and we have got to be able to respond."
Most defense production experts believe that the Pentagon will have to use its power to set priorities to push military orders ahead of civilian orders. If it does, a big loser would be commercial aircraft production. And that, in turn would have broader ramifications: Commercial airplane sales accounted for $9.5 billion on the plus side of the U.S. trade balance last year. And the airplanes badly need the new, more efficient planes to cut their soaring energy costs.
In part, the industrial bottleneck is the result of on-again, off-again defense budgets. Thousands of suppliers dropped out of the defense business during the funding slump of the early 1970s, and others have been reluctant to gear up because they fear another bust. In addition, the defense delivery system is clogged with work on weapons committed to overseas customers under the government-sponsored program of foreign military sales. Such sales have topped $50 billion over the last five years.
But what really turned a tight supply situation into a full-scale crunch was the stepup in commercial aircraft production. Two years ago, Boeing Co., in particular, began to tie up subcontractors, labor and materials for its new 757 and 767 airliners. Almost overnight, the industry's production rates tripled, and in 1980 commerical aerospace sales are expected to reach $20.2 billion, topping sales of the defense segment for the first time.
At the same time, semiconductors -- the vitals of such electronic systems as radars, underwater surveillance and missle guidance -- are in tight supply becuase of booming demand in autos, TV games and other consumer markets. Lead times for deliveries of some integrated circuits now run to 12 months, compared to five months a year ago, says Jack L. Bowers, chief executive officer of Sanders Associates Inc.
The production jam finds the United States with its inventory of many tactical weapons at a low state. Washington would like to equip Pakistan with $400 million worth of weapons -- artillery, helicopters, antitank weapons and fixed-wing aircraft -- but it is clear that this could be done only by stripping them from U.S. forces, as was done to resupply Israel during the Yom Kippur war of 1973. "You'd think that that war would have taught us a lesson," declares one Pentagon colonel, "but we're in just as sorry shape for backup equipment now as we were then."
Ammunition is also short. Sen. Sam Nunn (D-Ga.), a member of the Seante Armed Services Committee, charges that "every bullet and shell fired by the Army in a Middle East war" would be at the expense of drawing down "our dangerously inadequate stocks marked for Europe." And some of the more complex ammo, such as antitank rounds, requires high-alloy steel and sophisticated production machinery -- both long lead-time items. "If there is a sudden increase in deamand," says Edwarde J. McElliott, vice president of Chamberlain Manufacturing Corp., "there could be a serious crunch."
Whether the new administration program will solve such problems is open to doubt. The president is sending to Congress a defense budget request calling for $157.5 billion of appropriations -- a real increase, assuming a 7.5 percent inflation rate, of 5 percent over the level of the current fiscal year. That rate of increase is to be maintained through 1985, by which time annual appropriations will have reached $250 billion -- and actual outlays, $230 billion -- assuming an average annual inflation rate of 6.7 percent.
The question is whether the money targeted for the hardware can actually be spent. A backlog of defense appropriations -- funds committed to defense projects but not yet spent -- has been piling up in the U.S. Treasury in recent years. The backlog, mostly procurement dollars, now totals more than $80 billion.
Yet many U.S. defense analysts are convinced that CarterS budget projections are far too low. A recent report prepared for the American Enterprise Institute predicts, in an extreme example, that the United States will have to spend $1 trillion more on defense between now and 1985 to "simply hold its own" in the renewed arms race with the Russians.
Underlying this premise is the presumed need not only for stepped-up production of tactical weapons but also for a whole array of new strategic offensive and defensive systems, especially now that the Strategic Arms Limitation Treaty (SALT II) seems to be stillborn. Such systems might include such exotic weapons as a costly high-energy laser stationed in space to knock down intercontinental ballistic missiles. A better bet, perhaps, is the B1 bomber, designed by Rockwell International Corp., which Carter axed in 1977.
The B1, however, typifies the mixed picture of industrial preparedness. Rockwell has kept its production tooling for the plane, and it claims that it could obtain the needed labor. But Bastian (buz) Hello, president of Rockwell's Aircraft Group admist that the company might not be able to get enough supplies in what he calls a "savage" materials market. And one subcontractor executive notes: "In retrospect, we're very lucky the B1 wasn't authorized by the president. If it had been . . . that would have been the straw that broke the camel's back." Another such straw could be the 50 to 100 giant new CX military transports that the administration wants to order over the next few years at a total cost of about $6 billion. These would carry the combat units and equipment of the proposed rapid-depolyment force. Roy A. Anderson, chairman of Lockheed Corp., hopes that a modernized version of his company's C5 transport will be chosen as the CX. But he concedes that he might have to build satellite plants around the country to tap fresh manpower sources.
As for existing production programs, one possible candidate for a stepup is the Navy's F14 fleet-defense interceptor, built by Grumman Corp. The Soviets have built up a formidable arsenal of cruise missiles that they can launch against the U.S. fleet from submarines, bombers and large surface ships, and the F14s, with their long-range Phoenix missiles, are spread thinly. "We could be faced with a high attrition rate of F14s and not much backup," grimly notes a Pentagon official. Meanwhile, the plane's production rate, trimmed by previous defense budget constraints, is minuscule -- about 2 1/2 a month. George M. Skurla, president of Grumman Aerospace Corp., sees no possibility of a sustained surge on his lines, noting, "There's more work than we have people or materials to handle."
The F14 illustrates another key catch-up problem for the United States -- the sophistication of its weapons. The Navy originally planned to buy more than 700 F14s at about $12 million apiece, but cut the order to 429 when the price rose to $25 million a copy.
"There has been a tendency to buy increasingly complex system in smaller quantities -- a willingness to pay four to five times as much money to get an increment of capability," asserts Philip C. Norwine, Bell Helicopter Textron's vice president for U.S. government marketing. That stretches development times and delays production.
Now there is a growing belief in the Pentagon and in industry that the U.S. must pull back from high technology. The nation must move, says Norwine, more toward "the Russian philosophy of adequate quality in sufficient quantity." That could speed up new systems, but "sufficient quantity," it appears, will be hard to come by and will take time.
Another weapon system that will be sparse in numbers in the event of a near-term conflict is the A10 aircraft, built by Fairchild Republic Co. The Air Force's Slay describes the A10, with its thunderous 30-mm rapidfire, antitank gun and arsenal of bombs and missiles, as "very important for close air support of ground troops, especially in the beginning stages of combat." The Air Force has acquired 300 of the planes and wants to accelerate their 12-a-month production rate to a planned buy of 733. But Thomas R. Tuohy, vice president and director of administration and material for Fairchild, says, "We're at our peak right now." He explains that he could double the capacity of hid Long Island plant in six months, "but it wouldn't do us any good -- we can't get materials."
One of Tuohy's key problems is forgings. The big forgings that make up the A10's main frame, for example, have to be ordered 114 weeks in advance from Wyman-Gordon, one of only three forging companies with presses big enough to do the job. "We can't handle any additional demand, no matter where it comes from," says Wyman-Gordon's Carter.
And forgings, of course, are a problem not only for the primes but for many of the other subcontractors who supply the primes. Parker Hannifin Corp., which makes the main flight controls for the Air Force's F16 fighter and the Navy's F18 fighter, has to order its forgings 60 to 80 weeks ahead. And that pushes the company's total lead time to deliver systems to General Dynamics, McDonnell Douglas and Northrop to two years or more.
A squeeze on critical materials is also troublesome to primes and subcontractors alike. The titanium amor for the A10, for example, must be ordered 82 weeks ahead. Even more urgent, through is the threatened shortage of cobalt and chromium. These are key ingredients of the engines that power both military and commercial aircraft. They will also be used in the engine, made by Avco Corp., that will power the new XM1 tank to be built by chrysler Corp., scheduled to start in production this year, and James R. Kerr, Avco's chairman and chief executive officer, is worried about getting hold of castings that use such alloys.
The United States gets most of its cobalt from Zaire, which cut off its exports in 1978 during internal strife largely formented by the Soviet. Now the United States is developing a cobalt mine in Idaho, but it will produce only 3 million to 5 million pounds a year -- only 20 percent of current annual consumption. It is possible to substitute for cobalt, but chromium still is indispensable. Most chromium comes from Russia, Rhodesia and South Africa. While South Africa is the most reliable source, even that source could be cut off in time of war.
The U.S. stockpile of strategic materials, it appears, may not be much help. It is badly in arrears in cobalt, some types of chromium, and titanium; it is also short of its goals in such other essential materials as the platinum-group metals, which include iridium and palladium. Moreover, the quality of some of the metal in the stockpile is highly questionable. "If you look at what's in the stockpile," says William L. Swager, head of materials research at Battelle Memorial Institute's Columbus Laboratories, "we're really in trouble."
Almost as basic as the material lag is the manpower lag. In a recent survey by the National Machine Tool Builders' Association, an important component of the defense business, 70 percent of its members reported worrisome shortages of technical workers. Says the association's president, James A. Gray: "We're facing one of the greatest skill shortages in the history of this country."
While chronic everywhere, manpower pains are particularly acute in California. A big part of the problem, say many aerospace executives, is Boeing's aggressive courting of engineers and technicians. But Boeing is not the only contractor to benefit from an epidemic of job-hopping. Forced to abide strictly by Washington wage guidelines if they wish to continue doing government business, defense contractors cannot issue fat raises. "That means," says Avoco's Kerr, "that the engineer can better himself and take a quantum jump in salary by going to work for someone else -- and our engineers are doing just that."
Avco has its headquaters in New England, and Kerr claims that some of the engineers he has lost to West Coast aerospace companies got salary boosts of 35 to 40 percent. But some defectors are moving right out of the industry into such high-paying business as oil drilling and electronic toys. James H. MacDonald, corporate vice president for personnel at McDonnell Douglas Corp., says that his company has had to revamp its recruiting programs "to personalize what we're doing." And it is intensifying its efforts to lure employees from other companies through such tactics as radio and newspaper advertising.
Some industry sources think that the engineering manpower problem -- a reversal of the glut of the early 1970s -- will ease once again as more engineering students, now enrolled in colleges, become available for hire. But the answers to the problem of the missing -- or recalcitrant -- subcontractors may not be so straightforward. Many companies once bid eagerly on defense contracts. They built up their resources to handle them but then suffered in the aerospace slump of the early 1970s, and they have just disappeared. And others steadfastly refuse to expand. They are concerned, explains Patrick S. Parker, chairman of Parker Hannifin, "about having to go out and make capital expenditures to take care of peaking government demand and then having government say 'thanks' and walk away."
One company that got burned is Blaw Knox Foundry & Mill Machinery Inc., the sole producer of turret and hull castings for the M60 tank in its East Chicago plant. In the mid-1970s the Army pushed the company to open a second foundry in Wheeling, W. Va., so that it could replace the tanks shipped to Israel in the Yom Kippur war. Now, M60 production has been cut back to make room in the budget for the XM1, and the XM1 does not need the heavy castings. That irritates Blaw Knox president Charles F. Hauck, who notes that his company "pushed hard" and spent heavily to increase and maintain its M60 production. Blaw Knox has now coverted the Wheeling foundry to commericial production at a cost of more than $8. million.
Subcontractors also complain about low profits, naive procurement officers and heavy paperwork. Defense work "is not the most profitable business to be in," says James H. Springle, vice president and general manager of control systems operations at the Cadillac Gage Division of Ex-Cell-O Corp., which supplies turret components for the M60 tank.
Thomas V. Jones, chairman of Northrop Corp., thinks he knows what changes would have to be made to entice companies back into the defense business. Of key importance would be multiyear procurement budgeting so that contractors could plan intelligently their own capital and manpower investments. Also needed, he says, is tax reform aimed at allowing more liberal writeoffs of capital investment. With such changes, he believes, new machine tools, forging presses and other capital equipment would become available for defense needs.
Such changes, though, would take time to be made and to become effective. Some of the large machine tools used by the aerospace industry, for example, take two years to build. "It just isn't within the capability of the industry to build them within 12 months," says Clifford R. Meyer, group vice president at Cincinnati Milacron Inc., the nation's largest machine tool builder.
With overnight expansion of the industry out of the question, then, there is a growing consensus that a substantial surge in defense production can occur only if there is a political decision, within the White House, that a state of emergency exists. In that event, much of the subcontractors' efforts on behalf of the commerical aircraft builders, in particular, would be diverted temporarily to meet defense demands. In a quick-response situation, says Raymond C. Tower, president of FMC Corp., which builds armored personnel carriers and other military vehicles, "the government would have to place procurement priorities on some materials."
Grumman's Skurla believes that the administration may be ready to face up to such moves. It now realizes, he says, "how far the defense capability of the U.S. has deteriorated as a result of subcontractor defections, and it knows that the only way it probably can repair the situation short-term is to get the White House to set priorities on where the national interests lie."
But Pentagon procurement officials tread gingerly around this topic. They point out that most major weapon systems are automatically given production priority ratings, called DO ratings, under the Defense Production Act of 1950. A certain amount of reallocation goes on "all the time," says one.
A recent example occurred after five months strikes at Fafnir Bearing Co. and Ladish Co., which make bearings and forgings, respectively, for the Pratt & Whitney engines used on the F15 and F16 fighters. Faced with severe engine shortages, the Air Force's Slay sent teams to the Pratt & Whitney Division of United Technologies Corp., which also makes engines for commercial aircraft, and to the two suppliers to remind them that they were duty-bound to put defense orders ahead of commerical orders. The two subcontractors are now supplying Pratt & Whitney with bearings and castings that had been intended for Boeing and other commercial aircraft builders. But, notes Slay, "I had to go to the mat with Boeing on it."
Even so, McDonnell Douglas will be building some F15s without engines through mid 1981. As yet, the government has not slapped the engine contractor and its subcontractors with the toughest rating, a priority known as DX. This requires the president's signature and is seldom applied. For security, the Defense Department will not say which systems have merited its application, but, says one Pentagon source, "you can bet that the cruise missile has it."
In any event, says Church, the Pentagon's procurement boss, "our priority system hasn't accomplished what it can accomplish if we really crack down." Church notes that "in many cases, the contractors don't respond to it, don't pass it on to their subcontractors, or don't police it if they do." The main reason, he believes, is the attractions of the burgeoning commercial aircraft market and the fact that "the country hasn't been faced with a war-type scenario." If the nation were on a wartime footing, Church says, "I believe all the contractors would follow the flag."
However, even if fully observed, the system of defense priorities is no panaces. "If we were to put top priority on the production of every major weapon we might need," says a high-level Pentagon official, "we would risk creating the same problem inside the defense family that now exists between defense and commercial contractors. And another defense planner notes that "if we push civilian production around too much, we may wind up shooting ourselves in the foot." He points out, for example, that it is important to maintain good, reliable communications and transportationin the private sector during a national emergency.
How to strike a proper balance is among the questions being addressed in a current study by the National Security Council and the Defense Department. That study is also addressing the sepcific problem of the nation's forging capacity. One proposal is that the government build another large forging press on the order of -- or even larger than -- the 50,000-ton machine now operated by Aluminum Co. of America in Cleveland. An alternative would be to start ordering military forgings from European suppliers. However, that supply line would be long and, in wartime, vulnerable. And those forges are already beginning to fill up with orders from the growing aircraft industry on the Continent and from Boeing.
Some clues as to what the White House and Pentagon officials may recommend as a result of their study -- scheduled for completion "very soon," says one -- may lie in a 1976 report by the Defense Science Board. Richard D. DeLauer, executive vice president of TRW Inc., who headed up the DSB study, notes that it concluded that the defense industry would need two years to boost its output dramatically. He feels that that lead time still holds, despite the intervening rush of commercial business. The industry's first move in such a mobilization, the DSB study suggested, should be to extend its work week and ultimately to go to double shifts.
Such measures may help. But they still do not address the perhaps deadly shortage of weapons components and subsystems the United States would face if war were to come soon. "The lead-time problem has caught us short," declares the Air Force's Slay. "There is no magic way to get more airplanes in a hurry. And if we wait until the balloon goes up to decide to surge our defense production, we will be in deep, deep trouble."