Defense Readiness and Competition: Backfilling Low Munition Stockpiles

With the United States’ involvement in conflagrations worldwide, questions about U.S. military preparedness and defense industrial capacity have come to the forefront. Western officials in the U.S. and NATO have sounded alarms about the strain on their munitions stockpiles. As actual stockpile numbers are classified, true munition levels are unknown to the public. However, hints by the Biden administration from interviews, statements from officials, and their actions shed light on the true state of munitions shortages and the ability of the defense industry to backfill these stockpiles.

If there is a shortage in munitions, the question arises of how to undo such a shortage. Does America’s defense industrial base have the capacity to quickly restock these munitions? Answering this question requires a foray into the health of the defense industry itself. Declining competition and the offshoring of manufacturing play a crucial role in whether American companies can supply the government with sufficient military goods to backfill depleted stockpiles.

Current Shortages

Over the summer, the Biden administration caught major flak for sending cluster munitions to Ukraine. Biden, in a July 7 interview with Fareed Zakaria, described the shortage of 155mm artillery shells forcing their hand. “They’re running out of that ammunition, and we’re low on it,” Biden said. In addition, in January 2023, the Pentagon’s Ukraine aid took from the War Reserve Stockpile Allies-Israel (WRSA-I). The WRSA-I is a stockpile meant to provide arms and equipment to American forces in the event of a major conflict in the Middle East. The WRSA-I is not the only foreign stockpile being used. In January U.S. Ukraine aid also reached into South Korean stockpiles.

Israel’s fight against Hamas is also tapping the WRSA-I. Israel’s use of the WRSA-I comes with the restriction, among others, that transfers were limited only to surplus weaponry. But on Oct. 20 the Biden administration requested the removal of all restrictions on WRSA-I transfers for Israel, which would provide the country with free reign over the WRSA-I.

Ukraine aid is still one of the Biden administration’s key priorities, with the administration announcing assistance as recently as Nov. 20. In late October they also requested a $105 billion national security package. This package, currently sitting in Congress, includes $14.3 billion in aid for Israel. It includes munitions, training and other security-related deliverables. Congress remains in dispute over how exactly to package Ukraine and Israel aid, but there seems to be little question of support from both parties over sending aid to Israel.

Regardless of what the future holds for U.S. aid, part of that $105 billion proposal includes funding to backfill U.S. stockpiles as well as bolster the defense industrial base capacity. During an Oct. 31 Senate Appropriations Committee hearing, Sen. Deb Fischer (R-Neb.), and Sen. John Boozman (R-Ark.) both expressed their concern over defense industrial base capacity. 

“We simply do not have the workforce, supply chain, or infrastructure necessary to meet the coming threats,” said Fischer. Boozman spoke of a similar, more targeted concern. “I’m hearing from industry that they are currently lacking the investment to help quickly accelerate rocket motor production for the interceptor missile to meet the new increased demand,” he said.

Facing the Munitions Shortage

In January, the Center for Strategic and International Studies (CSIS) published a report titled “The U.S. Defense Industrial Base Is Not Prepared for a Possible Conflict with China.” The report found that in the hypothetical event of a major regional conflict, U.S. munition use would quickly outpace its current stockpiles, and that the U.S. would run out of certain munitions. Notably, this report came out before the Biden administration’s request for new aid to Israel, which only further strains stockpiles.

Consolidation Comes to the Fore

There was a time when consolidation was explicitly government policy. After the fall of the Soviet Union in 1991, under the Presidencies of George H.W. Bush and Bill Clinton, the U.S. downsized the Pentagon. The defense budget fell 15% between 1991 and 1996. As a result, Les Aspin, Bill Clinton’s first Secretary of Defense, advocated for a spate of mergers, arguing that there were so many companies that research and industrial production was highly inefficient. Effectively, there were too many companies for the amount of business the Pentagon thought it would do. Companies proceeded to merge, which at the time saved money for the government but also reduced the size of the industrial base.

Nowadays, the issue appears to be flipped. The CSIS report from above outlines four challenges to refilling stockpiles. It does not substantially discuss consolidation except for a brief mention of “single sources for key components.” Fundamentally it does not delve into recent insights about monopoly and consolidation in the defense industry. A recent report from the Government Accountability Office (GAO) sheds some light on the issue.

On Oct. 17, 2023, the GAO released a report subtitled “DOD Needs Better Insight into Risks from Mergers and Acquisitions.” The report found that the DOD most recently said that “approximately 400 defense M&A occurred annually.” The main finding, as suggested in the title, was that the DOD does not sufficiently oversee mergers and acquisitions. Government policy dictates that the DOD is to investigate such mergers and acquisitions. However, no more than three employees staff the DOD’s mergers and acquisitions office.

The GAO writes in their recommendations that the DOD should “assess whether Industrial Base Policy’s M&A office is adequately resourced, and require monitoring of identified risks.” The increased consolidation in the defense space has policymakers and antitrust experts assessing the implications of such consolidation on competition. The Office of the Under Secretary of Defense for Acquisition and Sustainment, in February 2022, wrote of the aforementioned 1990s consolidation, “The number of aerospace and defense prime contractors shrank from 51 to 5.” They continue, “The trend towards consolidation has continued in the last five years.”

Competition in the Defense Industry

Such consolidation has manifested in America’s nuclear triad, which consists of three legs: land (typically through missile silos), air (through bombers), and sea (through missile submarines). Northrop Grumman, the American aerospace and defense technology giant, is involved in every one of these legs. In many fields, this is called a “single point of failure.” Boeing, Northrop Grumman’s only potential competitor for the development of the new generation of Intercontinental Ballistic Missiles, dropped out of the bid for its development. In 2019, news broke that Boeing dropped out of bidding because they felt Northrop Grumman’s acquisition of Orbital ATK, who manufactures the largest rocket motor in America, would put them at a severe disadvantage.

Another manifestation has been in aerospace contracts, where the company TransDigm made news on Nov. 30. Lawmakers, including Sen. Elizabeth Warren (D-Mass.), addressed a letter to the company’s CEO, as well as Defense Secretary Lloyd J. Austin III. They pressed the company about its refusal to be transparent about legally required cost and pricing data, arguing that this prevents fair prices for contracts. A team of activist investors, Citron Research, broke research in 2020 finding that the company’s strategy was to acquire airplane parts manufacturers and then “egregiously” raise prices. These manufacturers are often the sole provider of their product to the U.S. government. For example, TransDigm tried and succeeded to acquire the sole provider of chaff (anti-radar material for aircraft) to the U.S. government.

This atmosphere of consolidation resulted in U.S. interests not focusing on domestic industrial capacity. The subsequent offshoring of production abroad has grave implications; it leaves the American defense supply chain generally vulnerable. The crisis came to a head during COVID, with the closure of a Mexican aerospace factory that plays a role in American airframe manufacturing. This moment of fragility in global supply chains took the Pentagon off guard, with Pentagon officials such as the Undersecretary of Defense for Acquisition and Sustainment Ellen Lord expressing their concern over the plant closure.

Another instance of limited or no competition is in the space of rare earth minerals. This industry, necessary for critical magnets in munitions and military equipment generally, used to be led by the U.S. Now, however, after the industry became dominated by China, the U.S. is almost entirely reliant on Chinese rare earth production. The Trump and Biden administrations alike have made moves to reinvigorate the sector in the U.S., but progress so far is slow.

Hundreds of defense mergers and acquisitions take place every year, mostly outside the scrutiny of the DOD. As the U.S. commits large sums of military aid abroad, with wars in Israel and Ukraine, the government is confronted with a major defense readiness issue. American stockpiles are being drained, and the government wants to backfill them. With the U.S. continuing to bolster its commitments abroad, policymakers and industry need to determine the degree of weakness the consolidation of the defense sector poses.

The image used in this article is public domain and authorized for resuse. It was created by the Defense Visual Information Distribution Service and can be found here.