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U.S. Army launching study of ground vehicle suppliers

WASHINGTON, Oct 23 (Reuters) - The U.S. Army is launching a detailed study of companies that supply key parts for ground vehicles after months of warnings from larger prime contractors that budget cuts and delays in new programs are straining smaller component makers.

Scott Davis, the Army official who overseas ground combat vehicle programs such as the BAE Systems Plc's Bradley Fighting Vehicles and General Dynamics Corp's Abrams tank, said only ``a handful'' of companies had left the weapons sector so far, but the Army needed more information to prevent future gaps in critical capabilities.

He said most of the smaller companies that had stopped making weapons components were in the electronics market.

Industry executives have warned for over a year that $487 billion in defense spending reductions already on the books - and another $500 billion in cuts due to start in January - would hurt suppliers that account for about 70 percent of the work on weapons programs.

Part of the problem facing smaller companies, Davis told reporters at the annual Association of the U.S. Army conference, is an expected drop in demand resulting from years of investments in new combat vehicles and the Army's large inventory of spare parts. The Army's fleet of combat vehicles is younger now than ever, which limits demand for spare parts.

Davis said most of the thousands of suppliers in the sector were diversified enough to weather the decline in demand, or the Army had alternate suppliers.

But a few companies that were the only providers of some critical technology were thinking of switching to other work, which could pose problems in several years when the Army plans to ramp up production of combat vehicles again, he said.

It was also a concern since the U.S. military would continue to use some of the existing vehicles for many years.

``What we owe to the country, to our industry and to the Army is to really analyze inside our systems where we think we have vulnerabilities,'' Davis said. ``The last thing we want to do is have a situation where we've lost a supplier and we're months or years away from requalification of a new source.''

He said that, once vulnerable companies were identified, the Army could help them lower production costs, step up purchases of components for inventory, or find alternate, more agile suppliers. In many cases, smaller companies were reluctant to ask for help for fear of being seen as unreliable.

The U.S. military and its prime contractors have high standards for the components used on weapons systems, which means any new suppliers must undergo extensive testing, plant visits and other quality control measures.

Davis said A.T. Kearney, a global consulting firm, would help the Army conduct the 20-month study, while at the same time helping to train Army officials to better understand and analyze supply chain issues. The current plan was to spend four to five months with the larger prime contractors and then head out for field visits to smaller component makers.

Colonel William Sheehy, program manager for the Army's Heavy Brigade Combat Team, said he did not expect much impact on smaller companies in the near term. But he worried that some companies could be reluctant to reopen shuttered production lines when the Army ramps up production in several years.

``I don't think you're going to see large companies collapsing all over the United States,'' Sheehy told reporters. ``If you look two to three years down the road, when things start to come back on line, that's when you'll start to realize the industrial base impacts.''