Egypt, Saudi orders to keep US tank plant running

A $650 million deal to modernise Egyptian equipment, plus Saudi and Israeli spending commitments, will provide enough labour hours to keep a struggling Ohio factory open, says the US Army

Egyptian and Saudi Arabia orders for military hardware will help an Ohio plant run by General Dynamics Corp keep a low level of production despite a three-year halt in domestic orders, says the US Army.
General Dynamics will receive about $650 million this year for continued work on 125 kits to modernise M1A1 tanks for Egypt, Army officials said.
The company is also expected to receive $755 million in orders to convert old M1A1 tanks owned by Saudi Arabia to a "like new" M1A2S configuration at the Lima plant, instead of shipping kits for assembly in Saudi Arabia, as originally planned, according to Army officials.
Army Lieutenant Colonel Torry Brennan, product manager for the Abrams tank system, said the Army had carefully analysed the situation and believed the foreign military sales, and a separate vehicle order from Israel, would provide enough direct labour hours to keep the Lima facility open.
General Dynamics says halting U.S. tank production could endanger over 920 jobs at the Lima facility and thousands more at suppliers around the country. A total of 14,000 direct and indirect jobs are linked to 70-ton tanks, the company says.
Army and Pentagon officials say they need to cut Abrams funding to help achieve $487 billion in required defense spending reductions over the next decade.
They say they will continue to fund up to $400 million in design work on new engines and software upgrades for the next modernisation of the tanks to keep some design engineers on the job until production resumes around 2016 or 2017.
"We're not shutting them down. There is going to be a reduction to the rate at which they're building things," said Scott Davis, the Army's program executive officer for ground combat systems.
Company officials estimate that it will cost $1.6 billion to stop U.S. production temporarily, far more than it would cost to keep making a small number of U.S. tanks.
That is because of the high cost of storing machines and the likely loss of highly skilled workers, many of whom may retire or move elsewhere to find work.
They say foreign sales already on the books are not sufficient to keep the facility running at an economical rate, and note that finalising foreign orders can take a long time.
One source familiar with the process said the Saudi order could help achieve the minimum sustaining rate needed for the plant, but negotiations with the Gulf country were not slated to begin until June and such talks often take longer than expected.
The broad outlines of the arms sale now being finalised were first approved by the U.S. government in July 2006.
Ending U.S. tank production at the Lima facility could actually jeopardise foreign orders and increase their cost since the overhead costs of the facility would be spread over fewer orders, said Keith Deters, the General Dynamics official who manages the Lima plant, the Joint Systems Manufacturing Center.
He said the U.S. Marine Corps was also planning to remove a huge, computerized and highly sophisticated $16.5 million machining system that it had paid to install at the facility for production of the amphibious Expeditionary Fighting Vehicle, which was cancelled in January 2011.
General Dynamics officials are still fighting the move, which could also raise the cost of building the Saudi tanks at the plant, and the Namer armored personnel carrier being built for Israel, and say they have even offered to buy the equipment from the Marines.
Army officials first proposed halting Abrams production last year, as part of its fiscal 2012 budget, but lawmakers blocked the move, adding $255 million to continue work converting old A1M1 tank hulls into new A1M2 tanks.
General Dynamics is expected to receive about $126 million of that amount, since some of the funds go for Army expenses and other government-furnished equipment.
No new tanks have been built since the 1990s, and about 75 percent of the old tanks are re-used in the conversion process.
Two US House of Representative committees have already voted to provide $181 million for production of Abrams tanks in the budget for fiscal 2013, which begins in October, but such a measure must still be approved by the full House and the Senate.