national security assessment of the us aerial delivery equipment

92 Pages·2004·0.49 MB·English

N S A O T
ATIONAL ECURITY SSESSMENT F HE

U.S. A D E I
ERIAL ELIVERY QUIPMENT NDUSTRY

A JOINT ASSESSMENT WITH
U.S. ARMY SOLDIER BIOLOGICAL AND CHEMICAL COMMAND

PREPARED BY

U.S. DEPARTMENT OF COMMERCE
BUREAU OF INDUSTRY AND SECURITY
OFFICE OF STRATEGIC INDUSTRIES AND ECONOMIC SECURITY
STRATEGIC ANALYSIS DIVISION

For further information about this report, please contact Mark Crawford,
Senior Trade and Industry Analyst, at 202-482-8239
([email protected]); or Brad Botwin, SAD Division Director,
at 202-482-4060 ([email protected]).

Visit our Web Site at http://www.bis.doc.gov/OSIES

Table of Contents
Charts ......................................................................................................... iii
Foreword......................................................................................................v
Executive Summary................................................................................... vii
1. Introduction.............................................................................................1
Assessment Background..........................................................................................1
Assessment Coverage..............................................................................................2
Methodology.............................................................................................................2
2. Defining the Aerial Delivery Industry ......................................................5
Design Technology...................................................................................................6
Customer Base.........................................................................................................6
The Big Five..............................................................................................................7
Classification of the Aerial Delivery Industry.............................................................8
3. The Parachute Industry...........................................................................9
Cargo Parachutes.....................................................................................................9
Personnel Parachutes.............................................................................................11
Industry Performance..............................................................................................12
Civilian Parachute Industry.....................................................................................14
Net Income.............................................................................................................14
Employment............................................................................................................15
4. Market Environment..............................................................................19
Procurement and Inventory Control........................................................................19
Data Barriers & Bottlenecks....................................................................................19
DOD Procurement Practices...................................................................................20
Supplier Issues.......................................................................................................21
DOD Sourcing.........................................................................................................23
5. Manufacturing Technology, Capital Investment, R&D ..........................27
Manufacturing Technology......................................................................................27
Capital Investment..................................................................................................29
Future Investment...................................................................................................31
Research and Development...................................................................................32
New Tactical Needs Drive R&D..............................................................................34
6. Managing the Parachute Supplier Environment....................................37
Supply Chain Issues...............................................................................................37
Management of Standards and Designs.................................................................39
Innovation, Manufacturing & Regulation.................................................................40
Industry’s Role in Parachute Specifications............................................................42
Defense Missions, Supply Surety and Competition................................................43
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7. Findings and Recommendations...........................................................45
Findings..................................................................................................................45
Recommendations..................................................................................................47
Appendix A: Survey....................................................................................49
Appendix B: Publications List.....................................................................71

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Guide to Tables & Charts

Tables

Table 1: Customers for Aerial Delivery Products......................................................................7
Table 2: Total Defense Parachute Industry Sales...................................................................12
Table 3: U.S. Defense Aerial Delivery Supply Chain Sales....................................................13
Table 4: Civilian Parachute Sales...........................................................................................14
Table 5: Supply Chain Commercial Sales...............................................................................14
Table 6: Combined Civilian & Defense Parachute Sales........................................................14
Table 7: Net Income for Parachute Manufacturers.................................................................15
Table 8: Employment for All Parachute Firms Surveyed.........................................................15
Table 9: Employment for the Big Five Parachute Firms..........................................................16
Table 10: Reasons for Labor Shortages...................................................................................17
Table 11: Parachute Manufacturers’ Capital Investment..........................................................29
Table 12: Parachute Manufacturers’ Capital Investment -- Big Five Firms..............................30
Table 13: Reasons for Deferred Capital Investment.................................................................32
Table 14: Parachute R&D Spending.........................................................................................33
Table 15: Industry Ratings of PIA in Managing Ex-DOD Specifications...................................42

Charts
Chart 1: Capital Investment per Employee.............................................................................31
Chart 2: Total RDT&E Spending by the U.S. Army Natick Soldier Center..............................34
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Foreword

The U.S. Army Soldier Biological and Chemical Command (SBCCOM) requested this national
security assessment of the U.S. Aerial Delivery Industry. SBCCOM was concerned about the
ability of its suppliers to produce aerial delivery products in the future.

Since BIS undertook this study and collected data from domestic suppliers, the U.S. Aerial
Delivery Industry has seen demand for its products increase as a result of U.S. operations in
Afghanistan and Iraq. The surge in orders and increased revenue flowing to aerial delivery
manufacturers is strengthening their economic positions.

This positive news, however, has not eliminated the management and modernization challenges
facing the Department of Defense (DOD), and aerial delivery system manufacturers and their
suppliers in the United States. This study identifies both short-term and long-term issues and
problems that the industry and DOD must address to assure that the nation can effectively
execute tomorrow’s national security missions.

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) is delegated the
authority under Section 705 of the Defense Production Act of 1950, as amended, and Executive
Order 12656 to collect basic economic and production information from industry. These
provisions enable BIS to gather data essential to assessing the capabilities of the U.S. industrial
base. These assessments enable the government to collect information to develop programs and
policies that will improve the capabilities and competitiveness of specific industrial sectors and
their ability to support U.S. national security.

The Office of Strategic Industries and Economic Security (SIES) is the operating unit within BIS
with the responsibility for industry data collection and industrial base analysis. The Strategic
Analysis Division of SIES performed this assessment with technical support from the SBCCOM
Natick Soldier Center located in Natick, Massachusetts. SIES has worked with the armed
services in conducting more than 35 assessments in the past 15 years. These studies have
focused on a wide range of industries that are of great importance to the armed services, such as
ball and roller bearings, gears, robotics, semiconductors, ejection seats, and shipbuilding and
repair.
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Executive Summary

Since their first major deployment in 1942,1 parachutes have been an important tool in the
arsenal of the United States’ armed forces, enabling the delivery of troops and equipment to
inaccessible locations with speed and often with surprise. Following the initial use of parachutes
in World War II for large-scale troop deployments, the technology evolved rapidly to support a
broad range of “aerial delivery systems” for cargo and other payloads. The technological and
manufacturing base of the air delivery systems used by the armed forces is now many decades
old and is well established. The U.S. military relies on these systems not only in times of
conflict, but also for assisting in humanitarian relief operations around the globe.

In recent years, however, the Department of Defense (DOD) has experienced some problems in
timely delivery of parachute orders from industry and has been concerned about the ability of the
U.S. Army to procure parachute systems quickly in a time of national need. A detailed
assessment of the health and competitiveness of the industry, specifically addressing its ability to
meet future DOD needs, was requested by the U.S. Army Soldier Biological and Chemical
Command (SBCCOM), a subordinate unit of the U.S. Army Materiel Command (AMC). The
U.S. Department of Commerce, Bureau of Industry and Security, was asked to conduct the
assessment.

Many factors, both external and internal, affect the economic health, manufacturing readiness,
and technical capabilities of the aerial delivery industry. Interviews with parachute
manufacturers and supply chain executives, and survey data collected by the Bureau of Industry
and Security (BIS), show that the industry experienced market turbulence and uncertainty during
the last decade. The boom and bust cycles experienced by the aerial delivery industrial base are
perceived by survey respondents as having negative consequences for the industry’s economic
stability and its ability to respond to surge requirements. The challenge before DOD and
manufacturers operating in the United States is to find ways to bring greater stability to the
industry to assure the continuation of a robust supply base.

Industry Overview

“Aerial delivery” is a military phrase that refers to products used to airdrop personnel,
ammunition, vehicles, or supplies to military forces or humanitarian recipients on the ground. In
major engagements and in large relief efforts, DOD can consume hundreds if not thousands of
these highly engineered units.

The industry consists largely of parachute manufacturers and suppliers of components used in
various air delivery systems. Cargo and personnel parachutes are the main products of the aerial
delivery industry, but manufacturers also produce special skids, pallets, and shock absorbing
systems for delivering products to the ground intact.

1 *History of the Parachute. See: http://inventors.about.com/library/inventors/blparachute.htm

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There is also a commercial side of the market – the civilian sport-parachute market. There are
substantial differences between defense – the larger market – and commercial business sectors.
Commercial parachute customers demand wide choices of styles and colors. The manufacturers
use very small production runs and are adept at making one or very few of a specific item.
Military parachute manufacturers, in contrast, typically have larger production runs of several
hundred to over a thousand of a particular parachute system.

Although there are at least 16 manufacturers of parachutes in the United States, five defense-
devoted parachute companies produce the majority of completed aerial delivery goods (as
measured by gross sales) for the U.S. military, according to BIS survey data. These
manufacturers have dominated the defense cargo and personnel markets for years. These “Big
Five” firms are engaged in what has been described by industry officials as “cutthroat”
competition.

Industry Performance

For the five-year period – 1996-2000 – that is covered by the BIS survey data, the industry’s
sales declined, only to rebound slightly in 2000. Over the period, defense parachute
manufacturers reported annual sales averaging $60.7 million.

Volatility in demand for defense parachutes occurred in both domestic and foreign markets.
After seeing domestic sales jump from $46.5 million in 1996 to $55.5 million in 1997,
manufacturers watched domestic purchases of military parachutes fall steadily through 2000.
Revenues from military parachutes rose overall in 2000 only because of an increase of purchases
from foreign customers. In 2000, foreign demand accounted for $15.1 million (26 percent) of
the $58.5 million of military parachute sales.

Although the Big Five manufacturers in the United States dominated domestic sales of defense
parachutes in 1996-2000, the group experienced a noticeable decline in revenue. The Big Five
saw parachute sales to the U.S. military drop from a peak of $54.3 million in 1997 to $41.7
million in 2000. Total domestic defense sales in 2000 for individual Big Five manufacturers
ranged from $1.8 million to $15 million.

Net income similarly fluctuated over the period. Companies reported swings in net income of
nearly five to 10 percent to the positive or negative in this timeframe. Big Five companies
experienced significant shifts in both sales and net income. Indeed, two Big Five companies had
year-to-year net income fluctuations exceeding 1,000 percent. In each year from 1996 through
1998, four of 15 parachute manufacturers that provided data (the companies varied from year to
year) reported losses.

Inventory Control and Procurement

DOD’s purchases of aerial delivery products are affected by a number of variables, including
world events, parachute applications, inventory-tracking systems, procurement strategies, vendor
lead-times, and related supply-chain issues. The fundamental problem DOD faces in managing
its aerial delivery systems is an inability to fully foresee product needs from year-to-year.
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