Sun, Mar 23, 2003 page12

• Minnesota company carves out piece of defense-money pie

  In a sphere dominated by giants such as Lockheed Martin and General Dynamics, Alliant Techsystems has found a crucial niche - making small-arms ammunition

  • By Amy Cortese / NY TIMES NEWS SERVICE
  • • 
    • 
    • 

  Among the US' military contractors, Alliant Techsystems Inc is dwarfed by competitors like Lockheed Martin, Boeing, General Dynamics and Raytheon. Alliant will have sales of about US$2.1 billion this year, compared with US$10 billion and up for those larger, better-known companies.

  But Alliant, based in Edina, Minnesota, plays a crucial role in the fighting in Iraq. It makes all of the army's small-arms ammunition, used in rifles and machine guns, and about half of the medium-caliber rounds fired by armored vehicles and the devastating antitank chain guns in attack helicopters.

  And it also supplies important parts of so-called smart weapons, including advanced fuses for smart bombs like the Joint Direct Attack Munitions, satellite-guided bombs that proved effective in Afghanistan and have already been used in the current Iraq campaign.

  

  "It's a fairly obscure company," said Loren B. Thompson, a military analyst at the Lexington Institute, a research group in Arlington, Virginia. "People outside of the defense industry don't realize what a critical part they play."

  While bigger companies like Raytheon usually have a delayed benefit from a war, in the form of increased long-term orders, Alliant makes "the kind of thing that is used up very quickly," Thompson said.

  "They are well positioned to benefit from military activity in the short term," he added.

  An analysis by the US' Congressional Budget Office concluded last September that in a war in Iraq with a large allied ground force, replenishing arms would account for a surprisingly large part of the overall cost. It estimates that combat would cost about $9 billion in the first month, with the replacement of munitions, including cruise missiles and other weapons as well as ammunition for rifles and machine guns, accounting for 41 percent of that total.

  Alliant's munitions sales were up 45 percent in the quarter ended Dec. 31, compared with the period a year earlier. The increase reflects a surge in military sales as well as the acquisition of a unit of Blount International that makes ammunition for hunters and target shooters.

  Clearly, though, the company's main market remains the military and domestic security. Alliant was awarded a US$92 million contract by the army last year for 265 million rounds of small-caliber ammunition, ranging from 5.56mm rifle ammunition to 30mm rounds for aircraft cannon. Over all, Alliant makes more than 500 million rounds annually at its plant in Independence, Missouri.

  In February, Alliant received contracts totaling US$113 million to make ammunition for the Abrams battle tank.

  Alliant, created in 1990 when Honeywell spun off its military businesses after the Cold War, also supplies ammunition to law enforcement agencies, including the New York Police Department and the FBI.

  Paul David Miller, Alliant's chief executive and a retired admiral, plays down the possible effects of the war in Iraq on his company, noting that the military, for now, is drawing from its munitions stockpiles. Thompson, the military industry analyst, said that Miller was being discreet because it is considered bad taste in the industry to highlight the returns generated by war.

  Recent acquisitions

  The military buildup and recent acquisitions have clearly bolstered Alliant's bottom line. For the fiscal year ending March 31, Alliant said it expects its sales to rise more than 16 percent, to US$2.1 billion from US$1.8 billion the previous year. Analysts at Credit Suisse First Boston estimate that Alliant's operating profit will rise to US$278 million, or 13.2 percent of revenue, from US$224 million, or 12.4 percent of revenue, the previous year. And the company has generated about US$125 million in cash.

  Alliant receives more than 40 percent of its revenue from its aerospace unit and manufactures solid-rocket boosters for the space shuttle. The company's shares slid by 21 percent in the five weeks after the Columbia disaster last month, but they have since rebounded by 14 percent to close at US$48.90 on Friday. NASA, which accounts for about 17 percent of Alliant's overall revenue, intends to resume shuttle operations by next year and has long-term contracts with the company, so the Columbia disaster is not expected to have a big impact on that revenue.

  Alliant's ambitious expansion is being directed by Miller. In just over four years at the helm, he has doubled the company's revenue through a series of acquisitions that have built on the company's core strengths and expanded all of the company's three main businesses: aerospace, ammunition and precision systems.

  Over the same period, Alliant's stock price has also doubled -- significantly outperforming bigger contractors like General Dynamics, which was down 2.6 percent in that time, and Lockheed Martin, up 7.1 percent. The broader market, as measured by the Standard & Poor's 500-stock index, fell 27.1 percent during that time.

  More important, acquisitions have positioned Alliant to benefit from the Pentagon's shift to smarter, lighter and more easily deployed weaponry.

  In the Navy in the early 1990s, Miller championed the shift to "adaptive joint forces" -- military jargon for increased cooperation among the navy, army and air force. And he foresaw the move to the lighter, more precise weapons that has been behind his push to transform Alliant.

  "When I looked at ATK four and a half years ago, this was a company that was meeting the demands of that particular time," he said, referring to the company's stock symbol. "I didn't see a whole lot working toward satisfying the requirements of tomorrow."

  Miller has tried to change that. A third of Alliant's resources are already dedicated to developing weapons for the future, from more precise missile guidance systems to the next generation of the military assault rifle. A year ago, he pulled together a half-dozen businesses, including propulsion and munitions units, into a new Precision Systems division, which accounts for about US$640 million in sales, or about 30 percent of all revenue. At the same time, acquisitions have given Alliant enough expertise at building complex components to let it compete as a lead developer of certain weapons subsystems, rather than working only as a parts supplier.

  Drawing on that technology and expertise, Alliant is the sole developer of the Advanced Anti-Radiation Guided Missile, which the Navy wants to use to destroy enemy radar. The missile will replace the High-Speed Anti-Radiation Missile, which is now being used in Iraq, and also has electronics developed by Science and Applied Technology.

  Other weapons under development include a rocket-assisted projectile that will extend by five times the range of some naval weapons, to 90km; the XM29infantry weapon, which will combine a grenade launcher and laser-aiming technology with a conventional rifle; and extended-range munitions for the army's Future Combat Vehicle.

  Miller, who has already extended what was initially a three-year contract, plans to retire at the end of this year and his successor is widely expected to come from inside the company.
• Most Popular

  • 1

    Taiwan and the US preparing a ‘hellscape’ strategy

  • 2

    Two questioned over DPP legislator recall forgery

  • 3

    Taobao fined NT$1.2m for unauthorized advertising

  • 4

    Former DPP aide detained in spy probe

  • 5

    Taobao fined over ads, risks losing license: ministry