Revving up defense industry won't be easy

Outdated plants, manpower shortages cast doubt on contractors' ability to absorb $1 trillion in defense spending by mid-'80s.

While Congress argues over whether to cut the 1983 Reagan defense budget by a relatively paltry $10 billion or $15 billion, another troubling question persists:

Will American industry be able to handle the trillion-dollar-plus Pentagon buildup that will occur through the mid-1980s?

There is general agreement that the defense industrial base today is far from what it should be. Long lead times, increasing dependence on foreign suppliers, shortages of skilled manpower, and aging plants and equipment are just some of the problems. Without major changes by government and industry, defense analysts agree, increased spending could simply accelerate inflation and add to the cost-overruns that make the nation less secure.

In its first year, the Reagan administration has taken some steps toward solving a problem that continues to get worse. ''But we are not there yet,'' says Fred Ikle, undersecretary of defense for policy. ''And I am personally troubled that it takes so long to move ahead on this large and complex issue.''

Symptoms of the problem include:

* The National Science Foundation prediction of a 47 percent shortage in industrial engineers in the 1980s.

* A possible shortage of 250,000 machinists by the mid-1980s, even without rapid growth in the US arsenal, according to the Defense Science Board. Yet the average machinist in this country is 58 years old and may soon be retiring.

* Of the 26,000 metal cutting and forming tools owned by the government, 20, 000 are more than 20 years old and therefore inefficient, the Defense Science Board also reports.

* Of the 61 individual materials or family groups in the strategic stockpile, shortfalls exist in 37 (23 of which are at less than half the approved level).

Thousands of US defense contractors have folded or stopped taking Pentagon orders. As a result, bottlenecks occur and lead times lengthen. For example, the lead time for an F-16 jet fighter grew from 28 weeks in 1977 to 42 weeks three years later. Lead times for military jet engines and aircraft landing gear more than doubled over the same period.

''The unpredictability of defense spending has discouraged firms from modernizing,'' says Sikorsky Aircraft Company vice-president Harvey White. ''Scores of contractors have quit the defense business for more lucrative work.''

Says Jacques Gansler, a former Defense Department official who gathered much of this information in his book ''The Defense Industry,'' ''We're spending more and more dollars a year and getting less and less equipment.''

''Without changes, we'll get increases in the cost of defense goods without strengthening our posture,'' Dr. Gansler told a recent gathering of government officials, military officers, business executives, and defense analysts at the Brookings Institution.

This is especially true, others note, since military planning under the Reagan administration is shifting from the ''short-warning, short-war'' scenario to conflicts of longer duration on many fronts. If there is a longer conflict, the General Accounting Office warns, ''Huge gaps exist between when military stocks will be exhausted and when production will equal needs.''

All aspects of Pentagon spending are scheduled to rise steadily over the next five years. But the increase in spending for new weapons (procurement and research and development) is even sharper, more so than during the Vietnam war. Economist Charles Schultze estimates this to be 16 percent per year between 1981 and 1985 for a five-year total of 80 percent.

''This implies the rather startling conclusion that some 30 percent of the increase in the 'goods producing' GNP (Gross National Product) over the next four years will go to the military,'' Dr. Schultze told the congressional Joint Economic Committee.In other words, the defense industrial base could be severely strained by the increased defense buildup, the emphasis on mobility and readiness, and the goal of increasing ''surge capacity'' to meet military emergencies.Among the steps taken by the Reagan administration to relieve this potential strain are these:

* President Reagan has approved the first defense stockpile purchase program in 20 years. This is for $100 million in strategic materials, $70 million of which is for cobalt.

* The administration has begun multi-year procurement of many weapons, including A-6 airplanes, Blackhawk helicopters, fleet oilers, and NATO Seasparrow missiles. Officials say this gives contractors greater stability and can result in savings of 10-20 percent over the long run. Multi-year initiatives for 1983 will add $578 million to that year's defense budget, but eventually save $815 million over five years, the Pentagon contends.Similarly, the Pentagon plans to ''surge'' production of the controversial M-1 tank from 60 a month to 90 a month for six months in 1982 at an increased cost of $126 million. ''That cost could be more than recovered after multi-year programming,'' said Defense Undersecretary Ikle.Defense suppliers welcome multi-year contracting, but some are not so sure about the size of the potential savings. ''We don't see anywhere near a 10-15 percent saving in multi-year contracts,'' said George Graff, president of the McDonnell Aircraft Company, which subcontracts on a multi-year basis.

* The Defense Department has begun to ''budget to most likely cost'' as another means of increasing procurement stability for government and business. This means using a more accurate predicted inflation figure, including reserves for ''technological uncertainties,'' and spending more money ''up front'' for productivity improvements. The Pentagon will get some unwanted help here from a 1982 defense appropriations bill amendment requiring Congress to be notified whenever estimated costs exceed a certain percentage.Working against this, others note, may be the Reagan emphasis on decentralizing authority to the individual services. They will be put in the uncomfortable position of having to cut some programs if they are to ''budget honestly.'' Part of the problem, it is generally recognized, is that the services as well as defense contractors have traditionally ''bought in'' to the defense budget by underestimating full costs for favored weapons.

* The Reagan administration has increased its predecessor's 1983-87 military preparedness budget by 44 percent, from $5.2 billion to $7.5 billion. For example, the Army's manufacturing technology program is to be doubled.

* The administration has launched what it calls ''a new spirit of cooperation'' with the defense industry, consulting more closely and seeking the advice of industry executives. To those concerned with President Eisenhower's warning of a ''military-industrial complex'' (or retiring Admiral Hyman Rickover's more recent charge that ''political and economic power is increasingly being concentrated among a few large corporations''), Deputy Defense Secretary Frank Carlucci says the Pentagon still intends to ''be tough in contract negotiations as part of the buyer-seller relationship.''While generally lauded for its actions to improve the defense industrial base thus far , the administration is being criticized on some important points. Antonia Handler Chayes, Air Force undersecretary in the Carter administration, says ''cutting back on student loans will prevent a lot of potential engineers from even going to college.'' Others say the same about cuts in federal job-training programs.Under pressure from Congress, Deputy Defense Secretary Carlucci added ''increased competition'' to the 31 ''management principles'' outlined last year to improve the acquisition process. Still, says Jacques Gansler, ''No large weapons have gone to dual sourcing (in effect, competition from design through production) which is the form of competition that can really save money.''''I think we are moving in the right direction,'' says Dr. Gansler. ''However, we have an awfully long way to go.''