Tracking the Armed Forces of the Philippines Modernization program

2Sep/110

Sustainable weapons manufacture in the Philippines

Sustainable weapons manufacture is the result the buildup of a wide variety of in-country capabilities. The presence of engineers and the like are merely one of the requirements.

All of the countries that manufacture their own weapons have one thing that we do not: "A well established manufacturing base". The presence of either a civilian, for-profit, manufacturing base, or a well-funded state-run monopoly, ensures that many of the logistical requirements required to sustain a manufacturing venture are already readily available: surplus electrical power, established means of collecting raw materials, managerial skills, etc.

Although the US' own capacity to make goods for its own citizens has been eroding for quite a long time, it still enjoys windfall benefits from its days when it was the "factory of the world". Now that title has moved to China, which is rapidly developing its own weapons manufacturing capability.

One could say that the following is a list of requisites for having one's own Military-Industrial Complex:

  • Technical know-how
  • Manufacturing base
  • Demand
  • R&D capacity

Technical know-how. People who tout that the Philippines has an abundance of engineers and skilled laborers, and point to that as proof that the Philippines can make its own weapons, are partly correct. You do, after all, need people who know how to do the work. But you also need other "classes" of workers to make a manufacturing venture viable. For example, you need skilled managers who keep workers working, and happy. You won't be producing anything if your workers are always on strike. You will also need Industrial Engineers and Accountants to ensure efficient operations; suitably qualified human resources and training personnel to hire, train; and then retain skilled labor, etc.

Arguably, this is the easiest part of the jigsaw puzzle to address.

Manufacturing base. If weapons manufacturing were a birthday cake . . . this is the cake itself. Everything else is really just icing. Without the equipment, machinery, et. al. to produce the goods, then you have nothing.

If you do not have existing facilities, then you will need capital to acquire the equipment, the real estate for plant facilities, et. al. This will cost you billions, if not trillions, of pesos. Some sources put the Philippines' outstanding debt at P1.46 Trillion. If the Philippine government were to shoulder the cost of establishing state-run weapons manufacturing facilities, then you will be adding to that.

The key, therefore, will be to attract private investment.

Private investment will require access to credit. Credit will only be available if there is a viable business plan to ensure that the company will have a steady income stream to be able to pay back the loans. This brings us to the next point.

Demand. The AFP will not, and cannot, keep buying a particular weapon for forever. It only needs a finite amount of aircraft (previously published numbers for multi-role fighters, for example, only put the PAF's need at 24 aircraft), only consumes a specific amount of ammunition per year (higher figures for small arms which is why we have the government-owned and run Government Arsenal, but less for cannon calibers from 20mm and higher), and so on.

This presents a problem to the manufacturing company: "How can the company generate income to continue manufacturing and pay its workers when the AFP's needs have been met?"

This is actually the problem that Asian Armored Vehicle Technologies Corp., the local assembler of the GKN Simba, faced after the Philippine Army accepted all the Simbas that they were prepared to buy. With nothing else to do . . . the company folded.

One way to ensure survival would be to forecast the AFP's periodic need, factor in a reasonable profit to cover wages and maintenance of equipment, and then charge the Philippine government a per-unit cost for the item that covers all of the company's expenses. This is essentially what happened to the US with the B-2 bomber -- which is the single most expensive airplane in the world. Total cost of production was divided between only a handful of bombers resulting in a US$2B price tag. Had the production run ran to the original projected number of 137, the per-unit cost would have been lower.

If we did this with artillery rounds, for example, then we could end up with the most expensive ammo in the world. You would get more bang-for-our-buck if we simply imported ammo in this case.

Legendary Philippine combat boot maker, Ang Tibay, which had been supplying boots to Philippine soldiers since before World War II, eventually folded up shop, partly because the AFP found it cheaper to buy its boots from suppliers who sourced their boots overseas. (The company was also saddled by a host of internal problems, not the least of which was government take over, and mismanagement).

A better way would be to produce products for export, thereby allowing the AFP to benefit from economies of scale. The per-unit cost would be driven down by foreign sales. The downside, of course, is that we would be competing with dozens of already-existing manufacturers that already have customer loyalty, brand recognition, and established track records. This had been AATV's plan, to be the Simba retailer for Southeast Asia. When no buyers came . . . game over.

Getting a bank or consortium of banks, to fork out the funds for a military venture that is focused on supplying the AFP will be difficult at best.

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If we look at the various that have dabbled in SRDP, and survived, we will see that the key to survival is actually outside the AFP. Their military manufacturing ventures are not their principal object of business, but are instead opportunistic ventures. Take the following companies for example:

Steelcraft. This company has been trying to sell armored fighting vehicles to the AFP since the mid-80s, and has yet to succeed for various reasons (e.g., design shortcomings, procedural issues, etc.). Despite over 20 years of . . . lack of success . . . the company remains viable and it continues to try. It is able to do this because its core business is actually in steel manufacture. The owners view their efforts to sell armored vehicles to the AFP as a kind of expensive hobby.

Floro International Corp - this company manufactured the Mk9 sub-machinegun issued to NAVSOG, acts as a dealer for a number of offerings from Singapore Technologies, and offers a variety of defense products. The bulk of its business interests, however, remain outside the military sphere, from photo-reproduction, to the supply of office systems.

Armscorp. This is one of the original Marcos-era SRDP companies, and is engaged in weapons and ammunition manufacture. While still selling to the PNP, and to some extent the AFP, its principal market is the civilian gun market, both in the Philippines and abroad.

Filipinas Fabricator Sales, Inc. This company recently teamed up with Colorado Shipyard to win a bid to manufacture assault watercraft for the Philippine Army riverine battalion. In the mid-90s, this company forged a partnership with Hatch & Kirk, Inc. to replace the aging power plants of several World War II-era Philippine Navy boats giving these boats a new lease on life. Its bread-and-butter, however, does not appear to be with the AFP, and is instead in other ventures to include marine power generation.

R&D capacity. This is the true test of a company's viability. The ability to continue to improve existing products, and anticipate future needs. This requires deep pockets since not every research venture results in a viable product, so the company must be willing to throw money away to investigate potential dead ends. Failure to innovate could very well spell the end of the company.

The story of the South African Rooivalk helicopter is food for thought: http://www.timawa.net/forum/index.php?topic=9475.0

The Philippines needs to be selective about the weapons that it chooses to produce for itself.

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