Where Industry and Security Intersect
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Anti-Friction Bearings 1986 National Security Assessment of the Anti-Friction Bearings Industry
The Deputy Secretary of Defense, William Howard Taft IV, in response to Congressional concern over government policies for procurement of ball bearings and how they affect the domestic industry, requested the Joint Logistic Commanders (JLC) conduct a study of the criticality of the bearing industry to the defense posture. Particular emphasis was to be placed on 30mm and larger bearings. As part of this review a determination was to be made of DOD and commercial bearing requirements, industry capacities, impact of bearing imports on national security in surge and mobilization environments and other factors affecting the bearing industry.
In response to Secretary Taft's request, the JLC tasked the Joint Group for the Industrial Base (JGIB) to establish a study team to address these issues. The team, the Joint Bearing Working Group (JBWG), included personnel from each of the services and the Defense Logistics Agency. The Department of Commerce and the International Trade Commission were asked to become members because of their expertise in trade and economic issues.
The JBWG developed questionnaires designed to gather data for analysis that would answer several taskings. Separate surveys were designed for the bearing industry, engine manufacturers, bearing component suppliers, specialty steel producers and tool manufacturers, all impacting or being impacted by conditions relating to the health of the bearing industry. Major companies in these industries were surveyed and plant visits were conducted at selected facilities to emphasize the criticality of the study and to discuss trade and economic related issues.
After analysis of data collected, discussions with company officials, and review of previous related government studies, the JBWG concluded that the US bearing industry, having been subjected to foreign penetration of the domestic market for an extended period of time, and having suffered the natural consequences of this lost market share, is in imminent danger of being unable to support national defense needs.
The JBWG concluded that imports of bearings over 30rnm in diameter began to impact the position of domestic bearing companies in l978. Since then, steady erosion of the commercial bearing sector has taken place.
This trend is continuing, and as foreign producers capture an ever increasing share of the US market, it becomes more difficult for domestic firms to remain competitive. The foreign share of the ball bearing market is currently 39% while 36% of the roller bearing market is held by foreign firms. Smaller bearing sizes, for which a FAR has been in effect since 1971, were first affected by imports in the mid 1960's. However, imports of these smaller sizes also increased since 1978, along with the larger sizes.
The commercial sector of the bearing market has traditionally provided the economic base over which production costs are spread. The Department of Defense portion of the total bearing market is approximately 17% (the superprecision segment is approximately one-fifth of DOD consumption). However, DOD demands alone are not large enough to sustain the overall health of the industry, or to provide incentives for firms to invest in net equipment or train new workers. Further, as the commercial sector has deteriorated, domestic producers have been forced into the production of specialty bearings or niches, to remain in business. These niches are characterized by low profit, low volume, high cost production runs. As the outlook for the commercial sector of the bearing industry continues to worsen, maintenance of adequate defense capability cannot be guaranteed.
Defense production has become a more important market for many domestic producers as they have given way to competition from foreign manufacturers in the commercial/commodity bearing sector. Until recently defense markets remained within the pervue of domestic producers and served as a refuge against foreign incursion. Some original equipment manufacturers have begun bearing qualification procedures with foreign producers and indicate that upon qualification of these sources, procurement of most of bearings used for new production of military engines will use those sources. Reasons cited for the decision to use foreign bearings is based on lower price, leadtime and better quality than offered by US firms.
Finding their traditional markets eroded, domestic producers have become reluctant to invest in modern capital equipment. This will further diminish their ability to compete in the world market. Conversely, as foreign producers capture a larger share of the domestic market, increasing profits provides them with the willingness to upgrade equipment and further widen the competitive gap between themselves and domestic producers.
If this trend is permitted to continue, qualified domestic producers will be forced to shut down production lines and some close their door permanently. Once this production capability is lost it is difficult to regain within a reasonable time. Company officials estimate it would take at least four years to rebuild capability to produce superprecision bearings. Long leadtimes are caused by the design, order and in-place qualification of machine tools, redesign of plant layout, steel supply, and manpower training.
Production capacity within the industry is currently capable of meeting peacetime defense needs. There is however, little capability to expand capacity. While equipment remains idle that previously was used to produce commercial/commodity grade bearings, it is not, in most cases, readily convertible to the production of high precision bearings necessary for DOD weapon systems production. Additionally, peacetime demands upon domestic bearing producers have driven leadtirnes beyond 40 weeks for several bearings, forcing OEMs to look elsewhere for sources which can meet their production schedules.
Superprecision hearing production require special equipment and highly skilled labor. This makes interchangeability among bearing lines or companies unlikely. The work force in the bearing industry is aging; and, because of reduced overall production, fewer opportunities are available to train new and younger employees. These conditions will continue to restrict surge and mobilization capabilities. Survey data indicated the four mainshaft bearing manufacturers for gas turbine engines could reach only 39% of the surge target (doubling production) after 12 months and fall short of the mobilization target (quadrupling production) by 50% after two years. This situation is expected to worsen in the next few years.
As the OEM's increase their use of foreign bearings, additional limits are placed on domestic firms' ability to respond to surge and mobilization. OEMs increased dependence on foreign sources can lead to interruption of supply during an emergency, placing our nations' defense posture in jeopardy.
The JBWG determined a two-pronged approach is necessary to improve the competitiveness of the domestic industry, ensure its long-term survival as well as ensuring the continued maintenance of defense capacility. The following recommendations include viable alternatives that are needed to address the problems facing this industry. They include DOD actions 5 well as other governmental agency initiatives beyond the purview of the Department of Defense. They are presented as a package to provide an effective competitive strategy. It is important to note that DOD actions alone will not resolve the problems facing the industry.
In order for the following recommendations to be effective, the group recommends Secretary Weinberger urge congressional level direction which will result in national policies designed to assist the industry in becoming competitive in the world market. An interagency group chaired by the Secretary of Commerce should investigate the following six issues:
l. Analyze the imposition of limiting bearing imports temporarily, combined with domestic producer plans for facility modernization and workforce training programs. This would allow a limited time period for the industry to expand market share and increase profits. Concurrently, through government/industry agreements, a minimum portion of these profits would be dedicated for plant and equipment modernization.
2. Analyze temporarily exempting the industry from anti-trust laws to provide an opportunity to consolidate and rationalize production. Major foreign markets have already permitted this process to occur and have realized production and competitive efficiencies.
3. Analyze tariffs, quotas and other US and foreign trade restrictions on bearing parts, components and steel. Numerous trade restrictions in foreign markets and the United States inhibit the ability of domestic bearing firms to compete with foreign competitors.
4. Restrain the transfer of bearing technology offshore through production agreements by limiting the number of these types of agreements. Each agreement contributes to industry decline by moving bearing technology offshore as well as causing lost production opportunities.
5. Review industry concerns regarding anti-dumping laws to determine if they are effective in discouraging dumping and unfair marketing practices.
6. Study the impact of imports on US producers of bearing parts, components and steel. During the investigation the group noted the US infrastructure supporting the bearing industry was erode and being rep4ced by imports.
The four actions for the Department of Defense are:
l. Initiate a time limited FAR for the procurement of domestic bearings far
all DOD uses, providing exceptions and waivers which are within the Government's
best interest. This will initially ensure domestic bearings for DOD applications.
2. Consolidate, coordinate, and increase funding for joint service/industry
modernization programs for domestic bearing manufacturers.
3. Investigate DOD capabilities and industry needs for a projection of bearings
requirements.
4. Examine refurbishment capacity within the commercial industry and determine
the appropriate split between commercial and DOD refurbishment work loads.
The bearing industry is critical to national security. However, the industry
is at risk and will experience a dramatic contraction if nothing is done.
The US government must take decisive and immediate actions, including regulatory
changes, legislative enactments, and clear administrative policy directions
if a domestic production capability is to be maintained.