Morten Brandtzæg, CEO of arms and ammunition producer Nammo, discusses the challenges that the war in Ukraine has brought to the arm industry.
Russia’s invasion of Ukraine in February 2022 shook Western Europe. The return to full scale linear warfare in Central or Eastern Europe was a scenario that many never thought possible following the end of the Cold War and the dissolution of the Soviet Union at the end of 1991. Thereafter, Western governments delighted in the supposed ‘Peace Dividend’ that this brought, and took the opportunity to follow a policy of reducing defence spending, allocating the extra money into other areas of the economy.
Thirty years later, the Russian Federation led by Vladimir Putin is waging an full scale war against Ukraine (although thankfully without nuclear weapons). While the majority of the fighting is in the Eastern region of the country – primarily Luhansk, Donezk, Saporischschja and Cherson – during the early stages one of the first advances came from the North, partly through Belarus.
Now, over 18 months later, there remains uncertainty within Russia following the mutiny of the Wagner Group led by Yevgeny Prigozhin, who has paid for such disloyalty with his life. However, Putin has remained in power, still supported by loyal supporters such as the Belarusian president Alexander Lukashenko. During the initial invasion, Russian forces were allowed to attack Kyiv from Belarusian territory, and a strategic switch by Russian forces to try something similar should not be discounted.
Before Prigozhin’s Wagner Group mutiny, I travelled to Norwegian ammunition manufacturer Nammo to visit its facility in Raufoss, north of Oslo. Nammo was formed in 1998 from three ammunition manufacturers in Norway, Sweden and Finland. It is jointly owned by the Norwegian Government and the Finnish Aerospace & Defence company Patria Oyj, with each having a 50 percent share in the company.
The company manufactures a wide range of defence products, from small to large calibre ammunition, to solid rocket motors, shoulder fired weapons, as well as a variety of grenade types.
Nammo is one of Europe’s biggest suppliers of large calibre ammunition, particularly 155mm rounds, and is in the company of Germany’s Rheinmetall Defence, France’s Nexter Systems, and Roxel Propulsion Systems among others.
Pressure to Produce
The war in Ukraine has levied varying amounts of pressure on different manufacturers in the defence industry. Ukraine’s early and continuing cries for international military support remains constant.
“We have been tasked with increasing deliveries, and we have seen a demand for artillery rounds more than 20 times bigger than before,” stated Morten Brandtzæg, chief executive officer of Nammo when we talked in June.
The demand for ammunition from Ukraine came quickly after the COVID pandemic, which had seen business all over the world either slow down or sometimes halt completely.
“We aren’t a company that can just shut down completely and go home,” said Brandtzæg, although as much protection for the workforce was put in place as was possible. This meant that the company was able to keep producing ammunition and other weaponry. “We delivered 94 percent of orders to our customers during the pandemic. Our operations continued while enforcing all the rules and requirements,” he said.
As with many industries, not just defence, there was significant concern about the fragility of supply chains to withstand the restrictions placed upon them.
“The biggest concern we faced was that our supply chains would not be able to maintain frequency of deliveries, not only those within the military industrial base but also those outside it in the commercial world, delivering basic material including aluminium and steel. We did notice that lead times on critical products and materials such as explosives started to increase, explained Brandtzæg.
Post Pandemic – And War
Almost as soon as the pandemic was over and life was returning to normal, on 24 February 2022 Russia invaded Ukraine. War had returned to the continent of Europe.
Brandtzæg said that he, among many others, thought the fighting would be over fairly quickly, once the first Russian advance toward the Ukrainian capital had been driven back. “At the start we thought maybe a couple of years. Then half a year ago I thought that it would extend to around five years, but now it very much looks as though it will last longer, perhaps up to ten years.”
Some defence companies have been effected more by the war in Ukraine than others. The type of war matériel supplied by Nammo such as ammunition, anti-tank weapons, rocket motors for missiles, and grenades are used quickly and demand is consistently high. Other companies supplying large items of equipment such as tanks, ships and aircraft have long delivery times. In addition, the political decision making to supply larger weapons is a longer and more complicated process.
Investment Catch 22
Even today, there is no real solution when faced with the rapid need to increase production. The slow down in defence spending over decades has gradually reduced capacity. The ‘pool’ of international defence companies has also been reduced, as corporate acquisitions have absorbed technologies and talent into large conglomerates.
To increase capacity investment is needed. “Our group annually invests between $60-70 million per year. But if we were to build just one factory to supply artillery ammunition only to Ukraine, that would require a minimum of a $3 billion investment,” explained Brandtzæg. “It is obvious that there is no way for industry alone to solve the massive investment requirement in order to deliver the capacity that has substantially increased.
“Politicians need to understand that companies such as Nammo, that are financially healthy and historically make good profits, still need additional investment dollars for this kind of undertaking. We cannot load so much debit onto Nammo,” said Brandtzæg.
Investment not only revolves around increasing capacity. Like any other business, research and development (R&D) must also be financed. There is a constant need to develop new methods of production, modernise existing weapons and develop new ones. Production machinery needs to be updated and salaries have also been under pressure following post COVID inflation in many countries.
The dilemma now being faced by many defence companies, especially those who deliver on short lead times, is how much can industry afford to invest and how much can be expected to come from national subsidies – and for how long? While Nammo is invested to try and address the current shortage, it will take time to increase capacity and it is clearly not going to be enough.
There are basically four large manufacturers in Europe who produce large calibre ammunition. explains that politicians need to understand the reality of the current situation: “You cannot just send a truck to Nammo and get as much ammunition as you want’”, he said.
Three Phase War
The war in Ukraine can be split broadly into three phases, said Brandtzæg. The first phase was that initial ‘do what you can, as soon as you can’ period, witnessed by nations individually sending arms and matériel as soon as they could and when they had identified what would be appropriate with the Ukraine government. Some of the early donations were from Eastern European countries who had the same type of ex-Soviet era equipment.
The second stage saw the development of a more unified international approach, led by NATO and the EU (as politicians of its member states came under pressure from their own public to be more proactive).
The final stage is the ‘gearing up’ of industrial capacity, although it is still gaining pace more slowly than is required. The issue is not just one dimensional in feeding Ukraine with the weapons and support that it needs.
The threat from Russia – the same threat that the Baltic States, Poland and others have been warning about for years – is that if Ukraine cannot sustain the war and Russia eventually succeeds in most if not all of its war aims, then where next? Putin has spoken about returning to 1992 boundaries which would include the aforementioned states – who are all NATO members.
War Footing
The current system must now change to match the geo-political situation as it is developing, both in terms of the Russian threat of expansion in Europe, but not forgetting the wider threat of Chinese defence build up in Asia. Both countries are challenging the international democratic values that were installed after the Second World War,
Defence budgets have been ‘raided’ by the Treasuries of many countries over the last few decades to provide extra funding for competing government departments, for health projects, transportation or other industrial growth. But, says Brandtzæg, the war in Ukraine is now forcing governments to realise the national commitment needed to support a linear war again, instead of the asymmetric wars of the early 21st Century.
“We are still using our own investments but this is finite,” he said. “The governments need to become involved but it takes time to persuade them. Nammo lives inside a triangle of industry, defence forces, and geo-politics.”
NATO is closely monitoring the war and is coordinating with the EU which controls the financial resources and importantly the funds for industry. “We are seeing close cooperation between international organisations, which is important so that we all have the same picture of reality.” At the time we talked, there had been a growing political willingness to support industry.
“I think there is willingness to spend on defence to protect our core values,” maintained Brandtzæg. “In Norway, we hardly see any criticism of our industry since the war started.” That could also be said of both of the events that this writer has attended since, at MSPO in Poland (where you would not expect any protest), and at DSEI where protests were significantly more isolated than usual.
Room for Improvement
“We are not mentally prepared to go into ‘bad weather’ for a long time,” said Brandtzæg reflecting on the lack of preparedness that Europe found itself it at the start of the Ukraine war. He believes that more must be done to create a more capable system that can react quicker to this type of challenge.
“We need better control over the procurement and flow of raw material, as well as how can we develop new technology, faster,” he remarked. it has become a fact that the rapid development of technology in the civil world has placed significant pressure on the traditionally slower defence industry to fund, develop and field new products.
In Nammo’s product portfolio, customers are always looking for more range, more effect and improved precision for both ammunition and missiles.
In September, Norwegian Chief of Defence General Eirik Kristoffersen voiced his concern that NATO’s stockpile of ammunition and missiles continued to remain at a critically low level. Not only had stocks been drawn down over time, those that had been available had not be replaced in a timely manner and the sudden shock of having to assist Ukraine in its fight against Russia has caused a shortage of both explosive and the manufacture of ammunition. “In Norway’s case, said Brandtzæg, it would take Euro 3 billion [$3.1 billion] to restore national stocks; this compared to an annual defence budget of Euro 9 billion [9.5 billion].
Finally, when the dust has settled and war has finally come to its conclusion, what happens about the extra capacity that has now been built up? “There is the challenge; companies need to keep profitable but how then is the overproduction managed,” concluded Brandtzæg.
by Andrew Drwiega
