It's been a long, slow summer at Pennsylvania Gear Corp.

But that will change in October when the Falls Township company returns to an old customer - the U.S. Department of Defense - in an effort to climb out of a slump that began in the late 1990s.

The company will begin work on an 18-month, $3 million contract to make gears for the Army's M1A1 main battle tank.

"It gives us a nice shot in the arm when we really need it," said Craig Stranahan, president of the company, which is in its fourth generation of family ownership.

Pennsylvania Gear's biggest customers are manufacturers of construction, agricultural and transportation equipment, such as Deere & Co., Caterpillar Inc. and Case-New Holland. When those companies' sales began slipping in 1999 as a broad recession began in U.S. manufacturing, Pennsylvania Gear suffered.

Lower-cost imports from Asia and Europe exacerbated the problem for Pennsylvania Gear and its domestic competitors.

For instance, Philadelphia Gear Corp. closed its King of Prussia manufacturing plant last year to focus on the service end of the business.

Pennsylvania Gear's sales have fallen from $10.5 million in 1997 to $7.1 million last year. Sales were as low as $6 million in 1999 after a big customer took all of its gear work to Italy.

The company's workforce took it on the chin, as well, falling from 110 in 1997 to 45 now.

Stranahan said he expected to add 50 workers because of the new contract, which was announced last month and which could be extended.

Small manufacturers such as Pennsylvania Gear tend to go in and out of defense subcontracting based on the economy, said Barry Miller, chief operating officer of the Delaware Valley Industrial Resource Center.

"When people are getting squeezed, one of the options that comes up on the screen" is the Department of Defense, Miller said.

That is particularly true for companies that have done it before, because they are used to dealing with bureaucracy, he said.

Pennsylvania Gear went through a cycle of defense work from 1986 to 1992. That came on the tail of another downturn in the industry caused by imports from Japan.

The new Army contract calls for the company to produce 500 assemblies consisting of gears, shafts, seals and bearings enclosed in a housing. The assembly is the final link between the tank's 1,600-horsepower engine and the shaft that turns the tracks.

Stranahan's family has been making gears for 100 years.

His great-grandfather founded Stranahan Gear Corp. in 1902 in the Frankford section of North Philadelphia.

Stranahan's grandfather moved the operation to Bethayres, Montgomery County, in the 1950s.

His father and uncle moved the business in 1980 to its current site, an 85,000-square-foot building near the intersection of Route 1 and Oxford Valley Road in Bucks County.

These days, Stranahan, 41, and his brothers - who were meeting with potential lenders this week while he was showing a visitor around the shop - run the operation.

Todd Stranahan, 40, is executive vice president in charge of research and development, and Kyle Stranahan, 31, is vice president and general manager. Their father, Henry Stranahan, is company chairman.

During the visit, the shop was rather quiet. Stranahan said the 15 to 20 production workers were setting up lathes, grinders and other machines for the second shift.

Among them was Gary Mulligan, 46, a shop supervisor, who has been in the gear industry since he was 18.

"It's been tough," said Mulligan, who lost his job with Stranahan Gear in the early 1980s when the company went through a bankruptcy. It changed its name to Pennsylvania Gear when it emerged from bankruptcy.

He worked for another local gear manufacturer for 10 years before returning to Pennsylvania Gear in 1994.

Mulligan said he was looking forward to working on the defense contract and training new workers. "I enjoy teaching people and solving problems," he said.

Contact Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.