July was one of those good news/bad news months for Oshkosh Defense.
First, the good news: On July 19, the company announced that it was adding to the almost 9,000 MRAP all-terrain vehicles it has sold to the U.S. Defense Department by inking the first international contract for the M-ATV, selling 750 to the United Arab Emirates. This comes on top of the 50 it had sold the Middle Eastern kingdom in 2011 as part of a Foreign Military Sales deal brokered through the U.S. Army.
While terms of the deal were not disclosed, the company said delivery to the UAE is scheduled between January and August 2013, pending congressional reporting requirements.
The M-ATV represented a huge win for the company when the contract was awarded in 2008, when the DoD was looking for a lighter yet heavily armored vehicle for use in Afghanistan. The country’s winding, often unpaved roads can be unsuitable for the hulking mine resistant, ambush protected vehicles (MRAPs) that had been deployed there. After being bounced from the Joint Light Tactical Vehicle technology development program earlier that year, the M-ATV win against competitors Navistar, General Dynamics, Force Protection and BAE Systems was considered a coup.
The original procurement plan called for $3.3 billion to build 5,244 M-ATVs for the U.S. Army, Marine Corps, Special Operations Command, Air Force and Navy, but subsequent orders have added thousands of trucks to the total. In 2012 alone, the company has signed more than $100 million worth of M-ATV sustainment contracts — including new underbelly protection — with the DoD.
Now, the bad news: In a statement released July 26 to announce its third-quarter 2012 earnings, the company’s defense segment said its sales had decreased 13.4 percent to $958.5 million in the quarter, compared with the prior year’s third quarter.
“The decrease was primarily due to lower shipments under the Family of Heavy Tactical Vehicles (FHTV) and MRAP All-Terrain Vehicle (M-ATV) programs, as well as lower aftermarket parts sales, offset in part by higher Family of Medium Tactical Vehicles (FMTV) unit sales as the company reached and sustained full rate production under the FMTV contract during the quarter,” the statement said.
Oshkosh Defense’s opera-ting income also decreased 64.3 percent to $40.2 million, compared with the previous year’s third-quarter operating income of $112.5 million. The slump was largely due to “adverse changes in product mix, lower sales volumes and charges from revenue and cost estimate changes on undefinitized contracts,” the company said.
In the 2013 Pentagon budget, the Army also announced plans to finish its buy of FMTV trucks, built by Oshkosh since it won the contract from BAE Systems in 2009. The Army requested $377 million to procure 1,471 FMTVs in 2013, and hopes to save $1.4 billion by finishing its buy early and terminating the contract in 2014.
But the company is looking to the UAE deal as a possible hint of foreign sales to come, according to John Urias, president of Oshkosh Defense. The retired Army major general said the Wisconsin-based company has a long relationship with the UAE, since the Middle Eastern country previously purchased Oshkosh’s Heavy Expanded Mobility Truck, an eight-wheel-drive cargo hau-ler. The M-ATV participated in trials in 2011 in an open process with unmanned competitors and came out on top.
“The beauty of the M-ATV concept is that it combines small-arms protection and mine resistance with good off-road mobility,” said Jim Hasik of Austin, Texas-based Hasik Analytic. “For troops who intend to enter combat dismounted, or just mostly face guerrillas, that’s what’s needed — not frontal-arc 30mm resistance.”
Noting that MRAPs and tracked infantry fighting vehicles are becoming increasingly expensive — and heavy — Hasik added that “vehicles like the M-ATV are an important and affordable supplement. And that formula could work for lots of customers. While not abandoning tracks, the Russian and British armies have announced in the past few weeks that they will be pivoting heavily toward wheels, and largely for cost.”
Spending Cycles
While the UAE deal won’t create any new jobs for Oshkosh, Urias was quick to add that “it is certainly protecting jobs, so our intent is to continue to drive these kind of [foreign] sales in the future so we can sustain ourselves through this downturn in the domestic defense arena.”
Urias said the downturn in U.S. defense spending isn’t a surprise to the company, since the Pentagon contracts every time it extricates itself from a war, and the post-Iraq and -Afghanistan period is proving to be no different.
Given this environment, “what you have seen is a much greater emphasis on the international market — we are actively dealing with other countries who are interested in M-ATVs and other vehicles,” he said.
Even with the sense of gloom in the domestic defense industry, Urias said, the UAE deal shows that “despite the downturn in the U.S. defense market, you can still find business, you can still keep your capacity and your people.”
In a conference call with investors July 26, Charles Szews, Oshkosh’s president and CEO, said it is excited “about the potential for international orders ... and are excited to expand the relationship with the UAE.”
The deal “reinforces our belief that there are opportunities to continue selling M-ATV,” he said. “We’re in a volatile world. There are a lot of events going on in the Middle East that could sustain long-term defense business.”
And there’s another potentially big contract just around the corner. In March, Oshkosh unveiled its entry into DoD’s Joint Light Tactical Vehicle competition with its Light All Terrain Vehicle (L-ATV). Since being shut out of the JLTV’s technology development phase, Oshkosh has spent $80 million deve-loping successive generations of the L-ATV before submitting its bid in March.
At June’s Eurosatory trade show in Paris, Urias told Defense News, “it’s probably the best vehicle we’ve ever designed,” and Oshkosh is so confident in its mature design that it was prepared to submit a prototype for immediate evaluation, but military officials declined the offer.
The Army and Marine Corps plan to award up to three $65 million JLTV development contracts later this summer.
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Oshkosh
• Headquarters: Oshkosh, Wis.
• 2011 sales: $4.36 billion
• 3rd-quarter 2012 sales: $958.5 million (down 13.4% from 3rd quarter 2011)
• Operating income: $40.2 million (down 64.3%)
