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In U.S. JLTV Contest, Which Team Has the Most To Lose?

Sep. 2, 2012 - 03:20PM   |  
By PAUL McLEARY   |   Comments
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The $14 billion U.S. Army-Marine Corps Joint Light Tactical Vehicle program was put on hold Aug. 31 when Navistar, one of the three bidders who was not issued a engineering, manufacturing and development contract Aug. 22, filed a protest with the Government Accountability Office.

Navistar spokeswoman Elissa Koc said in an email that “following our debrief with the government, the company has concerns regarding the selection process and we’ve requested a review.”

Navistar submitted its Saratoga light tactical vehicle to the program office in March, but was shut out of the EMD phase on Aug. 22, when $180 million worth of development contracts were awarded to Lockheed Martin, Oshkosh and AM General to work on the 27-month EMD phase of the competition.

According to the current schedule, once the protest is resolved, the teams will have 14 months to deliver 22 prototype vehicles. They beat out BAE Systems, General Dynamics and Navistar for the funding to continue work, but that doesn’t mean only three competitors are left.

In a statement issued on the evening of the down-select, Navistar Defense President Archie Massicotte said, “There may be an opportunity for Navistar to bid for a JLTV production contract after the EMD phase is complete. We will seriously consider that option.”

The other teams weren’t quite so open about their intentions, but all three of the bidders who failed to receive EMD contacts were debriefed by the Army during the week of Aug. 27, company officials said, though no details from those briefs have been made available.

But a lot can happen in the two-plus years until an actual production contract is awarded for 55,000 vehicles, (50,000 for the Army and 5,000 for the Marines), especially as defense budgets tighten and the Pentagon rethinks its priorities in the post-Iraq and Afghanistan era.

But the importance of the program varies greatly among the competitors who won an EMD contract and those who did not.

“If AM General doesn’t have JLTV, they’re kind of sunk,” said analyst Byron Callan of Capital Alpha Partners. “Maybe there’s some spares and support business, but I kind of put them in the same category that Force Protection found themselves in at the effective end of the MRAP [mine-resistant, ambush-protected] program.”

The continuing Humvee work the company has isn’t miniscule, however. AM General provides logistics support for the Humvees it has sold to 50 countries around the world, and in June introduced its Modernized Light Tactical Vehicle “with NATO and European Standard EN-level armor protection that is scalable to meet differing mission requirements,” company spokesman Jeff Adams said in an emailed statement. “The company also continues to focus on growing its commercial automotive manufacturing business.”

Since AM General has based its military business around the Humvee, which the Army and Marines are looking to replace, the JLTV competition is a critical part of its strategy going forward.

It’s vital to the other winners, as well. In August 2009, Oshkosh wrested the $3 billion Family of Medium Tactical Vehicles contract away from BAE Systems, but “they might not make much money on the contract, because for the first several quarters they were losing money on it,” industry analyst Jim Hasik said. “They’ve run some serious losses because they bid so low on a truck they hadn’t built before. So [JLTV] is a big deal for them.”

For Oshkosh, the JLTV program is critical also because the production run of its highly successful MRAP All-Terrain Vehicles is presumably reaching its limit, with almost 10,000 trucks having been built.

As for the companies shut out of the EMD phase, Navistar has a broad-based global commercial truck business, and for BAE and General Dynamics, the program “is kind of a division- or sector-specific issue, but it’s not a big needle mover as far as the total company, which might cause them to have to rethink the direction they’re going,” Callan said.

Even one of the EMD “losers” still could be a big winner. While BAE’s design wasn’t chosen, the company’s Sealy, Texas, manufacturing plant would build the trucks for Lockheed if that company wins the contract.

But the contest is far from over. As Massicotte said in his statement, companies can still jump into the competition, but it will be at their own expense.

While companies dissect their debriefings from the Army and consider their next moves, Hasik sees the open nature of the competition as potential protection against protests because the Army has not excluded anyone; rather, it is essentially telling them “we’re not going to write the check, so what you’re protesting is that you didn’t get the $60 million,” he said.

Two of the three EMD winners — Oshkosh and AM General — didn’t win technology demonstration (TD) contracts in 2008, and funded their designs themselves. And two of the companies shut out of the EMD phase — BAE and General Dynamics — were TD contract winners.

“You’d rather have an EMD contract than not have an EMD contract,” Callan said.

Given the overhaul of the design specifications over the past year, the JLTV program looks vastly different from the one that was kicked off with $166 million in contract awards in 2008 — so much so that new EMD awards call into question the ultimate value of the money spent on the TD phase, Hasik said.

“If there hadn’t been a TD phase, the selection of Oshkosh, AM General and the Lockheed team that included BAE Systems Sealy wouldn’t have been shocking,” Hasik said. “If the TD phase was about a vehicle concept that they eventually wound up effectively junking in the next phase, then you have to wonder, well, how valuable is the TD work to the EMD bid?”

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