WASHINGTON — The US Army is poised to award a contract for the Joint Light Tactical Vehicle (JLTV), its Humvee replacement, in the coming days — a much anticipated milestone for a major Army acquisitions program with, one with the power to reshape the ground vehicles industry.
One of three competitors, AM General, Oshkosh Defense and a Lockheed Martin-BAE Systems team, will walk away with a contract for three years of low-rate initial production and five years of full-rate production, for a total of 49,100 for the Army and 5,500 for the Marine Corps.
"Everybody needs this, and one thing I get asked a lot is who needs the contract the most," said James Tinsley, managing partner of Avascent, a strategy and management consulting firm. Tinsley has worked for Oshkosh, Lockheed and a number of subcontractors on JLTV-related efforts at different phases.
The winning firm or team would build 17,000 vehicles for the Army and Marines in the first three years of low-rate initial production, followed by five years of full-rate production, according to a Congressional Research Service report.
The Army seeks a replacement for the Humvee that is as mobile, but with the same protection as a mine resistant ambush protected vehicle (MRAP).
As part of engineering and manufacturing development (EMD) contracts awarded to the three companies in 2012, each company delivered 22 prototype vehicles.
The first Army unit would be equipped with the vehicles in fiscal 2018, and its acquisition would be complete in 2040. The Marine Corps would begin its buy at the start of production and finish in fiscal 2022.
Though full-rate production is set for 2018, defense executives have hedged in expectation of a possible protest, which would surely cause a delay. Lockheed CEO Marillyn Hewson, in a January call with investors, said the award date was uncertain because, "a lot of times protests emerge."
Jerry DeMuro, BAE Systems US-based CEO, expressed concern over defense budget uncertainty and the chance for protests. BAE Systems is a subcontractor to Lockheed Martin on JLTV.
"We think we have a very innovative approach, but it will be a hotly contested program," DeMuro said in an Aug. 1 earnings call. "I think the award decision is scheduled from the Department of Defense in late August, September time frame. After that, we may go through a period of protest as is not unusual on a highly competitive program. So it will be some time before I think that one sorts it out."
As the Army deliberates, each of the competitors have asserted that their offering provides the most capability at the best price.
Defense giant Lockheed, while an upstart in the ground vehicles market, has been in a strong pole position, long involved with the replacement for Humvee, Tinsley said. Yet, win or lose, JLTV is dwarfed by Lockheed's involvement in the F-35 program and by programs in the missiles division, Lockheed runs it from, so the stakes are lower.
"It has the least to lose and the least to gain," Tinsley said.
That view reflects the conventional wisdom. According to James Hasik, a senior fellow at the Brent Scowcroft Center on International Security:
"For Lockheed Martin, JLTV would be nice-to-have, and would clearly establish Lockheed as a company supplying kit to forces for land, sea, air and space," Hasik said. "Is that a good thing for the Defense Department? I'm not sure, but I understand Lockheed's motivation."
AM General had teamed with General Dynamics for the first few phases, but dissolved the team and offered a different vehicle for this latest phase. Oshkosh lost in the first phase and has since continued its development to stay viable. Lockheed and Navistar, years ago, won a contract for a development vehicle, and Lockheed has won at each phase of the JLTV program.
"Lockheed is essentially the only one in there since the first phase, and everyone else has had to fund development on their own," Tinsley said. "The government could be the most invested in Lockheed Martin solutions since they have fostered it and helped it through the years."
Lockheed has made a substantial investment of its own money, building from the ground up to the Army's requirements., Tinsley said, rather than, "trying to shoehorn the Army into a solution they already have; they were the most focused on giving the Army what it wants."
Kathryn Hasse, JLTV program director at the company's missiles and fire control division, in an emailed response to questions, also touted the company's clean-sheet design, "rather than taking an existing vehicle and trying to force-fit it into the requirements."
"Not only are we fully confident that we're ready to produce JLTVs, our customers are as well," Hasse said. "So this competition doesn't come down to Lockheed Martin's ability to manufacture a vehicle. That we can do. It comes down to which company will offer the best vehicle in terms of quality, performance and value. We believe that will be us."
Lockheed executives have expressed cautious optimism, however. Executive Vice President Bruce Tanner, in a July 20 earnings call, called the company's play for JLTV "maybe in some people's views, a little bit tougher putt because they do not necessarily associate Lockheed Martin with being in the combat vehicle business.
"But I think we have a tremendous offering there," Tanner said. "And it would put us into a new segment within the DoD that we do not have a lot of business, other than putting some of our weapons system on top of combat vehicles. This would be actually building the combat vehicle itself. It's exciting to be able to have that opportunity."
If the stakes are lowest for Lockheed, they are highest for AM General, according to Tinsley.The Army plans to retain Humvees in the fleet, and AM General will continue to sustain those and sell Humvees overseas, but Tinsley speculated — win or lose — it will not last long as an independent entity.
For years, the iconic Humvee has been AM General's life's blood. The company has manufactured more than 280,000 units since production began at its Mishawaka, Ind., plant in 1984. Though the Humvee has evolved several times over the years, the heavily armored MRAP came to dominance in Iraq and Afghanistan to offer better protection from improvised bombs. The JLTV will replace a third of the Army's Humvee fleet.
AM General needs this most, said Hasik, who characterized AM General's business as "tied basically to Humvee replacement parts." available outside the company. "Not long after contract award, whether AM General gets the JLTV business or not, the company will probably be for sale," Hasik said."We’ve all just been waiting for the informational event which would tell us how much it’s worth—either a lot or a little."
AM General officials vehemently disagree. Though JLTV is a high stakes competition for AM General, the company has worked to diversify itself and potentially insulate itself in the event that it loses. Chris Vanslager, AM General vice president for business development and program management, said, "JLTV is very important to us, and it is very important to us because it is very important to our customer," but added, "We have a very diverse company."
"Win or lose, the company is positioned to continue to grow," Vanslager said. "We're in growth positions with the Army, National Guard, foreign military sales and commercial sales, and the evidence is there in recent awards an announcements."
The Humvee will remain in the Army's inventory at least through 2030, though in diminishing numbers. Last year, the company won a $91 million contract to recapitalize up to 760 Army National Guard Humvees, which allowed the company to recall 200 laid-off workers to its Mishawka, Indiana, facility.
AM General's Humvee contracts in recent months include a $373 million foreign military sales contract in July, as well as a $246 million contract for Mexico last December and a $32 million contract for Humvees for Iraq in March.
On the commercial side, AM General was selected in January as Mercedes-Benz' only contract operator, to assemble the R-Class luxury vehicle. It also manufactures the MV-1 wheelchair accessible van as of last summer after buying out its Detroit-based manufacturer.
In the competition, AM General's strength is its legacy as a high-volume manufacturer and maintainer of the Humvee, and its rumored position as the lowest bidder, Tinsley said. While Lockheed is betting the Army wants the most modern truck it can get, AM General is betting the Army will value a competitive price.
"From an operating cost perspective, that's where AM General will tell a story that the acquisition costs are minimal compared with the operating costs over time," Tinsley said.
For AM General's part, Vanslager called out the company's background as "the world's premier light tactical vehicle provider." with the engineering knowledge and practical experience that comes with it. The company has over the last decade generated new technologies, for instance for its next vehicle, instantiated in the BRV-O (Blast Resistant Vehicle - Off road).
The company's "hot supply chain," work force, and a global support network tied to international sales of the Humvee are all plusses for the Army, Vanslager said.
"We're the trusted partner that our customer can depend on, and we're ready to produce right now. We're offering the best value that instantiates the most capability at the cost target."
Oshkosh, like AM General, argues that its business is diversified enough to thrive should it lose. It maintains an enviable business in heavy and medium tactical vehicles, and according to company reps, significant international opportunities.
"JLTV, it is the big dog, but isn't the only program," said John Bryant, Oshkosh senior vice president of defense programs. "We're doing business at Oshkosh and building trucks right now."
Recently, a $184 million contract to deliver 698 Family of Medium Tactical Vehicles FMTVs to the Army which followed an award for 256 of those vehicles in December. In June, it won a $780 million contract that will involve the recapitalization of more than 1,300 Heavy Expanded Mobility Tactical Trucks and 438 Palletized Load Systems and the build of 1,000 trailers.
"Oshkosh could definitely use this, but it's hardly essential to survival," Hasik said. "If Oshkosh does get it, the company will be supplying heavy, medium and light trucks to both the US Army and the USMC. Troops will see Oshkosh bumpers wherever they look. That would be an impressive blanket of marketing."
Another defense analyst who asked not to be named said that if it loses JLTV, AM General will still have a strong position for future Humvee upgrades both in the US and internationally. Looking at the Army's long term budget and program plans, Oshkosh faces a significant drop off over the next few years.
"It really needs JLTV to fill that hole," the analyst said.
Though CEO Charlie Szews said in earnings calls over the last year that he was optimistic about foreign military sales opportunities, the company lost a competition earlier this year for Canada's Medium Support Vehicle System (MSVS) project and has yet to announce a foreign sale for its M-ATV. (Amateur videos and photographs of M-ATVs in Aden reportedly began to appear online in July.)
Over the last year, Oshkosh's defense sales fell 59 percent to $194 million, recording a $7 million operating loss, the Motley Fool financial services company reported earlier this month. The company was largely relying on its emergency vehicles and commercial businesses.
In the JLTV competition, Tinsley said he considers Oshkosh to be the middle choice, cost-competitive and experienced with heavy military trucks. The question is whether its bid will be lowest.
"AM General is the sedan and these guys are the heavy duty pickup truck, and those have different designs, approaches and operating costs," Tinsley said. "They're going to argue that they're better in that weight class, and Lockheed Martin can have all the computer models in the world, but they aren't going to be worth a damn, compared to our actual experience."
Bryant cites the company's experience fielding the M-ATV and its ability to transition from development to production. Bryant said the company has done this for more vehicles than its competitors and is ready to do it right away for its entry, the L-ATV, right away, and as such offers a "'no-risk seamless transition to production.
"We see the Oshkosh JLTV as the most capable and survivable tactical vehicle that's ever been built, and technically speaking, the Oshkosh JLTV — we've had the advantage because our M-ATV is the only vehicle performing the mission in theater right now," Bryant said.
Oshkosh touts its vehicle as having the protection of its M-ATV, packaged in the L-ATV, which is about one-third lighter. Bryant likened its Core 1080 crew protection system to that of a race car, which allows its driver to walk away from a horrific wreck. Every inch and every component was designed for its contribution to survivability, he said.
Bryant declined to discuss price, but said the company's strategy was not to be the cheapest vehicle.
"I don't know what we are, because I don't know our competitor's pricing by any means, but I do know we have the most capable and survivable light tactical vehicle that's ever been built," Bryant said.