Oshkosh Wins $6.7 Billion Military Contract to Replace Humvee -- Update
August 25 2015 - 6:19PM
Dow Jones News
By Doug Cameron
Oshkosh Corp. was awarded a $6.7 Billion contract to build the
first batch of as many as 55,000 light trucks to replace the aging
Humvees used by the U.S. Army and Marine Corps, the Pentagon said
Tuesday.
The company won over rival bids from Lockheed Martin Corp. and
AM General LLC to build thousands of Joint Light Tactical Vehicles,
or JLTVs.
The three companies emerged from a pack that included Navistar
International Corp., General Dynamics Corp. and Ford Motor Co. for
a crucial acquisition program that follows a series of stumbles by
the Army that left it canceling helicopter, artillery and
communications deals after investing billions of dollars.
Oshkosh shares soared 11.6% to $43 apiece in after-hours
trade.
It is a vital win for Oshkosh, whose defense sales slid 60% in
the latest quarter from a year earlier as the Pentagon slowed
purchases of heavier military vehicles, though the company has
dismissed speculation among analysts that it may sell or spin off
the unit.
Chief Executive Charles Szews said on a recent investor call
that defense was expected to be the company's growth driver next
year--even if it lost the JLTV contract--led by export sales of
heavier military trucks. It will start building the trucks this
year, with the first of almost 17,000 vehicles being delivered in
2016. Oshkosh had said it would close two of its three facilities
in Oshkosh, Wis., if it lost the JLTV contract.
The trio made their final submissions in January after building
a series of prototypes that have been tested by the Army. They
touted their offerings in a series of radio and print ads in
Washington, D.C., and in Michigan, home to the Army's contracting
command.
The new trucks will replace many of the 120,000 Humvee trucks
built by AM General that have been worn out by use in Iraq and
Afghanistan, and offer greater protection, range and durability to
move troops and equipment. They are also lighter and easier to
handle than the Mine-Resistant Ambush-Protected vehicles introduced
in Iraq.
The initial contract covers three years of low-rate production,
with a decision on boosting output expected in 2018.
Lockheed planned to build the trucks on a new line in Camden,
Ark. and said has said it has alternative uses for the Camden
facility, which already produces missile and artillery systems. The
company said it would await a debriefing from the Army before
deciding whether or not to protest the award to Oshkosh.
It is more of a blow for AM General, which has subsisted on a
diet of Humvee exports and a recent deals to assemble vehicles for
Mercedes-Benz at its plant in Mishikawa, Ind.
"If we didn't win JLTV, I'd be disappointed, but not
discouraged," said AM General CEO Charlie Hall in an interview
earlier this year. The company had no immediate comment
Tuesday.
The JLTV program was launched in 2007 and the Army, bruised by a
series of cost overruns and canceled programs, has resolutely stuck
to its $250,000 price cap for each JLTV, a four-wheeled truck
carrying two or four personnel that is resistant to mines and
roadside bombs, but also light enough to be carried by air.
Army officials said all three bids came below the cap, with the
average price of vehicles equipped with communications and other
equipment expected to come in under $399,000.
The price cap pushed the three companies to use as many
commercial, off-the-shelf parts as possible to lower production and
maintenance costs. The Army plans to acquire 49,909 of the vehicles
alongside 5,500 for the Marines.
While the Pentagon didn't explicitly include the export market
in its list of more than 2,000 requirements, executives at all
three companies have said the winner of the Pentagon contest would
be the most attractive to overseas buyers, especially U.S.
allies.
Oshkosh shares closed up 1.5% at $38.52 on Tuesday, and are down
21% this year.
Write to Doug Cameron at doug.cameron@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 25, 2015 18:04 ET (22:04 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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