By Bob Tita Of DOW JONES NEWSWIRES Companies vying to provide a replacement for the U.S. military's Humvee utility truck are digging in for the next phase of the competition, undeterred by anticipated cuts in defense spending that threaten to undermine the truck program. Two finalists are expected to be selected early next year for a four-year engineering and manufacturing development phase of the Joint Light Tactical Vehicle, or JLTV, program. The winner of this phase could receive a production contract for more than 60,000 vehicles worth $30 billion. The U.S. Defense Department has indicated the selection won't be limited to the three teams of companies chosen in 2008 for the technology development portion of the program, giving companies bounced out of the competition three years ago an opportunity to get back into the program. "This program is probably going to be the biggest acquisition of wheeled vehicles" by the military, said Kevin Thomas, director of defense programs for truck maker Navistar International Corp.'s (NAV). "It's going to be a very robust competition and I anticipate there will be good number of companies." Specialty truck builder Oshkosh Corp. (OSK), which scored two big contracts for military trucks in recent years, is determined to take advantage of its second chance at JLTV. Oshkosh and its partner Northrop Grumman failed to make the cut for the technology development phase of the program. "It's effectively a whole new competition now," Oshkosh Chief Executive Charles Szews said. Oshkosh hopes to leverage its successful development of an all-terrain patrol truck for U.S. forces in Afghanistan into a improved entry for the JLTV competition. The Wisconsin company has built 8,100 of the all-terrain trucks since 2009. Szews' optimism is further bolstered by what he considers as disappointing results from the three teams awarded $20 million each provide JLTV prototypes under the technology phase of the program "None of them met the weight requirement. None of them met the mobility requirement and the pricing they offered exceeded the [government's] budget," Szews said. Analysts expect military truck builder Force Protection Inc. (FRPT) to consider another run at JLTV as well, after being excluded from the early phase of program. The South Carolina company has already supplied the Army and Marine Corps with large armored trucks. In late 2010, the U.K.'s armed forces ordered 200 of the Force Protection's Ocelots, a light armored patrol truck that could be adapted for JLTV. Force Protection did not respond to repeated calls for comments. The teams that already have provided trucks for testing are Navistar and a York, Penn.-based affiliate of U.K. defense contractor BAE Systems PLC (BA.LN, BAESY); AM General, the builder of the Humvee; General Dynamics (GD) Land Systems; and Lockheed Martin (LMT) and BAE Systems' Armor Holdings unit in Texas. Thomas said teams that have supplied JLTV prototypes have an edge over companies such as Oshkosh because the military's requirements for next phase of the program will be based in part on performance tests and technology gleaned from the prototypes. "We've gotten a lot smarter than we were when we delivered the vehicles," Thomas said. "For the past two years we've been having face-to-face meetings with the government." The military's interest in a new all-purpose truck grew out of the Humvee's shortcomings under combat conditions in Iraq and Afghanistan. The lack of armor on the vehicles made them highly susceptible to insurgents' roadside bombs. When armor plating was added, the Humvee became too heavy for its engine. Engineers for alternative vehicles have struggled to hold down costs and maintain the Humvee's agility while providing maximum protection against bomb or rocket attacks. The Marine Corps has already complained that the prototype trucks are too heavy for its rapid-deployment missions, according to defense analysts. Moreover, analysts believe the cost of the prototypes is above the $350,000 per vehicle base price set by government. That figure could grow to $500,000 per vehicle when communications gear and other equipment are added. The Army is particularly sensitive to the trucks' cost because the service also is pursuing funding to replace its Bradley armored troop carrier. The cost of the so-called ground combat vehicle is pegged at $10 million a vehicle. "You have to ask yourself whether the money is going to be a available for such a pricey vehicle," said Loren Thompson, a defense analyst for the Lexington Institute, public policy consulting firm in Virginia. "Something is going to go away. The ground combat vehicle and the JLTV are in jeopardy because of defense budget austerity." After nearly a decade of elevated spending for the wars in Iraq and Afghanistan the federal government is expected to scale back defense appropriations in the coming years to counter bulging budget deficits. President Obama has proposed saving $400 billion from defense programs by 2023. Thompson predicted a plan to significantly modify some 40,000 existing Humvees will gain momentum as the military looks for lower-cost options for replacing the Humvee, which has been in service since the early 1980s. Navistar's Thomas said he's confident that JLTV won't be abandoned. "This program has continued to move forward and that's indicative of the need for this type of vehicles," he said. "The program is staying alive for that reason." -By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
