OSK Oshkosh Corporation

By Doug Cameron 

Oshkosh Corp. on Tuesday won a $6.75 billion contract to build almost 17,000 new light trucks to replace aging Humvees for the U.S. Army and Marine Corps, cementing the future of its defense business.

The Wisconsin-based company was chosen over competitors Lockheed Martin Corp. and AM General LLC to build as many as 55,000 Joint Light Tactical Vehicles, or JLTVs, over the next 25 years to replace part of the Humvee fleet and some larger military trucks.

The JLTV is one of the Army's highest priorities and follows a series of budget cuts and shifting requirements that prompted the Pentagon to cancel helicopter, artillery and communications programs, after investing billions of dollars.

Oshkosh has a long history of producing military vehicles and offered a brand new design to meet the Army's requirements for a four-wheeled truck to carry two or four personnel that is resistant to mines and roadside bombs, but also is light enough to be carried by air.

"It's a historic win for us," Oshkosh Chief Executive Charles Szews said in an interview, adding that the defense business "supports the whole infrastructure for the company."

Oshkosh shares soared 11.6% to $43 apiece in after-hours trade, erasing more than half of their 20% decline this year.

The deal gives Oshkosh a stable, long-running contract for assembly work to offset other, volatile business lines, including specialty vehicles such as firetrucks and cement mixers.

The company's defense unit has struggled in recent years in the face of shrinking Pentagon spending on military trucks. The company laid off hundreds of assembly workers to lower expenses even as the company moved ahead with development work on its JLTV proposal.

"It's the difference between having a viable defense business for the next five or 10 years and having a big question mark," said Jefferies analyst Stephen Volkmann.

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 promise greater protection against mines and roadside bombs, as well as more range and durability to move troops and gear. They are also lighter than the Mine-Resistant Ambush-Protected vehicles introduced in Iraq.

The JLTV program was launched in 2007 and the Army, bruised by a series of cost overruns and canceled programs, stuck to its $250,000 price cap for each JLTV. Army officials said all three bids came in below the cap, with the average price of vehicles equipped with communications and other equipment expected to come in under $399,000, taking the total program cost to $30 billion.

The price cap pushed the three companies to use as many commercial, off-the-shelf parts as possible to lower production and maintenance costs. Oshkosh uses engines from General Motors Co., with Allison Transmission Holdings Inc. supplying the gearboxes.

The Army plans to acquire 49,909 of the vehicles alongside 5,500 for the Marines, and has the option to choose another contractor for future production runs.

The final bidders emerged from a pack that included Navistar International Corp., General Dynamics Corp. and Ford Motor Co. The trio made their final submissions in January after building a series of prototypes that the Army tested. The companies 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.

Lockheed said it would await a debriefing from the Army before deciding whether or not to protest the award to Oshkosh. The potential loss 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 Mishawaka, Ind. The company had no immediate comment Tuesday.

Bob Tita contributed to this article.

Write to Doug Cameron at doug.cameron@wsj.com

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(END) Dow Jones Newswires

August 25, 2015 20:12 ET (00:12 GMT)

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