International Market: Opportunities Abound for U.S. Military Vehicles
Foreign nations looking to modernize and build up their military vehicle fleets will provide U.S. manufacturers with new revenue streams over the next several years, analysts and industry leaders have said.
Experts see opportunities from South America to Asia as countries face new and enduring security threats coupled with a need to replace aging fleets of vehicles. U.S. companies — which offer specialized and advanced systems — will likely reap the benefits, they said.
Globally, the market for military vehicles is rising, said John Hernandez, senior industry analyst for North America at Frost & Sullivan. In 2018, U.S. manufacturers secured $10.5 billion in sales which include follow-on upgrades.
“The United States leads the market,” he said. “They’re the largest arms supplier in the world.”
Global modernization efforts are driving the demand, he added. Countries are seeking more advanced systems that can address a range of missions.
They are trying to “modernize what they currently have and also to develop new systems that will take into consideration future threats,” he said.
In Europe, Russia is keeping neighboring nations on their toes, said Mark Cancian, a senior fellow at the Center for Strategic and International Studies. There is an increased focus on building up ground forces.
“Allied defense budgets are rising,” he said. “You see that in NATO. More of them are getting to the two percent [GDP goal] and of course they’re under a lot of pressure to do that.”
President Donald Trump has been aggressively pushing NATO countries to invest two percent of their GDP into defense. Only a handful currently meet that pledge.
“The money is going to be there — or at least some money will be there — for modernization, and ground vehicles will be one of the systems that countries will likely turn to,” he said.
“The challenge from Russia is driving the budgets overall, and the fact that Russia is a ground power that could make a grab on Eastern Europe puts a premium on ground forces,” he said. “You see that with NATO as they are putting brigades into the Baltic Republics.”
Moscow has been upgrading its ground forces and has even developed a next-generation main battle tank called the T-14 Armata.
Geopolitical issues in Europe are fueling more sales for BAE Systems, said Dennis Hancock, director of international combat vehicle programs for the company.
“Europe is a little bit of a new entry for us in some vehicle realms, especially around infantry fighting vehicles,” he said. “We’re seeing a dialogue and growth in Europe that if you asked us a couple of years ago, we probably wouldn’t have seen that opportunity.”
There is currently a requirement by NATO for every member to have an armored brigade combat team by 2026, he noted. The company’s suite of vehicles is “strongly positioned” within the U.S. Army’s armored brigade combat team and could help NATO nations meet that objective, he added.
The Baltics, Balkans and areas that historically would have been considered Eastern Bloc countries are of interest to the company, he noted.
Oshkosh Defense, the maker of the joint light tactical vehicle, also sees opportunities in Europe, said Mike Ivy, senior vice president of international programs and global product support at the company. Last year, the U.S. government announced a potential foreign military sale with the United Kingdom for 2,747 JLTVs worth more than $1 billion.
“We’re anxious to get the JLTV into Europe and we’re confident we will find more opportunities there,” he said. “We always have interest in serving our NATO allies as a matter of priority.”
The U.K. government is still working through its budgetary process and a contract between Oshkosh and the Ministry of Defence has yet to be signed. With negotiations over Brexit ongoing, a timeline on the deal is still in flux, Ivy said.
The United Kingdom’s JLTV will not require much modification from the U.S. version, he noted.
Both the U.S. Army and Marine Corps are procuring thousands of the vehicles. The Army plans to purchase 49,099 systems and the Marine Corps wants more than 9,000. The Army’s 1st Armored Brigade Combat Team, 3rd Infantry Division based out of Fort Stewart, Georgia, was to start receiving the first of the platforms in January, and should be fully equipped with about 500 systems by the end of March, the service announced in December.
“What we discover in many … [countries] is that what the customer wants is what the U.S. Army and the U.S. Marine Corps have,” Ivy said. “There’s almost universal trust and confidence in the U.S. DoD acquisition system to have … [procured] the right kit at good prices.”
Last year, Oshkosh held a demo at Millbrook Proving Ground in the United Kingdom, where many senior government leaders were able to ride in the vehicle, he said. The company plans to hold another demonstration in Europe sometime in 2019 to show off the system to interested customers, he added.
The Middle East is another hot spot in the vehicle market and one of the fastest growing, Hernandez said. Countries in the region have a lot of territory and require robust ground forces.
Nations such as the United Arab Emirates and Saudi Arabia have deep pockets and are willing to pay for high-end systems like those sold by U.S. manufacturers, he added.
Oshkosh has offices in Abu Dhabi and Riyadh, Ivy said. While the Middle East is an area of interest, he does not see active competitions for the JLTV at the moment. However, “there are ongoing discussions,” he added.
As for BAE Systems, Hancock said the market is strong in the Middle East and in North Africa.
“Our M88 recovery vehicle is well positioned and sees a lot of activity in this region, and we continue to discuss with foreign partners through the U.S. government regarding infantry fighting vehicles modernization,” he said.
M109A6 (BAE Systems)
The company will be looking at several countries over the next 18 months that are working with the U.S. government to modernize infantry fighting vehicles, he added.
Asia is also a growing market, Cancian said. Threats from North Korea are propelling countries like South Korea and Japan to look into modernizing their ground forces.
“The North Koreans … [have] very weak air forces and naval forces,” he said. Most of its focus is growing its land capability.
Ivy noted that Oshkosh is seeing a need for well-protected tactical vehicles in Asia.
Likewise, BAE also sees opportunities, Hancock said. There is a strong market for the company’s M109 and M88 vehicles, he noted.
However, while U.S. manufacturers may face a favorable global vehicle market, they will also have to compete with foreign nation’s indigenous industries, said Jim Hasik, a senior fellow at George Mason University’s Center for Government Contracting.
“There are large parts of the world in which ‘military truck’ means commercial truck painted green,” he said. That is not the case for many wealthy countries where a military system would be robust and advanced.
But “if your armed forces don’t have a whole lot of money, one way to save a bit that doesn’t seem to have an obvious shortcoming is to … trade down to a commercial truck,” he said.
Once a country has traded down to a commercial truck there are many more companies that can supply those than the handful of military truck builders in the United States, he said.
U.S.-made systems are often more expensive, he noted. Because of the higher price point, interested countries would likely be wealthy and industrialized and already have their own indigenous vehicle market, he added.
“Why would I buy from the Americans? I can buy from somebody locally,” he said. “It’s not like fighter jets where … there aren’t that many people that make them [so] I better call the Americans.”
BAE Systems prefers to work with a country’s local industry instead of competing head-to-head with it, Hancock said.
“One drive we see common throughout the international market is a move away from your traditional offsets and [a] move into … partnering in industrialization or localization,” he said.
“Industrialization and localization — BAE Systems does not look at as [competition] or a roadblock. It looks at it as an opportunity to partner with another country.”
That approach has been especially beneficial in the South American market, he noted.
“We continue to execute contracts and we continue to develop our relationships with our foreign partners in South America to the point where we are even in the throes of working locally to modernize some vehicles,” Hancock said.
The company’s largest partner in the region is Brazil, he said. It has sold the nation a variety of vehicles including the M113, M109 and amphibious armored platforms.
Argentina and Chile are other areas of interest and the company is keen to work with them as they develop future requirements for their ground forces, he said.
Doug Malikowski, director at Polaris Government and Defense, said partnering with local industries is one key approach his company takes. Polaris — which is based in Medina, Minnesota — is the manufacturer of ultralight tactical vehicles such as the MRZR and Dagor. It has sold vehicles to 40 countries around the globe.
“In Asia, we have some competitors … that are offering different value-type products,” he said. “In some cases it’s difficult to compete on the price depending upon what the quality level is that customers want. … We try to focus as much as we can with customers that No. 1, have a need and No. 2, have the ability to consider high quality products.”
In almost all cases the company is able to offer vehicles with service available in country, he noted. It has a number of subsidiaries outside of the United States and works with a variety of dealers and distributors.
Most countries “want some benefit to the people and … the way we do that is utilizing distributors and dealers that are already in place,” he said. “They have the brick-and-mortar [shops]. They have the ability to quickly get on our ordering sites.”
Oshkosh doesn’t worry too much about competition from indigenous companies, Ivy said.
“Many countries in Europe — particularly smaller countries, new NATO allies from Eastern Europe — do not have indigenous vehicle markets and we’re seeing a lot of interest from those countries,” he said. “But even in the countries that do have indigenous vehicle markets … the JLTV really speaks for itself.”
Ivy noted that the system can compete with a variety of vehicles in the global market, particularly when it comes to operating in tough environments.
Additionally, the cost of the platform is ideal, he said.
“Our pricing will compare very favorably with the pricing of similarly equipped and capable vehicles from anywhere in the world,” he said.
For the U.S. Army, each platform was not to exceed $250,000 in fiscal year 2011 constant dollars, according a Congressional Research Service report titled, “Joint Light Tactical Vehicle (JLTV): Background and Issues for Congress,” that was written by military ground forces specialist Andrew Feickert.
However, there are some places that Oshkosh knows it won’t find a favorable market, Ivy said.
“I’ll readily admit that there are some country markets in Europe that we don’t see cracking into anytime soon,” he said. “We don’t spend a lot of time trying to convince Germans to buy the JLTV.
They have a very robust indigenous market and, in fact, in many markets compete with us.”