Joint Light Tactical Vehicle Award Shakes Up Industry

Oshkosh Defense emerged in late August as the winner of the highly coveted joint light tactical vehicle contract. Experts said the award would be a major boon for the Wisconsin-based manufacturer, but noted the future may not be as rosy for losing competitor AM General.

The JLTV will be one of the biggest military vehicle procurements for the foreseeable future. The Army and Marine Corps plan to purchase about 55,000 vehicles collectively to replace a portion of aging Humvees with new, more advanced platforms. The services will finish fielding the vehicles between fiscal years 2022 and 2040.

“Commanders often have to choose between payload, performance and protection … the magic was in balancing those three things to come up with an optimal solution,” said Scott Davis, Army program executive officer for combat support and combat service support during a briefing with reporters.

The initial contract is worth some $6.7 billion. Oshkosh expects to deliver approximately 17,000 vehicles and sustainment services over the course of the initial contract. Over the program’s lifetime, the Army is planning to purchase more than 49,000 vehicles and the Marine Corps is slated for 5,500 units. It is estimated the entire program is worth $30 billion.

Lockheed Martin announced two weeks after the award that it had filed a protest with the Government Accountability Office. AM General said it was moving on to other opportunities.

Army Col. John Cavedo, former JLTV project manager, told reporters that the new vehicle will restore the so-called “iron triangle” of payload, protection and performance. “This is going to allow us to operate the way we had envisioned our light tactical vehicles being able to operate with greater flexibility and gaining back an expeditionary capability that we lost when we had to provide additional” armor, he said.

John Bryant, senior vice president of defense programs at Oshkosh Defense, said the award was extremely important for the company.

“The JLTV contract is one of the most valuable wins in the history of Oshkosh, particularly in Oshkosh Defense,” he said. “What it really means to us is it offers stability over the long term.”
Bryant said the company had been confident that its L-ATV offering would be the winner of the program.

“While we never counted our chickens before they were hatched, we were confident that there was no better vehicle out there,” he told National Defense shortly after it was announced Oshkosh had won. “It’s absolutely the best light vehicle on the planet. It offers unprecedented protection and superb off-road mobility.”

He said the company is prepared to deliver vehicles in 10 months. “We have been in execution mode really since we delivered our proposal.” Request for proposals were due in February.

While the contract may offer Oshkosh stability, it will be anything but that for competitor AM General, said James Hasik, a defense analyst at the Atlantic Council’s Brent Scowcroft Center on International Security.

AM General — which is owned by billionaire businessman Ron Perelman’s diversified holding company MacAndrews & Forbes Inc. — could be sold off, he said.

“There have been rumors swirling for years that Perelman isn’t attached to AM General and would be very happy to sell it,” he said. “The issue with selling the company was that as long as they were bidding on this … potentially $30 billion program it was impossible to put a tight distribution of expected values on that asset, so it was hard to sell.”

With AM General losing the JLTV bid, it will be less expensive for a company to buy it but “the question is, who wants another car factory in Indiana?” he said.

“AM General has a challenging business outlook in that, yes, they have made some foreign sales of Humvees, [but] it’s still not a vehicle with a good reputation,” he said.

AM General’s Humvee repair market could make it attractive to buyers, Hasik said.

He noted that he “wouldn’t be surprised if General Dynamics Land Systems would be interested.” BAE Systems might also be considering purchasing AM General, he added.

Brad Curran, an aerospace and defense analyst at Frost & Sullivan, said he believed AM General was the front-runner for the JLTV contract and was surprised when it lost. Despite the loss, he said it wouldn’t be the end for the company.

“There are still plenty of hummers in the fleet, and there are still plenty of foreign military sales as well, so between foreign military sales and parts and maintenance from the current fleet, which isn’t going to go away for many, many years, [AM General] will still have work to do,” he said.

The company has sold Humvees to dozens of foreign nations.

Dean Lockwood, a military weapons analyst with Forecast International, a Connecticut-based market consulting firm, agreed that AM General’s sustainment of the Humvee would keep it afloat for years.

There will be three times more Humvees than JLTVs in the military’s inventory. “It’s still a complementary vehicle to the Humvee fleet. It’s not a replacement for it. So even though procurement of the Humvee is extremely low right now — it’s non-existent as far as DoD is concerned — the support for the existing vehicles … that’s still the big money maker.”

The JLTV decision won’t be a devastating loss for AM General, he said. “Sure, they would have rather had it because that would have given them a very advantageous position, but without it the Humvee program is still very viable for them.”

James Tinsley, managing director at Avascent, a Washington, D.C.-based strategy and consulting firm, said the JLTV contract was a “huge loss” for AM General.

“I know they’ve talked about how they’ve diversified, that they still have Humvee contracts — they just recently won another award [with the National Guard to restore older Humvees] — and they’re doing the foreign military sales and direct commercial sales abroad, but I think this does undermine a little bit of their brand going forward,” he said. “Will countries want kind of the second best vehicle?”

Tinsley previously worked with Lockheed Martin and Oshkosh throughout parts of the JLTV competition.

“I think … [the loss] really hurts AM General and I think [the] Humvee has come way down from where it was,” he said. “I don’t think there’s anyone who can look at the budget for the Humvee and see that that hasn’t decreased rapidly and this contract was very important to them.”

AM General in a statement saying it would not pursue a protest, said it will concentrate on modernizing and maintaining the Humvee platform it has produced for decades. “We believe a protest would ultimately result in a distraction from our current growth business areas, including meeting the significant current and future needs of our customers in the United States and around the globe,” it said. 

“The JLTV does not and will not replace” the [Humvee], the statement said. “With the JLTV still subject to additional testing and several years away from fielding, the Army and Marine Corps have repeatedly emphasized the need to modernize and maintain the more than 160,000 HMMWVs in their service and ensure the vehicle can meet the requirements of future missions through at least 2050.”

AM General still has a lot of work to do on sustaining and modernizing the hundreds of thousands of Humvees in the field, the statement said.  “AM General intends to aggressively develop and execute, in partnership with the Army and Marine Corps, a comprehensive HMMWV modernization and maintenance program to service current and future light tactical vehicle fleets in the United States and around the world.”

Perhaps to prove its point, the company announced within an hour of declaring that it was declining to file a protest, that the Army, Army Reserve and Army National Guard had awarded it a $428 million firm-fixed-price, multi-year, indefinite-delivery/indefinite-quantity contract to supply the services with ambulance chassis vehicles. The initial contract was worth $89.5 million.

As for Lockheed Martin, the experts agreed that it had the least to lose given its large defense portfolio that includes major programs such as the F-35 joint strike fighter.

“I know that the [Lockheed] team had put their heart and soul into … [the JLTV offering], but from a corporate perspective I don’t really think it changes anything for Lockheed Martin,” Tinsley said. “They’re so diversified that frankly this contract, — while it would have diversified them more and it would have been a nice win — I don’t think it really hurts them.”

“They recognize that it was a bit of a tough putt,” he added.

Tinsley noted that there are still opportunities for Lockheed in the vehicle market, with the company competing for the Marine Corps’ amphibious combat vehicle contract.

Curran agreed that the decision would make little difference for the company. “Lockheed is the biggest defense company in the world — they’re OK. They’re not going to have any … problems,” he said.

Lockwood, however, noted that with the loss the company would need to seriously look at its vehicle business and decide whether it is wise to continue or to cut its losses.

A Lockheed Martin statement said: “After evaluating the data provided at our debrief, Lockheed Martin has filed a protest of the award decision on the JLTV program. We firmly believe we offered the most capable and affordable solution for the program.”

The Government Accountability Office normally takes about 30 days to respond. “Lockheed Martin does not take protests lightly, but we are protesting to address our concerns regarding the evaluation of Lockheed Martin’s offer,” the statement said.

Oshkosh’s Bryant said he expected there would be protests. “Usually on a very large program like this — when you consider the fact that there are not a large number of big tactical wheeled vehicle programs on the horizon — it wouldn’t surprise me if there were protests.”

In general, the JLTV competition was an extremely tight race, Tinsley said.

“All three are extremely incredible bidders,” he said. “The Army had no bad choices at this phase. I think that says something about their strategy and how well executed the program was, to keep competition in earlier phases, to make sure they were always getting the best vehicle, to just keep building up requirements to make the vehicle better but also [maintaining] the affordability targets and really sticking to those.”

Oshkosh, Lockheed and AM General delivered 22 prototype vehicles as part of JLTV development, which were part of a 14-month competitive test.

Prior to the protest, low-rate initial production was slated to begin in the first quarter of fiscal year 2016, according to an Army statement. The Army and Marine Corps will procure approximately 17,000 vehicles under this initial contract, with a decision on full-rate production by the department expected in fiscal year 2018.

Procurement of 5,500 Marine Corps vehicles is front-loaded into the JLTV production plan. Initial operating capability for the Corps is expected in fiscal year 2018 with fielding complete by 2022, the statement said.

The Army anticipates having its first unit equipped in 2018. Army procurement will last until approximately 2040 and replace a significant portion of its legacy light tactical vehicle fleet with 49,099 new vehicles, the statement said.

Topics: Land Forces