Arkansas bond incentive ‘unusual,’ but does not secure Lockheed Martin deal

Although Lockheed Martin has now pocketed an $87 million financing package from the state of Arkansas, a Washington, D.C.-based defense budget expert said there is no reason to believe that the Bethesda, Md.-based defense contractor has an advantage over rivals in the high-stakes Joint Light Tactical Vehicle acquisition for 55,000 new tactical ground vehicles for the nation’s military.

“I really don’t have a good sense of who’s the leader,” said Ryan Crotty, deputy director for defense budget analysis at the Center for Strategic and International Studies. “It is definitely high profile, but the (JLTV) program directors have kept it on lockdown as to who’s the favorite, and there are three pretty strong candidates.”

Crotty, whose bipartisan Washington, D.C.-based think tank offers research on a wide range of U.S. policy issues at the nation’s capital, said he still believes the Pentagon will make an announcement concerning the JLTV project in July, although some defense and ground vehicle contracts have been cut, put on hold or are on the chopping block because of automatic spending cuts that are part of the 2013 sequestration.

However, the JLTV project is seen as high priority among Pentagon and congressional officials because it offers a limited window to upgrade and modernize the military’s ground vehicle capacity, he said.

ARKANSAS BOND FINANCING PACKAGE ‘HIGHLY UNUSUAL’
Crotty also called the Arkansas financing package “highly unusual” in defense contracting circles, saying it will be interesting to watch and see if it sets a pattern of local and state governments offering taxpayer-backed incentives for a taxpayer-funded government project.

“I have not heard anything from the other two competitors (Oshkosh and AM General) doing anything similar, but I don’t know if it gives Lockheed an advantage because they already have a demonstrated history with the federal government for this kind of contract,” he said. “I certainly don’t know if it will help (Lockheed), but it can’t hurt.”

Crotty said all of the companies are supported by local and state officials in the communities where they operate, but “this particular incentive (program) in Arkansas is not something that I have seen a lot of, and it remains to be seen if it sets some kind of precedent.”

Besides Lockheed Martin, publicly-traded Oshkosh Corp. in Wisconsin and privately held AM General LLC in South Bend, Ind., are the other two finalists to build the next-generation tactical, armored vehicle in a contract worth more than $30 billion through 2040.

In 2012, the U.S. Army and Marine Corps selected all three to build JLTV prototypes to replace the aging Humvee, which is noted for its off-road capabilities but is vulnerable to the road-side bombings that targeted U.S. troops during conflicts in Iraq and Afghanistan. Based on their recent applications, each company received a split of a $185 million award and started from scratch to develop their own version of the JLTV tactical vehicle.

In February, each company submitted final applications to the Army and Marine Corps that met the Pentagon draft requirements for a tactical vehicle that had the off-road capabilities of the Humvee, but also was capable of withstanding anti-vehicle explosive devices that would serve as an Internet-ready, technology command center on the battlefield.

FINALISTS OFFER ADVANTAGES
Today, each company has dedicated websites for the JLTV vehicle, offering photos, videos and talking points on their version of the JLTV tactical vehicle. All of the prototypes have a similar look and body type, but each company offered Talk Business & Politics their own reasons why they best meet the Pentagon requirements for “a lightweight, highly-mobile, net-ready vehicle” with unprecedented levels of protection for U.S. troops on the modern battlefield.

Oshkosh spokeswoman Jennifer Christiansen said the reason why the Wisconsin defense contractor and truck builder should be selected to build the JLTV is very simple.

“Experience,” she told Talk Business & Politics. “Oshkosh Defense has decades of experience designing, manufacturing and sustaining the U.S. military’s heavy, medium and mine-resistant ambush protected all-terrain vehicle (M-ATV) fleets. … In developing our JLTV solution, we applied in-theater experience to develop the next generation light vehicle with unprecedented protection and off-road mobility for our troops.”

Christiansen, who is vice president of business development operations for Oshkosh, said the company’s workforce is highly trained and is already building vehicles for the U.S. military.

“This is an important consideration because transitioning a new vehicle like JLTV from the development phase into production can be very challenging for a company lacking vehicle production experience,” she said, not specifically naming Lockheed Martin. “This is where Oshkosh is truly unique because no other company has successfully transitioned more new military vehicle programs into production for the U.S. Department of Defense.”

And although the state of Wisconsin has partnered and invested in military vehicle technology, manufacturing and infrastructure for years, “Oshkosh is not dependent on economic incentives or taxpayer funded bonds to build brand new capabilities to compete for JLTV,” Christensen said.

“At Oshkosh, our team with support from our suppliers, stands ready to add JLTV to our current production lines today,” Christensen said.

According to Oshkosh’s application submitted on Feb. 10 in response to the request for proposal (RFP) for the JLTV, the Wisconsin company said it is “fully prepared” to begin production of the all-terrain vehicles immediately. According to sources, the company’s bid was the lowest of the three finalists.

“Our troops deserve the best vehicle and technology our government can provide, and no other company serves this mission more effectively than Oshkosh,” said U.S. Army Major General (Retired) John Urias, executive vice president of Oshkosh Corp. and president of Oshkosh Defense. “Our JLTV proposal reflects Oshkosh’s heritage of building high performance tactical vehicles, and an unparalleled commitment to providing our troops with the most capable and reliable JLTV at an affordable price.”

HUMVEE MAKER AM GENERAL TOUTS EXPERIENCE
AM General’s version of the JLTV, called the Blast Resistant Vehicle-Off-road (BRV-O) tactical vehicle, was also submitted to the Pentagon on Feb. 10. Company officials said that the BRV-O provides the most operational and protection capability to address current and future needs of the U.S. Army and Marine Corps.

“The BRV-O is a combat system designed and built with a total focus on Warfighter needs, by a team whose sole calling is fielding the world’s best light tactical vehicles. The BRV-O JLTV proposal reflects AM General’s dedication to excellence and our steadfast determination to be the most reliable, trusted partner for the United States government,” said AM General President and CEO Charlie Hall. “AM General has the experience, focus, innovation and investment to give soldiers and Marines the advantage in a dangerous and constantly changing world.”

AM General spokesman Jeff Adams told Talk Business & Politics that the Indiana defense contractor “is the leading ‘light tactical vehicle’ manufacturer in the world, supported by an expert workforce and our state-of-the-art, fully-tooled, production-ready facility.”

“Our Blast Resistant Vehicle-Offroad (BRV-O) is a transformative vehicle, with an agile and hardened system that will equip and support the Army and Marine Corps with tactical mobility, proven C4ISR and unsurpassed protection,” said Adams, executive director for the global communications and marketing at AM General.

C4ISR is the military acronym for command, control, communications, computers, intelligence, surveillance and reconnaissance.

One dynamic that some JLTV watchers believe works for and against AM General’s is the fact that the Indiana company is also the original designer and manufacturer of the HMMWV, or Humvee vehicles. Designed for garrison duty during the Cold War, it was not originally designed to be an armored vehicle to protect troops from mines and roadside bombs in recent Middle East conflicts.

Although the company has not received any specific incentive package for the JLTV project, Adams said the company is a trusted partner for the U.S military and “we are proud of our longstanding, productive partnership with the State of Indiana.”

THE CASE FOR LOCKHEED MARTIN
For Lockheed Martin, also a publicly traded company, JLTV observers say its key advantage is its position as the nation’s largest defense contractor and familiarity with the Pentagon contracting process. The defense contracting giant has also teamed with Boeing Co. to bid on a contract to build a new long-range bomber for the Air Force worth over $80 billion. Northrop Grumman Corp. is also competing for that contract, which is also expected to be announced later this summer.

At the Arkansas Capitol on Tuesday, Lockheed Martin officials offered a rare glimpse at their version of the JLTV prototype that has been kept under close wraps.

Lockheed Martin executives said the company plans to bolster the state’s $87.1 million bond financing with a total investment of more than $125 million for infrastructure improvements in Camden, as well as reach job-creation and wage milestones set by the state over the next 25 years.

Lockheed officials also said the current estimate of 55,000 vehicles is a conservative estimate. They said that tally could easily increase depending on the needs of the U.S. Army and Marine Corps. Also, several U.S. allies have expressed interest in purchasing a version of the new JLTV vehicle, which would push orders well above the current purchase order.

The incentive package for Lockheed Martin is not without precedent. In fact, Camden is not even the first “Camden” to get multi-year, tax financing to land a Lockheed Martin project.

According to a story from November in The New Jersey Star Ledger, that state’s Economic Development Authority (EDA) approved a 10-year, $107 million tax break to Lockheed Martin as an incentive to move 250 employees from elsewhere in the state to a pair of new facilities to be established in Camden, N.J.

Under the incentive agreement approved by the EDA on Monday, Lockheed Martin must keep a minimum of 4,464 jobs in New Jersey in order to receive the full $107 million award over 10 years.

The Arkansas bond financing package passed by the Arkansas House and Senate on Wednesday would hand over nearly $83 million to Lockheed Martin for assistance in retaining its current 530-person workforce. Those funds will also be used to assist the company in expanding its current facility, and it will allow the Maryland-based defense giant to double its labor pool to handle the Pentagon’s award that will last through 2040.

The bond financing will also pay for an additional $1.6 million training grant to be used for construction and the equipping of training facilities at Southern Arkansas University Tech in Camden. The remaining $2.5 million will pay for expenses related to bond issuance costs, debt service reserves, and other eligible financing costs incurred or paid by the state, officials said.

If the project falls through or if Lockheed Martin is not awarded the project, the deal is dead and Arkansas is off the hook for the money, said Gov. Asa Hutchinson spokesman J.R. Davis. The payback of bonds for the state, which will be somewhere between 15 and 20 years, is dependent upon market conditions at that time.