As Dust Settles, Oshkosh Cheers JLTV Win; Lockheed and AM General Ponder Protests

As Oshkosh Defense cheered the Pentagon’s announcement on Tuesday that it was the winner of the highly-sought after $30 billion Joint Light Tactical Vehicle contract, Lockheed Martin officials were left to wonder whether or not to protest the decision.

“The Lockheed Martin JLTV Team was disappointed to learn that the U.S. Army and Marine Corps did not select our JLTV. We believe we presented a very strong solution and await the customers’ debrief to hear more detail regarding the reasons behind this selection before making a decision about a potential protest,” a Lockheed Martin spokesperson told Talk Business & Politics in a brief statement.

While Lockheed Martin is the nation’s largest defense contractor with 2014 revenues approaching $46 billion, the Bethesda, Maryland-based industrial and military contracting giant’s experience lies mainly in the global security and aerospace sector.

In fact, the majority of Lockheed Martin’s business is with the U.S. Department of Defense and other federal government agencies. Today, Lockheed Martin is the largest provider of IT services, systems integration and training services to the U.S. government. The remaining portion of the defense contractor’s business is comprised of international government and commercial sales of industrial military-friendly products, services and platforms.

Meanwhile, officials at publicly-traded Oshkosh Corp. applauded the U.S. military’s decision to give the Wisconsin defense contractor a $6.7 billion firm fixed-price production contract to begin low-rate production of the JLTVs.

“Following a rigorous, disciplined JLTV competition, the U.S. Army and Marine Corps are giving our nation’s warfighters the world’s most capable light vehicle – the Oshkosh JLTV,” said Oshkosh CEO Charles L. Szews. “Oshkosh is honored to be selected for the JLTV production contract, which builds upon our 90-year history of producing tactical wheeled vehicles for U.S. military operations at home and abroad. We are fully prepared to build a fleet of exceptional JLTVs to serve our troops in future missions.”

Although the Pentagon’s contract to produce nearly 55,000 JLTVs for the U.S. Army and Marine Corps is estimated to be worth over $30 billion over the 25-year life of the program, Oshkosh’s initial fixed-firm price contract will pay out only $6.7 billion during the so-called, three year low-rate production phase to manufacture 17,000 JLTVs.

On Tuesday afternoon following the long-awaited announcement, the Department of Defense posted on its website that it had immediately paid out $114.6 million to the Wisconsin defense contractor for research, development, testing, evaluation and other procurement work already completed in fiscal 2015.

According to a March Congressional Research Service report on the military program, Oshkosh Defense will build the first 17,000 JLTVs for the Army and Marine Corps before moving into five years of full-rate production.

The first Army unit would be equipped with JLTVs in fiscal Year 2018, which begins in October 2017, and continue to purchase the next-generation, mobile-ready armored vehicle through 2040.

The Marine Corps, which has already been outfitted with Oshkosh’s larger and heavier all-service M-ATV (Mine-Resistant Ambush-Protected All-Terrain Vehicles), downsized its plans to purchase 6,700 JLTVs in March due to congressional budget cuts. The Marines now will only buy 5,500 of the successor to unarmored Humvees through fiscal year 2022.

Once in action, the JLTV program is expected to fill a critical capability gap for the U.S. Army and Marine Corps by replacing a large portion of the legacy Humvee fleet with a lighter tactical vehicle with far superior protection and off-road mobility.

Besides Lockheed Martin, Humvee maker AM General’s bid also came up short. The South Bend, Indiana-based company was named one of the three JLTV finalists in August 2012. With its Blast Resistant Vehicle-Offroad (BRV-O) version of JLTV still featured prominently on the company’s website on Wednesday, AM General officials expressed disappointment in the Pentagon’s decision to replace its Humvee with Oshkosh’s version of the military vehicle.

“We are disappointed with the government’s decision and continue to believe that AM General and our BRV-O vehicle are the right choice for the JLTV program, based on our best value offer which is backed by decades of LTV expertise and proven record as a trusted and reliable partner with the U.S. military,” AM General said in a statement.

“Our BRV-O provides world-class survivability features to Soldiers and Marines while delivering unmatched vehicle payload and performance. We are very proud of our team’s efforts and our BRV-O offering. At this time, we are reviewing the government’s decision and are considering all available options,” the Indiana defense contractor said.

Given that objections are not unusual with large Department of Defense contracts and the JLTV program has a history of protests, the Pentagon’s debriefing with Lockheed and AM General may shed light on why Oshkosh was chosen over the two rivals.

During both the technology and Engineering and Manufacturing Development (EMD) phases of the decade-long project, protests were filed by rival defense contractors before the Pentagon eventually selected Oshkosh, Lockheed Martin and AM General as finalists to build prototypes leading to the final contract award on Tuesday.

For Lockheed, there were lingering concerns about the inexperience of the defense giant’s Camden JLTV production team in the auto manufacturing and assembly space and whether or not the company could get up to speed in production within the Pentagon’s aggressive timetable.

To demonstrate the capability of the Camden JLTV assembly team, Lockheed announced earlier this month that it planned to produce up to eight company-funded prototypes, or Production Representative Vehicles (PRVs) in South Arkansas.

Lockheed officials said the PRVs were now rolling off the Camden production line in preparation to reduce technical risk, optimize the advanced production processes at the Highland Park assembly plant, and to exercise and prepare the company’s supply chain.

Still, the JLTV project was not seen as the biggest game-changer in the company’s portfolio of military contracts. During the company’s recent second quarter conference call, company CFO Bruce Tanner offered details of the company’s bid to win the JLTV contract and an even larger $100 billion contract to build the Air Force’s Long Range Strike-Bomber (LRS-B) program to be fielded in the mid-2020s.

“When I talk franchise wins in the second half of the year, I’m really talking the long-range strike bomber and JLTV,” Tanner told analysts. “The expectation is that (both) will probably be decided sometime in the August/September timeframe.”

In the Request for Proposal (RFP) for the stealth bomber program, the military is aiming to buy 80 to 100 of the fighter jets at a cost of about $550 million each to replace its 50-year-old fleet of B-52 Stratofortresses. However, the budget is likely to exceed the $100 billion target because the production schedule and other details of the program are highly classified.