Oshkosh Corp. awarded government contract, will provide years of work

The Milwauke Journal Sentinel
By: Rick Barrett
August 25, 2015

The U.S. Army has awarded Oshkosh Corp. a contract that could be worth up to $30 billion and provide years of work to thousands of Wisconsin employees building a new type of armored truck in Oshkosh.

The Army plans to buy up to 50,000 of the vehicles, at a cost of about $250,000 each, while the Marine Corps would purchase 5,500. In addition, there could be years worth of parts and services for the multipurpose vehicles, which are meant to replace thousands of military Humvees.

Defense industry analysts say it’s the largest military vehicle contract in the foreseeable future, and the competition for it was intense.

Oshkosh beat out a team made up of Lockheed Martin Corp. and BAE Systems Plc, as well as bidder AM General LLC, which built Humvees.

Vehicle production will start slowly, but the contract will provide a big boost for the company’s defense division, which employs about 3,000 people, as well as for hundreds of suppliers.

“This is the long-term stability that our production employees have been looking for, and frankly all of our salaried employees also have been looking for. It is the base business that will sustain our Oshkosh Defense segment for years to come,” Oshkosh Corp. CEO Charles Szews said in an interview.

“It’s an eight-year contract, but in addition to the U.S. requirements there will be international demand for this vehicle as testing is concluded and production ramps up,” Szews said.

The initial contract is for $6.75 billion to build 17,000 of the vehicles. However, over time it could top $30 billion for 55,000 vehicles and associated services.

The first vehicles will be produced over a period of about 10 months, in small numbers, with the Army and Marines getting them in about 2017.

The company initially plans to hire about 100 salaried employees, Szews said, and more production employees might be hired later. Production would ramp up from a few hundred vehicles per year to 3,000 vehicles per year under the contract.

“It’s 2018 before we are really producing at higher volumes,” Szews said.

Oshkosh Corp. is the largest defense contractor in Wisconsin. This is the largest individual defense contract the company has ever received.

“It really provides the company with a nice growth platform for a long period of time and great stability for the state of Wisconsin. We have 300 suppliers in 31 states supporting this contract, and certainly a significant component of that is in Wisconsin,” Szews said.

Analysts said Oshkosh was the top contender to win the contract, given its record in producing thousands of armored vehicles for U.S. troops in Afghanistan and Iraq.

The Humvee replacements are expected to offer better protection from improvised explosive devices, and they’re supposed to be faster and more maneuverable than other armored trucks.

The new truck is dubbed the JLTV, for Joint Light Tactical Vehicle.

Szews said the Oshkosh JLTV was “fully loaded” and meets the Army’s high-end targets for performance, at or below the target price.

“It is by far the most advanced vehicle that we have ever built, and it’s the most advanced tactical wheeled vehicle the world has ever seen. It brings unprecedented speed, mobility and agility to the fight in a highly protective, reliable platform,” Szews said.

He said the company also saw good prospects for future foreign military sales and had several demonstrations planned for potential buyers.

“I think two or three years from now you could very well see Oshkosh building a JLTV for foreign allies. But it will take a little time, and it needs to be produced for the U.S. Department of Defense first,” Szews said.

The Army views the JLTV as its highest priority program, given the casualties from roadside bombs and other threats in recent years.

The Humvee hasn’t provided enough protection in Iraq and Afghanistan, which resulted in the need for additional armor added in the field and an emergency procurement of Mine Resistant Ambush Protected vehicles that Oshkosh built.

But the huge Mine Resistant Ambush Protected vehicles, often called MRAPs, are cumbersome in urban warfare and difficult to transport overseas.

“The JLTV allows troops to travel over rugged terrain at speeds 70% faster than today’s gold standard, which is our Oshkosh M-ATV. Our JLTV has been extensively tested and is proven to provide the ballistic protection of a light tank, the underbody protection of an MRAP-class vehicle, and the offroad mobility of a Baja racer,” said retired U.S. Army Maj. Gen. John Urias, president of Oshkosh Defense.

Pentagon officials declined to say why they chose Oshkosh over its competitors.

Lockheed and AM General have 10 days to file formal protests over the award. Both companies issued statements saying they’re gathering information and considering their options.

“But I would much rather be in Oshkosh’s shoes than anybody else. This is a great day for them and Wisconsin,” said John Rogers, a former Defense Department official and now president of Capstone National Partners, a Milwaukee consulting firm.

Lockheed had said it would build the JLTV at its Camden facility in Arkansas, and state lawmakers there dangled an $87 million incentive package. It’s not clear whether Wisconsin offered any incentives, but union workers at Oshkosh in 2013 agreed to a contract extension so the company could be sure of its labor costs for the project.

The contract is a timely boost for Oshkosh, which eliminated about 760 jobs last year because of declining defense spending. In addition to military vehicles, the company manufactures fire and emergency vehicles, concrete-placement trucks, and aerial lifts used in the construction industry.

Oshkosh Corp. shares rose 58 cents, or 1.5%, to $38.52 in regular trading Tuesday before the news was announced. In aftermarket trading, shares rose $4.48, or 11.6%, to $43.00.