Defense Cuts, Pshaw! Pentagon's Pet Project Still Rolling in Money
Call it the Pentagon Pet Project that wouldn't die.
For years, we've been hearing about a plan to replace the Army's fleet of gas-guzzling, under-armored Humvees with a carpool full of shiny new trucks sporting better armor... and averaging even fewer miles per gallon. The new vehicle, dubbed the Joint Light Tactical Vehicle, or JLTV, has traveled a rocky road since first being proposed at the height of the IED attacks in Iraq, back in 2006.
Back then, JLTV was seen as a crucial project to replace cumbersome MRAP armored trucks, and under-armored (or jerry-rigged, armor-plated) Humvees with a new vehicle that would be light, fast, well-protected, and mobile. Unfortunately, circumstances change...
It took two years to pick companies to build prototypes for the vehicle -- General Dynamics (NYS: GD) and AM General on one team, Navistar and BAE Systems on another, and Lockheed Martin (NYS: LMT) teaming with BAE in a third grouping. Then more months were lost to resolving challenges to the bidding process from losing bidders. After all, everyone from Boeing (NYS: BA) to Textron wanted a piece of this deal, and many were not well pleased with the Pentagon's choices.
Then, when all was said and done, the Pentagon decided to scrap the entire project. Turned out, the JLTV "winners" wound up offering the Pentagon a vehicle so overpriced and overweight that it wouldn't fit within a newly shrunken defense budget... or within the lift weights of most military airplanes. By 2011, the JLTV project appeared to be on the ropes.
Desperate to salvage the program, the Pentagon asked Ford (NYS: F) to step in and inject a bit of private-market competence into JLTV earlier this year. Ford politely declined. But it appears that the lure of government loot was too powerful to keep everyone else away from this benighted program. As of last week, it appears JLTV is back on track.
Unfortunately for the companies that "won" the last competition to build it, this time around the Army has whittled its field of contractors down to just three companies:
- Lockheed's still on board (sans BAE)
- AM General got the nod as well (sans GD)
- Navistar and BAE Systems are out of the running entirely
- Oshkosh (NYS: OSK) -- the hero of the Pentagon's last big armored-vehicle project, when it won the rights to build an offroad MRAP -- will build the third JLTV variant.
JLTV by the numbers
So what exactly have they won, you may ask? Well, assuming the question's not rhetorical (which it may be, given the program's checkered past), what these three companies have won so far is a contract, valued at roughly $60 million per competitor, to begin building a new prototype lightly armored truck to replace the Humvee.
Not all Humvees, mind you. JLTV's initial plan to replace the entire 140,000-Humvee carpool with armored dopplegangers -- at a potential cost of $70 billion -- has been scaled back. The new, cut-rate plan is to build 50,000 JLTVs for the Army and 5,000 more for the Marines, at an estimated cost of $350,000 a pop -- call it $19.2 billion, and the number's probably close enough for government (contracting) work.
The money won't come all at once. One hundred million dollars will be dispersed initially, with another $87 million or so to be spread over fiscal years 2013 and 2014.
Indeed, the money may not come at all. Twenty million dollars per company per year may not sound like much. But given defense budget cuts that are making any money at all hard to come by, and the prospect of billions of dollars more down the road, contractors' motivation to keep their thumbs in this significant slice of Pentagon pie has to be strong.
So far, we haven't heard of plans from BAE, GD, or Navistar to protest the revised list of prototype-builders -- but stay tuned. If this program gets delayed, or the competition to build the vehicle gets more complicated... well, it won't be the first time this has happened.
When all's said and done, the company that may benefit most from JLTV is Ford -- the one company that turned it down flat at first sight, and never lost time or effort chasing the will-o'-the-wisp. Want to learn more about this company that outsmarted the smartest players in defense contracting? Get our new premium research report on Ford right here, right now.
The article Defense Cuts, Pshaw! Pentagon's Pet Project Still Rolling in Money originally appeared on Fool.com.Fool contributorRich Smithholds no position in any company mentioned, butMotley Fool newsletter serviceshave recommended buying shares of Ford Motor, andMotley Fool newsletter serviceshave recommended creating a synthetic long position in Ford Motor.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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