http://www.defenseindustrydaily.com/FMTV-2010-2015-Oshkosh-Wins-The-Re-Compete-05744/
FMTV 2010-2015: Oshkosh Wins The Re-Compete
27-Aug-2009 21:59 EDT
The 14 variants in the Family of Medium Tactical Vehicles (FMTV) form the core of the USAs new state-of-the-art medium military transport truck fleet. Which in turn forms the core of the mature logistics capability seen in the Iraqi theater and elsewhere. FMTV trucks are all automatic transmission, and range from 2.5-ton cargo and van models to 5-ton cargo, tractor, van, wrecker, tanker, specialty, and dump-truck models in various 4×4 and 6×6 configurations. Some models also have attached trailers that increase their carrying capacity. Even so, the use of common engines, transmissions, drivelines, power trains, tires, cabs, etc. create over 80% parts commonality between FMTV models. Where possible, commercial components are used for added savings.
In addition to their role as the backbone of the US Armys truck fleet, FMTV trucks serve as the base for key weapons systems like the future MEADS air-defense system and the new HIMARS air-portable multiple rocket launchers. They also serve as the base for some blast-resistant vehicles like BAEs Caimin.
There have been 3 main phases of the FMTV program, including the last SO23 open competition in 2003. All told, more than 50,000 FMTV trucks in various models have been delivered to the US Army. A bridging order to BAE will continue production in Sealy, TX from 2008 through 2010, but unless something changes, the 4th phase re-compete will see a new firm begin FMTV production alongside heavy truck production for the Army (FHTV) and Marines (LVSR), and medium trucks for the US Marine Corps (MTVR)....
BAE Systems subsidiary Stewart & Stevenson won the initial FMTV competition, and has retained the manufacturing contract through previous rebuy competitions, and mergers with Armor Holdings and then BAE. The current FMTV rebuy program is a 5-year requirements contract award for up to 23,000 vehicles and trailers, as well as support services and engineering. The addition of support services is significant, and can amount to a notable portion of the contracts full value over time.
FMTV production has ramped up sharply over the last few years. Initial rates of production were approximately 2,400 trucks per year, but that rate has now accelerated to 7,200 (about 32/day) and is expected to reach over 8,000 per year (about 42/day) in Sealy, TX during FY 2009.
Heavy use in theater and casualties of chance or battle have contributed somewhat to this production ramp-up, but other factors also play a major role. One is the desire to grow the US Army by over 60,000 soldiers. The importance of logistics means that more soldiers will need more trucks, especially as the regular army focuses on assuming more of the sustainment role that has traditionally been assigned to the National Guard and Reserves. Meanwhile, those military reserve forces are driving 30 and even 40 year old trucks that are reaching the end of any useful life cycle, and must be replaced quickly.
These factors mean that the FMTVs production pace is unlikely to abate much, creating high hurdles for Oshkosh to meet if it can hold on to its victory. Fortunately, intellectual property rights are not an issue, as the government owns the blueprints. On the other hand, even build-to-print contracts usually end up accommodating contractor-specific systems and improvements. FMTV design had been frozen at the A1P2 version prior to this recompete, in order to ensure a level playing field, but a successful award opens the door to a new development and enhancement schedule. That is likely to be part of initial and ongoing discussions with the US Army, as Oshkosh prepares to ramp up its own FMTV production.
Contracts and Key Events
New/ Old kid in town
The current FMTV rebuy program is a 5-year firm-fixed-price requirements contract award for up to 23,000 vehicles and trailers, as well as support services and engineering.
Aug 26/09: Oshkosh wins the FMTV production re-compete, and an initial $280.9 million order for 2,568 trucks and trailers, plus OY 01 data, additional care and storage, component first article test, first production vehicle inspection test, production verification test, live test family medium tactical vehicles winch, armor B-kits, and federal retail tax. Work is to be performed in Oshkosh, WI, with initial test vehicle deliveries are planned for mid-2010, followed by production vehicle deliveries later in that year. with an estimated completion date of April 30/10 for this order. Bids were solicited on the World Wide Web with 3 bids received by TACOM LCMC Warren, AMSCC-TAC-ATB in Warren, MI (W56HZV-09-D-0159).
Wisconsin Governor Jim Doyle is quoted as saying that the total contract could be worth up to $2.6 billion and create 2,000 production jobs in the state. Thats definitely conservative, with other analysts placing the value closer to $4.5 billion, plus maintenance. Through the states Enterprise Zone program, Wisconsin will provide up to $35 million in tax credits over the next 12 years to support the project. In response to the win, Oshkosh CEO Robert Bohn reportedly said that Weve been known for a long, long time as a manufacturer that delivers on time and I think that helped us. While it certainly didnt hurt, BAE Systems had its own strong delivery record, including the top ranking among MRAP vehicle suppliers. It is very likely that the key differentiators lay elsewhere; tellingly, Oshkosh would not comment on pricing.
Over the past 17 years, Armor Holdings/BAE Systems has delivered more than 56,000 FMTV trucks and trailers, which have maintained a 94% average operational readiness rate in both Iraq and Afghanistan. BAEs financial planning assumed FMTV-related sales and maintenance activities of about $2 billion in each of 2009 and 2010, dropping to less than $1 billion per year from 2011 onward. BAE announced that it will continue to fulfill these commitments and consider its options as it carefully reviews the Armys latest decision. Translation: a protest is possible. Its absence would be surprising in the current climate, given the contracts potential value.
FMTV bridge buys and maintenance efforts will continue using BAE Systems on Sealy, TX over 2009 and 2010, per the existing bridge-buy contract and partnership with Red River Army Depot. During this period, Oshkosh will make preparations, discuss final design details with the US Army, and ramp up production.
The long-term earnings hit, and implicit questions regarding the current value of its $4.5 billion Armor Holdings acquisition in 2007, sent BAEs stock sliding. With MRAP production ended, MRAP-ATV going to Oshkosh, and its FMTV mainstay removed, BAE Systems American land vehicle strategy has taken a series of body blows that make the future JLTV competition even more important to the firm. Oshkosh stock has gone in a different direction, in the wake of a sole-source award to continue producing the US Armys FHTV heavy trucks, its status as the ongoing manufacturer of the US Marines medium (MTVR) and heavy (LVSR) truck fleets, and a recent multi-billion win in the blast-resistant M-ATV competition that will also make them a contender for the larger JLTV Hummer replacement buy. See: Oshkosh Defense | BAE Systems | Milwaukee Business Journal | Bloomberg | UKs Financial Times | Reuters.
May 27/09: BAE Systems submits its bid for the FMTV re-compete. Their corporate release touts over 17 years of experience, during which their 2,700 person facility in Sealy, TX has manufactured more that 53,000 FMTV trucks and trailers in 21 variants.
BAE is touting the strength of its workforce and its embedded knowledge that goes beyond the blueprints, and into production processes, efficiency, and proven flexibility. The delivery record for FMTV and its derivative Caimin MRAP vehicles has been excellent; indeed, Caimin was the #1 MRAP vehicle in its ratio of on-time to promised deliveries. Then, too, there is the specialized infrastructure like BAEs Sealy e-coat facility, and privately developed off-blueprint additions like miles to go on this tank indicators and other enhancements.
May 27/09: Oshkosh submits its bid for the FMTV A1P2 re-buy contract. As noted in previous articles, their main competitor is a Sealy, TX incumbent with a formidable performance record of its own. In that situation, Oshkoshs required priorities are twofold: (1) Avoid anything that might tip the scales against them, even slightly. That means driving perceived performance risk as close to zero as possible, and creating a net zero for political risks; and (2) Produce a poposal that offers credible improvements in price and/or performance, against a very strong competitor.
In discussions with DID, the firm outlined the core of its case. Assuming a level playing field, the key criteria for this contract are price and past performance. Oshkosh believes they have a very credible, fact-based price derived from their own experiences building about 10,000 MTVR medium trucks for the Marines, and the fact that almost 90% of FMTV suppliers are already Oshkosh suppliers.
In terms of past performance risk, they pointed to the fact that their integrated production line has conducted simultaneous production of 10 models, totaling 29 variants a record that matches well with the FMTV re-buys high mix/ low individual volume schedule. Oshkosh also touts its performance in the area of engineering and logistics support, which has become an integral aspect of the FMTV program. Their work with MTVR and the Armys FHTV heavy truck family gives them a very wide field support network, and the firm cites its fast delivery and fielding of up-armored heavy trucks after the Army confirmed its LTAS armoring strategy. Theyre building on that record with their FMTV related risk-reduction investments, which include an internally-financed design for an LTAS-compatible FMTV cab.
If Oshkosh wins, production would mostly take place on the firms existing campus in Oshkosh, WI, with some sub-contracting to current subcontractors. That kind of concentration generally improves price and efficiency numbers, but lowers political leverage. The other potential political strike is the industry consolidation card, which notes the risks of placing all medium and heavy truck production (Armys FMTV & FHTV, USMCs MTVR & LVSR) with one supplier and, for the most part, one campus. Oshkoshs response is to cite the number and range of large firms involved in the MRAP and JLTV programs, and to state their belief that there has been a fundamental industry change over the past few years. Oshkosh Defense release.
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