U.S. vehicle makers look to export their know-how
As the Pentagon braces for recommendations from the 12-member congressional “Super Committee” tasked with finding a further $1.2 trillion in budget cuts this fall—on top of $350 billion already requested over 10 years—it could soon be lights out for some major defense programs.
When it comes to the Army, which has already jettisoned the Future Combat Systems modernization plan along with other programs over the past several years, the cuts may strike at the heart of the service: the manned ground vehicle fleet.
In a July Defense Acquisition Board review, however, the Pentagon gave the green light to the Army's $1.35 billion Ground Combat Vehicle (GCV) program, which calls for about 1,800 trucks—billed as a replacement for the aging Bradley fleet—to start reaching units by 2018. The price tag per vehicle is estimated to fall between $9 million and $10.5 million, however, making it a target for savings hunters. Some remain skeptical about the per-unit cost of the program, how well the Army has communicated to industry what it is looking for and the overall size of the proposed buy.
Then there's the Joint Light Tactical Vehicle (JLTV), which lost $50 million from its $172 million development budget in fiscal 2012 Congressional markups, while the much cheaper Humvee recap project was increased by the same amount. Stephen Daggett of the Congressional Research Service recently told DTI that he thinks “the Army is going to give up the Ground Combat Vehicle and JLTV” in subsequent budgets, relying instead on recapped Humvees, Strykers, M-ATVs (MRAP All Terrain Vehicles) and recapped M-ATVs.
Even if the JLTV goes away and the GCV is downgraded to a smaller buy—or axed—there will still be work for truck makers. Not only will existing U.S. fleets need refitting, but the international market remains wide open, hungry for the innovations that the U.S. market pays to develop, prove and put into the field. “The trend in the international market is following the U.S. example,” says' John Kelly, vice president of business winning for land and armaments. In other words, everyone wants greater mobility, better protection and lighter armor.
While the international market might take its cues from what happens in the U.S., manufacturers can't just show up with trucks and expect to win business. The key to winning and maintaining foreign business, according to many in the industry, is to work with local manufacturers to create a viable, long-term partnership.
“You need a unique approach for each market,” Kelly says, “but there are some common denominators. One of them is the desire to create jobs and economic prosperity through the defense industry” in a country.
Senior vice president of international programs for Oshkosh Defense, Serge Buchakjian, says much the same, noting that his company's vision for growing international business involves “partnering with local industry as well as exporting from the U.S.”
Part of this partnership involves after-sale upgrades and overhauls, notes Rob Puhalovich, director of business development for truck maker Navistar. He says that while 25% of revenue is generated by the initial sale of the vehicle, the other 75% “is all the parts and service business associated with that vehicle.”
In August, Navistar Defense announced a $28 million contract extension and delivery order with the U.S. Army Tank-automotive and Armaments Command Life Cycle Management Command for 194 general troop transports for the Afghan National Security Forces (ANSF). The extension expires in December 2011, and comes with a ceiling of $83 million that allows for additional vehicle orders. As Puhalovich notes, that initial sale is critically important, but considering that Navistar has 14,000 vehicles being driven by the ANSF and Iraqi forces in theater, the company is also looking forward to servicing them throughout their life cycle.
“Providing vehicles to allied forces continues to be one piece of our business strategy,” says Archie Massicotte, president of Navistar Defense. “While we are always pursuing new sales, providing sustainment services to our fleet of more than 32,000 vehicles also keeps us on track with our goal of maintaining a $1.5 to 2 billion revenue base.”
Navistar is planning for when U.S. and NATO forces pull out of Afghanistan and Iraq. The strategy calls for developing its defense and commercial base in both countries. There is already a good parts base for commercial and military trucks in those countries, Puhalovich says, adding that Navistar wants to start building dealerships to “support the war effort today and then transition to peacetime.” The effort will mirror what that company has done in countries such as Canada, South Africa and Australia, where it already had a solid commercial base from which to build defense offerings. “We're chasing deals in markets where we have had a commercial presence,” he says.
There's a consensus among industry leaders that some of the biggest markets for new military vehicles are Saudi Arabia, which is constantly upgrading its fleet; Canada, which is in the middle of the selection process for three different vehicles; and emerging markets such as Brazil, Chile, India and Malaysia. All of these countries have open vehicle programs and have partnered with U.S.-based companies to produce vehicles and parts domestically. Kelly says that as a general rule, market trends favor “wheeled vehicles over tracked vehicles,” and like Puhalovich, he says that after a sale a “key part of the business is support and technical services,” which can continue for decades.
Buchakjian says his company is focusing short-term efforts on the Canadian competition, as well as the expanding Middle Eastern market in places such as the United Arab Emirates, where Oshkosh Defense is expanding its presence while continuing to do some manufacturing in Egypt.
One of the company's big successes has been its M-ATV, a lighter, more maneuverable version of the MRAP. More than 8,000 M-ATVs are at work in Afghanistan, and the platform has been praised for its protection and maneuverability. Oshkosh wants to leverage that experience into international sales and is submitting a modified version to the Canadian Tactical Armored Patrol Vehicle (-V) program, where it is teaming with Land Systems-Canada. The Canadians want up to 600 tactical armored vehicles. Buchakjian says that Oshkosh is “taking our experience on M-ATV and incorporating the specific requirements of the Canadians.”
The company is also pitching variants of the platform to customers in the Middle East. BAE is submitting a refitted RG-35 MRAP vehicle to the Canadians for the TAP-V program, which is being pegged as the replacement to Canada's RG31 and Coyote reconnaissance vehicles. A contract award is due this fall.
In addition to bidding on the Canadian contract, in June, BAE and FNSS of Turkey—a joint venture between BAE Systems and Nurol Holding of Turkey—signed a $559 million letter of offer and acceptance from Deftech of Malaysia for 257 Deftech AV-8 8 X 8 wheeled armored vehicles and logistics support for the Malaysian armed forces. The agreement calls for the vehicle—based on the FNSS-designed PARS 8 X 8 wheeled armored vehicle—to be manufactured by Deftech in Malaysia, although it will be redesigned by FNSS and Deftech to meet the requirements of the Malaysian military.
Elsewhere, India is “a very broad market,” says BAE's Kelly. “There are a lot of artillery requirements in India—some of the biggest in the world. We have prospects there from body armor to light tactical wheeled vehicles.” While the Indian shopping list may be broad, “the challenge is they have a rigid procurement system, which foreign companies—we consider ourselves now a domestic supplier in India—find challenging to work with. That's why having local knowledge really helps.”
The Saudis, likewise, have money to spend and are always in the market for a range of military equipment. Concerns about the porous border with unstable neighbor Yemen have prompted the Saudi government to look anew at tactical vehicle programs for border patrol and oil pipeline protection. While no one contacted for this story would speak openly about programs they are submitting bids for, Oshkosh, Navistar and BAE all signaled broad interest in the Saudi market. “They have a massive capability in things such as indirect fires and artillery,” Kelly says, adding that the Saudis “are always looking to update their stocks.”
There is little danger that the American market will dry up in the foreseeable future, but the huge MRAP, M-ATV and Stryker buys of the 2000s are largely over. While the U.S. market will see lots of money being put into sustainment, some in the industry are eagerly looking toward the Canadian, Australian and South African tactical vehicle programs, and to pitching their war-tested designs in such markets as Brazil, Argentina and the Middle East.