A Pentagon contract revives jobs at Oshkosh

OSHKOSH, Wis. — United States Patent No. 5,820,150, for a particular design of independent truck suspension, is just one of the dozens of patents the Oshkosh Corporation has filed in recent years. But as the military shifts its focus to Afghanistan from Iraq, that single invention is proving to be worth billions of dollars to the company and a potential lifesaver for American troops in Afghanistan.

The special suspension is being used in new armored trucks, now being rushed to the front, that are nimble enough to veer off road and avoid the homemade mines that have killed or injured hundreds of soldiers.

Oshkosh, which has been pummeled by the recession, recently beat out several of the biggest military contractors for $2.8 billion in orders to build 5,200 trucks, and it expects another $600 million contract soon. The first trucks reached Afghanistan last month, and the company has hired or called back nearly 1,200 workers to deliver the rest by next spring.

The win by Oshkosh is the latest example of how the Pentagon is shifting its focus to more practical equipment and weapons to help troops in the field immediately, rather than investing in high-tech programs with long lead times.

As a result, companies like Oshkosh are better positioned to beat the biggest contractors for new business.

The Pentagon is buying the new off-road vehicles because it is scrambling to adjust from urban fighting in Iraq to the dirt roads and mountains in Afghanistan.

It spent $26 billion to buy 16,000 larger trucks — called mine-resistant, ambush-protected vehicles, or MRAPs — for Iraq. But most of them are too bulky to climb mountain passes, and are prone to toppling over on Afghanistan’s steep and rutty roads.

As the threat increases from so-called improvised explosive devices, Oshkosh’s lighter and more agile truck, called an MRAP All-Terrain Vehicle, or M-ATV, will be able to go off road to avoid the bombs and chase insurgents.

The trucks, which can carry five soldiers, are capable of driving up 60-degree inclines, in either forward gear or reverse, and can lean as much as 30 degrees to the side. The suspension system keeps the axles from breaking by allowing each wheel to slide up or down as much as 16 inches as the truck drives over rocks or through ruts.

The suspension is a lighter-weight version of one that Oshkosh began using in 1998 for larger military cargo carriers and later for fire trucks. Military analysts said it outperformed rival systems in the Army’s M-ATV tests, and Pentagon officials liked the suspension’s durability in the other uses.

In fact, the Pentagon is also paying the company an additional $146 million to install the suspension on 2,400 of the older MRAPs, which are being shifted to Afghanistan from Iraq.

“Everybody wants the all-terrain version,” said Rickey E. Smith, an Army official who recently ran a task force examining how the Army should update and deploy its equipment.

The Pentagon contracts help give new life to Oshkosh, which appeared headed for bankruptcy a year ago. Sales of its commercial construction equipment had plunged 70 to 80 percent last year, and the company had laid off 2,500 people, or 12 percent of its work force, as it cut $200 million in costs.

Its stock, which hit a high of $65.76 a share in 2007, plummeted to $3.92 last November. The shares rebounded when Oshkosh renegotiated $3.1 billion of debt in March and then surged again after it won the M-ATV competition on June 30.

And largely because of the new military contracts, the company on Tuesday reported its first profit from continuing operations after three quarterly losses and predicted that it would be “solidly profitable” next year, prompting investors to bid up the shares by 10.9 percent, to $35.29.

“The M-ATV has been a game-changer for our company,” Oshkosh’s chief executive, Robert G. Bohn, said.

Oshkosh’s interest in the M-ATV started on one of its grimmest days just over a year ago, when it lost a bid to build a different military vehicle.

Kenneth Juergens, a retired Army colonel who heads the program for Oshkosh, said he quickly sketched out how to combine its suspension with advanced bolt-on armor from an Israeli company to meet the Army’s new demands.

And even though the company’s finances were stretched thin, Mr. Bohn agreed to invest several million dollars to quickly prepare the bid and build five vehicles for the Army to test.

Oshkosh was competing against the contractors that built most of the larger MRAPs — BAE Systems, Navistar, Force Protection and General Dynamics — and military analysts viewed its bid as a long shot.

James McAleese, a military consultant in McLean, Va., said the bolt-on armor, which is easy to replace if it gets damaged in the field, performed well in blast tests and also increased Oshkosh’s score. Based on conversations with industry officials, he said, it was clear that Oshkosh also offered the quickest delivery and one of the cheapest prices, about $440,000 for each truck.

Since then, Oshkosh has hired 600 workers and reorganized one of its factories to speed up the assembly process in this old-line industrial city, where nearly 3,500 people turned out for a company job fair.

“If it weren’t for the M-ATV contract, I probably wouldn’t be working,” said Richard Neitzel, 61, who had been laid off at two factories before landing one of the new $15-an-hour jobs at Oshkosh in July.

Given the urgency, the Pentagon had planned to ask the winner to team up with one of the losing bidders to build the trucks more quickly. But Oshkosh had so much idle capacity it has been able to hold on to all the work, which could yield profit margins around 12 percent, analysts say.

The company has set up a second M-ATV line at one of its commercial equipment plants in McConnellsburg, Pa., where it is recalling 580 workers from layoffs. All told, it has increased production to 385 trucks in October, from 46 in July, with plans to build 1,000 each month from December through next March.

Oshkosh also recently won another Army contract — to build midsize supply trucks — that could eventually be worth $3.5 billion. BAE Systems, a British company that makes the midsize trucks now, and Navistar have protested that award.

Linda Hudson, who was recently named chief executive of BAE’s American operations, contended in an interview that Oshkosh’s bid price was unrealistically low. She said she found it hard to believe that the Army judged Oshkosh’s financial capability as equal to that of BAE, Europe’s largest military company.

Oshkosh officials said they expected to hold onto the contract and were willing to accept a low profit initially in hopes of increasing it though enhancements to the trucks later.

“We feel we can compete with the big boys,” Mr. Bohn, Oshkosh’s chief said. And with its success in ramping up so quickly on the M-ATVs, he added, “We’ve proven to ourselves that we can.”