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NAV Navistar International Corp

44.50
0.00 (0.00%)
18 Jun 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Navistar International Corp NYSE:NAV NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 44.50 0 01:00:00

Pentagon Turns to Alternative Contractors For Equipment

02/07/2009 5:28pm

Dow Jones News


Navistar (NYSE:NAV)
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The surprise selection this week of Oshkosh Corp. (OSK) to build a high-priority truck for the U.S. military highlights a sea-change in defense procurement.

The maker of iconic fire trucks is the latest example of the Pentagon's increasing preference for contractors with can-do capability over defense industry giants geared for lengthy peacetime procurements.

The extended conflicts in Iraq and Afghanistan have created demand for specialist equipment and services that previously attracted little interest from Pentagon planners or traditional defense contractors.

"There's been such an immediate demand for new equipment, it's outstripped the ability of the normal contractors to deliver it on time," said Dean Lockwood, an analyst for Forecast International Inc., a defense consulting firm in Connecticut. The Pentagon has "completely thrown out the normal procurement process."

Navistar International Corp. (NAV), the commercial truck and engine maker, and diversified manufacturer ITT Corp. (ITT) are among a band of companies that have won large contracts for military hardware to counter specific threats to U.S. troops.

The prospect for further military sales has bolstered Navistar and ITT's stock prices in recent months. Navistar has surged 169% off its 52-week low in November, but early Thursday was trading down 4.53% at $40.59 a share after failing to win Tuesday's contract. ITT, meanwhile, is up 35% off its March low. The stock was recently trading down 4.01% at $43.28.

Oshkosh won out over rivals bids from consortia including BAE Systems PLC and General Dynamics Inc. (GD) for the $1.06 billion contract to build 2,244 armored all-terrain trucks for U.S. troops Afghanistan.

Oshkosh already makes large and medium-size cargo trucks for the military, but had little previous experience with a high-priority program like the patrol trucks, which are expected to help U.S. soldiers pursue Taliban insurgents in Afghanistan's rugged, mountainous landscape.

"We took a measured risk," said Oshkosh CEO Robert Bohn in an interview. "This will help us get through the worst recession we've seen in our lifetime."

He credited the win to an all-out effort by the company's engineering staff and Oshkosh's ability to leverage its existing truck components and its production capacity.

Oshkosh, whose brands include Pierce fire trucks and JLG self-propelled work platforms, has struggled in recent quarters because of falling demand for construction-related equipment. Oshkosh's sales for the fiscal first half ended March 31 fell 18% to $2.68 billion. The company reported a $1.21 billion loss amid large charge-offs, compared with income of $109.9 million, or 1.47 a share, in the same period a year earlier. About 17% of the company's work force has been laid off since last year.

In 2008, defense sales were Oshkosh second largest business unit, accounting for 27% of its $7.13 billion in net sales.

The company's stock has more than doubled since the beginning of the year, including a 27% increase on Wednesday. Oshkosh was recently up 2.17% at $18.83 amid a marketwide selloff.

Navistar stunned the defense industry two years ago by raking in billions of dollars worth of contracts for mine-resistant, ambush-protected trucks, or MRAP. The company impressed military planners with its use of a readily available commercial truck chassis and engines for a heavily armored truck that could survive roadside bomb blasts in Iraq. Like Oshkosh, Navistar was able to deploy its own assembly lines to expedite production of the vehicles. Warrenville, Ill.-based Navistar built more than one-third of the 16,000 MRAPs purchased by the military.

Standard & Poor's Ratings Services put Navistar and its customer financing arm on watch for a ratings downgrade Thursday as the outlook for North American commercial truck demand remains bleak for this year and next. S&P said Navistar's inability to win Tuesday's contract for the new military truck eliminated a potential revenue offset for lower sales of commercial trucks.

The MRAP and the smaller, more mobile variant of the MRAP being built by Oshkosh were developed and tested in six months. Observers note that many traditional defense contractors are at a disadvantage in such accelerated procurements because they typically rely on outside contractors for components and production work outside of their core specialties, such as building aircraft or ships.

Meanwhile, ITT's defense electronics business has been growing at a 28%-a-year pace since the U.S. invasion of Iraq in 2003. In 2008, ITT's $6.3 billion in military sales accounted 54% of the company's total annual revenue, up from $1.7 billion or 32% of revenue in 2003.

ITT's other businesses, which include pumps for water treatment plants and automotive components, have struggled in recent years amid lower end-market demand and a downturn in the economy.

The White Plains, N.Y., company, which makes a variety of radio equipment and night-vision goggles, is the U.S. military's leading supplier of electronic jammers to disrupt the radio signals used to detonate improvised explosive devices (IED) that target trucks carrying U.S. troops.

ITT has built some 40,000 truck-mounted jammers. Prior to the wars, such jammers were primarily used on aircraft, rather than trucks.

"The Department of Defense did not view IEDs as a weapon that could or would be used effectively by our enemies," said Bob Pergler, director of business development for ITT's electronic systems.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

 
 

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