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Oshkosh And The MRAP-ATV: 4 Billion Dollars And Counting

The entire Mine Resistant Ambush Protected (MRAP) program has been a success story for the U.S. military and its defense acquisition system. Faced with the asymmetric threat of Improvised Explosive Devices (IED) and mines in Iraq and Afghanistan that were causing the majority of casualties during troop and supply movements Congress and some in the Defense Department quickly moved money and capability and purchased a variety of systems from several different manufacturers: Navistar (NAV), Force Protection (FRPT), Oshkosh (OSK) and BAE Systems (BAE:L).

Production capability and incremental improvements were created very quickly and the systems flooded into combat areas. They were able along with the Surge strategy executed in 2007 - 2008 to reduce combat deaths of U.S. and allied troops. The MRAP were based on a tradition of vehicles made in Israel and South Africa who had faced similar threats over the years although not to the level the U.S. has in their operations since 2001.

With the decision to focus on Afghanistan as the situation in Iraq stabilized it was decided by the Pentagon to quickly purchase a lighter, more maneuverable MRAP. This led to the MRAP-ATV program which would be an existing system or systems available right now. The procurement would feature several rounds where different companies and designs qualified with the U.S. military selecting a winner after tests and evaluation.

In the first cut down in early 2009 Oshkosh, BAE Systems and Navistar proposals were accepted into the final round of test. It was expected in industry that two designs would be selected for production due to the demands for a rapid build up of the vehicles. It was somewhat of a surprise then that Oshkosh alone was chosen for the first contract. This was worth a billion dollars to the company as 2,000 vehicles were awarded.

By mid-January of this year Oshkosh has received orders for over 6,600 of the MRAP-ATV along with spare parts, support and training. The total value of these contracts to date is just under $4 billion. These contracts have helped Oshkosh cushion the blow of the loss of a great deal of commercial orders due to the recession. Oshkosh lost just over a billion dollars in 2009 as sales of firetrucks, cement mixers and forklifts were reduced significantly as local governments and the construction industry saw major drops in activity and revenue. Without the MRAP contract the results would have been even worse.

The only problem facing the company over these contracts is that the U.S. military has a fixed number of vehicles it wants to buy. They are also trying to work out a doctrine and organization that fits the MRAP into a more traditional role. The MRAP are not true tactical vehicles and due to their size and weight primarily follow roads. The MRAP-ATV is able to traverse rougher terrain but is not the kind of vehicle that you can fight from or support fighting. These plans will eventually lead to the end of production for MRAP and MRAP-ATV systems. An example is the North Carolina Spartan Motors who saw their MRAP related contracts decline over the last year leading to layoffs. They recently won a deal to build systems for Iraq that will help the company but the long term situation is not necessarily good.

Like the makers of the original MRAP that saw use in Iraq the MRAP-ATV will eventually wind down. This will leave Oshkosh with the choice of either finding overseas markets for their military systems, converting the plants to commercial vehicles or closing them and laying off workers. Right now the company is hiring back workers lost due to declines in commercial market to build their military products. If those sales don't keep up at a steady pace those workers may again lose their jobs. It is just one aspect of defense acquisition that is not discussed much.