Who Wants to Be a Pentagon Billionaire?

Tick-tock, tick-tock, tick-tock ...

The clock's ticking down to the final minutes on the Pentagon's multibillion-dollar purchase of an estimated 5,200 all-terrain armored vehicles for the war in Afghanistan. And with as much as $12 billion on the line, investors are humming the old Carly Simon tune (as popularized by the Heinz ketchup commercials): "Anticipation, anticipation ... why's the Pentagon making me wait?!"

Once again, the contestants are:

  • Force Protection (Nasdaq: FRPT  ) -- a small-cap defense contractor that was once recommended by the Fool's own Motley Fool Rule Breakers team.
  • General Dynamics (NYSE: GD  ) -- Defense contracting heavyweight, and one half of the team that is "Force Dynamics."
  • Navistar (NYSE: NAV  ) -- you loved the trucks, now try the armored vehicles.
  • Oshkosh (NYSE: OSK  ) -- fresh off its accounting disaster of '08, and looking to rebound.
  • And last but the opposite of least, Britain's BAE Systems, which managed the neat trick of getting two bids submitted to the MRAP-Lite competition.

Who will win?
No one knows. Collins Stewart, a longtime follower of the industry, believes Force Protection and BAE are the odds-on favorites. But the truth is that we're not entirely sure when this contract will even be awarded. Maybe as early as tomorrow ... and maybe not.

The bigger question, though, is whether anyone will win at all. We all remember the legal wrangling that derailed efforts to award an Air Force Tanker contract to first Boeing (NYSE: BA  ) , then Northrop Grumman (NYSE: NOC  ) -- efforts that to date have resulted in no awards to anybody. More recently, the ink was hardly dry on the Pentagon's narrowed list of vendors competing for the multibillion-dollar contract to build America's Next Top Humvee before losing bidders like Textron (NYSE: TXT  ) cried foul and filed lawsuits.

First thing we do, let's ... appease all the lawyers
Although it's fumbled the ball many times before, market pundits wonder whether the Pentagon might have finally wised up. Rumors are already circulating that while the Pentagon still intends to choose a single M-ATV design, it will order the winning bidder to subcontract part of the work out to one or more of the losers.

Thus, the Pentagon would reap the efficiencies of producing just one type of armored car -- interchangeable parts regardless of who builds it, ease of training the mechanics, and so on -- while at the same time minimizing litigation risk. As a fringe benefit, increasing the number of people building the M-ATV would accelerate delivery of the vehicles to the front.

Foolish takeaway
Does that mean lower potential profits for "the winner's" shareholders? Maybe. But like the man said: "A bird in the hand is worth two arguing it out in court."

Do you like to invest, but love to invest in stuff that makes other stuff go "boom"? Then you'll enjoy reading:

Fool contributor Rich Smith owns shares of Force Protection and Boeing. General Dynamics is a Motley Fool Inside Value recommendation. Why do we tell you this? Because The Motley Fool is positively militant about disclosure, that's why.


Read/Post Comments (12) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2009, at 4:57 PM, RugbyVA wrote:

    What "accounting disaster of '08" did Oshkosh have? I think you are thinking of NAV, correct?

  • Report this Comment On June 29, 2009, at 5:24 PM, spankda wrote:

    I believe the favorite has to be Oshkosh, they already got a contract to replace the axles on all the MRAP's headed to Afghanistan, and they have a proven/already in production M-ATV as well. It is time for the Pentagon to do the smart thing and go with a proven Military truck builder, not some Johnny-come-lately.

  • Report this Comment On June 29, 2009, at 8:36 PM, RCREZ754 wrote:

    I believe the favorite will be Force Protection and General Dynamic's joint venture because the reason being FRPT was the first to deliver the MRAP to the Marines years ago and surely was the proven one in the battlefield after substaning over 3000 IED hit's and saving the lives of many of our Marines, only to get a smaller contract when NAV was given the larger unproven vehicle in battle due to it's political connections that cost the lives of many.

    The DOD owns FRPT big time for passing up the Gold Standard Cougar in the past and more than that the lives it caused to be lost And I hope the DOD makes up for it's mistake and award them FD with the M-ATV contract not that it will bring the lives lost back.

  • Report this Comment On June 29, 2009, at 10:48 PM, jrusso9722 wrote:

    I believe Oshkosh has the winning truck. TAK-4 suspension has been specified for retrofit on many Army trucks. The Oshkosh M-ATV chassis is based upon the MTVR chassis, which has seen wide usage. It's a gut reaction. That chassis, and CAT C-7 Engine, along with the TAK-4 Suspension are serving in thouands of Military vehicles in Iraq and Afganistan. But, my logic may not be the Pentagon's logic, LOL.

  • Report this Comment On June 30, 2009, at 11:04 AM, dynamicdriver wrote:

    There will be no real winners here because the program has now been scaled back to just 1035 trucks to start, a "look see" by DoD to see if the entire M-ATV run should be halted completely in lieu of the anticipated JLTV (the HMMWV replacement)...so hardly a windfall for any of the contenders.

  • Report this Comment On June 30, 2009, at 7:38 PM, spankda wrote:

    Woo Hoo!!! I was right, Oshkosh got the contract it deserved!!!!

  • Report this Comment On July 01, 2009, at 4:07 PM, jrusso9722 wrote:

    In my opinion, Oshkosh M-ATV may be selected to replace a portion of the JLTV fleet. That would boost OSK even further. Many of those JLTV's will traverse rough ground, and, with a off road factor of 70%-on road factor of 30%, M-ATV is the "born leader", saving lives before JLTV arrives on scene.

  • Report this Comment On July 01, 2009, at 10:54 PM, phatboy62 wrote:

    I work for Oshkosh Corp. For those of you who don't know, we build the toughest trucks in the world,period! We also build the axles for the Cougar. Surprised?

  • Report this Comment On July 02, 2009, at 1:30 AM, spankda wrote:

    phatboy62;

    I am not surprised. I have been purchasing shares through a DRIP program for a couple years now, because I see the "toughness" everyday working as an airfield manager for the Air Force. In fact I drive an Oshkosh HT series snow plow during the winter season. The government finally got one right.

  • Report this Comment On July 02, 2009, at 12:24 PM, jrusso9722 wrote:

    Right-ON, phatboy62. I've been slowly adding shares too. Love that company. M-ATV sales will assist with JLG debt reduction, boosting earnings. With M-ATV being a clear winner in the competition, follow on contracts should be forthcoming.

  • Report this Comment On August 06, 2009, at 7:21 PM, jrusso9722 wrote:

    Chill out on the recent pullback. KeyBanc "hold" recommendation, and the issue of more stock will naturally cause this to happen. Company is building. With more JLG debt being retired, M-ATV funds can go to the bottom line, a good thing. "You make money when you buy, not when you sell."

  • Report this Comment On August 15, 2009, at 3:54 PM, jrusso9722 wrote:

    General Rick Lynch recently stated that "we have to get soldiers out of vehicles....that we have to get these "autonomous vehicle research projects into the hands of soldiers". To me, that means that Oshkosh's TerraMax(r) is going into war service. This is an exponential growth factor. Get into OSK now to take advantage of this growth item.

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