Lockheed, Boeing Brains Fizzle in Humvee-Heir Bid (Update1)

June 4 (Bloomberg) -- Lockheed Martin Corp. and Boeing Co., each aiming to win a $40 billion U.S. order to replace the Humvee transports used in Iraq, are counting on intelligence gained in assembling complex weapons systems to land the contract.

This time, brains may not be enough. Their separate bids for the Joint Light Tactical Vehicle, or JLTV, are pitted against five teams with more combat-vehicle manufacturing muscle. Among the competitors: General Dynamics Corp., which assembles Stryker transports, is paired with Humvee builder AM General, and BAE Systems Plc, producer of the Bradley Fighting Vehicle, joined with Navistar International Corp., the Warrenville, Illinois-based maker of blast-resistant trucks.

``It's a vehicle contract that will end up in a vehicle manufacturer's hands at the end of the day,'' Peter Arment, a Greenwich, Connecticut-based analyst with American Technology Research, said of the contest that will lead to the production of 60,000 JLTVs. ``AM General/General Dynamics and BAE/Navistar are the two teams that jump out as heavyweights.''

Lockheed and Boeing, the largest U.S. defense contractors, in the past six years used their expertise linking networks of sensors, computers and communications gear to snatch orders valued at more than $170 billion from traditional manufacturers of helicopters, ships and armored vehicles. Rising costs for those programs may undermine claims by the two companies that networking know-how trumps manufacturing experience.

The potential value of the JLTV award would exceed last year's $27 billion in sales for Falls Church, Virginia-based General Dynamics and surpass the combined 2006 revenue of $37 billion for London-based BAE and Navistar.

For Bethesda, Maryland-based Lockheed, the program is almost equal to last year's sales of $41.9 billion.

Troop Carrier

``This could be incredibly lucrative,'' said Dean Lockwood, a military-vehicle analyst at Forecast International in Newtown, Connecticut. ``You'd be crazy to not get involved.''

Next month, the U.S. Army and Marines, which are buying the JLTV together, will award as many as three development contracts worth $60 million apiece. That will set up a competition in 2011 to supply 60,000 vehicles over eight years. The JLTV, with 10 versions weighing from 3,500 pounds (1,588 kilograms) to 5,100 pounds, can serve as an infantry carrier, command post or ambulance.

Blackwater Bidding

The other competitors include Northrop Grumman Corp., the third-largest U.S. defense company, which leads a team with an offering designed by Oshkosh Corp., the Wisconsin-based maker of military trucks, snowplows and concrete mixers. Raytheon Co., the No. 5 contractor, leads a bid with a truck from Blackwater Worldwide, a closely held security-services firm. DRS Technologies Inc., the maker of military electronics being bought by Italy's Finmeccanica SpA, is paired with Force Protection Inc., builder of the $500,000 Cougar Mine-Resistant, Ambush-Protected vehicle, or MRAP.

JLTVs are intended to be more mobile than the Cougar and offer better roadside-bomb protection than the $200,000 Humvee, whose flat bottom traps an explosive's force beneath the vehicle.

The JLTV will need to balance the ``iron triangle of performance, protection and payload,'' said Kathryn Hasse, director of tactical wheeled vehicles for Lockheed. The vehicles also must provide access to voice and data networks in the battlefield.

``This is an integrated system; it's not just a truck anymore,'' Hasse said.

Oval Office Aloft

That's the approach Lockheed took to beat United Technologies Corp.'s Sikorsky unit in 2005 for as many as 20 new U.S. presidential helicopters, even though the Stratford, Connecticut-based chopper maker had been the sole supplier for half a century. Lockheed said networking expertise was needed to build an ``Oval Office in the sky.'' The cost of the program has increased 65 percent to $11.2 billion.

Chicago-based Boeing, maker of the F/A-18 Super Hornet jet, upset General Dynamics in 2002 for the Army's Future Combat System of armored vehicles, drones and communications gear, the Pentagon's second-largest program. To hold costs to $160.9 billion, the Army last year cut the project's scope to 14 systems from 18.

``The major defense contractors like Boeing and Lockheed are all trying to get in on this through systems integration,'' Lockwood said. ``The recent experience with system integrators has not been a happy one on any of these programs and that could become a factor in the JLTV contest.''

``We know how to do the business,'' said Don Howe, senior program director at General Tactical Vehicles, the joint venture between General Dynamics and closely held AM General, of South Bend, Indiana. ``My report card is the last five years supporting the deployed troops.''

Share Performance

General Dynamics shares have gained 12 percent in the past year, compared with a 3.8 percent drop for the Standard & Poor's Aerospace & Defense Index, as the Iraq war boosted sales. Lockheed rose 12 percent, while Boeing dropped 22 percent after suffering delays on the 787 commercial jetliner.

Lockheed would build the JLTV on the same production line in Sealy, Texas, where BAE made the Caiman, a larger version of the MRAP that can carry 10. Lockheed formed the team with Armor Holdings Inc. in October 2006, before BAE bought the Jacksonville, Florida-based company last July for $4.53 billion.

Boeing is in a group led by Textron Inc., an aircraft and helicopter maker in Providence, Rhode Island, that builds the Armored Security Vehicle used by Army military police. The team also includes Boeing's Future Combat System partner, SAIC Inc. of San Diego.

Boeing has deployed about 30 people from the Future Combat System program to work on the Humvee replacement, said Jerry McElwee, vice president of advanced systems.

``We feel that we have at least a reasonably good understanding of the kinds of challenges the soldiers and the Marines face,'' he said.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net.

To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net.