The process of defense industry restructuring which began with ITT’s spinoff of its defense electronics group is picking up speed. Yesterday, General Dynamics announced that it was acquiring armored vehicle maker Force Protection. The GD move expands its portfolio by adding FP’s large installed base of Buffalo, Cheetah and Cougar variants of the Mine Resistant Ambush Protected (MRAP) vehicles to its own fleets of M1A2 Abrams tanks, Stryker infantry carriers and LAV IIIs. Having bought over 15,000 MRAPs in several different flavors for the conflicts in Iraq and Afghanistan, the Department of Defense wants to capitalize on this investment by integrating at least a portion of the fleet into the Army’s Table of Organization & Equipment. GD’s decision reflects the reality that survival in the defense sector for a vehicle maker will depend significantly on grabbing the largest possible share of the reset and upgrade market.
This acquisition also sets GD up to be a more formidable competitor both in the United States and internationally for the few major armored vehicle competitions likely to occur in the next few years. With world-class expertise in blast phenomenology and its own blast test range in South Carolina, FP has pioneered in the design of blast resistant vehicles. FP developed a unique and highly survivable light armored platform, the Ocelot, which won the competition for the United Kingdom’s Light Protected Patrol Vehicle. The Ocelot is also the basis for FP submission in the competition for Australia’s Protected Mobility Vehicle-Light. Potentially, the Ocelot could provide GD with an additional offering in the competition for the Joint Light Tactical Vehicle. Rounding out its position in the Commonwealth, FP is also competing to provide Canada with a Tactical Armored Patrol Vehicle. Each of these could be a contender for light armored vehicle competitions the world over. What FP lacked was the production capacity that GD clearly brings to the game.
In the U.S., together with AM General, GD is a competitor for the Army/Marine Corps Joint Light Tactical Vehicle (JLTV) program. The next phase of the JLTV competition will be opened up to new candidate vehicles. The FP Ocelot could provide GD with another offering in this competition.
There are three general strategies for defense companies in response to a significant long-term decline in defense spending. The first is to exit the market or be bought out by another company. This is hard to do for the primes such as GD, Boeing, Lockheed Martin or Northrop Grumman. The second is to diversify into adjacent areas. Several of the defense giants, notably Lockheed Martin, have done this by investing in non-defense government IT. But it is very hard to translate an expertise in armored vehicles or jet fighters into a non-defense competency. Last, you can compete for a larger share of a shrinking pie. This is clearly part of GD’s strategy for weathering the current downturn.
During the last defense downturn, in the early 1990s, GD looked like it was exiting the defense sector, selling its F-16 production facility to Lockheed Corporation, its missile production capability to Hughes Aircraft and its Space Systems Division to Martin Marietta. This time around, it appears intent on being a buyer instead.
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