Louisiana-based defense contractor adapts products to changing times

Belt tightening has become the norm for many defense contractors as the U.S. government gradually withdraws from some of the world’s military hotspots, but managers at Textron Marine and Land Systems say an entrepreneurial approach to product development and marketing on an international scale are helping to buoy the Slidell company.

As recent troop reductions in Afghanistan have slashed demand for Textron’s signature armored security vehicles, the company has responded with new equipment and services designed for broader uses, said Tom Walmsley, the company’s senior vice president and general manager.

An operating unit of Textron Systems, a Textron Inc. company, it has long catered to the Defense Department, but now has marketing representatives stationed in a number of other countries and is working to expand its base of international clients.

“We’re leaning where we think the market is going,” Walmsley said.

In Afghanistan, that has meant that the company’s primary client has shifted from the U.S. government to the Afghan National Army, which is gradually assuming control of military operations. Textron has supplied about 600 ground vehicles to the Afghan army, and an affiliated Textron company is training Afghan troops in the operation and maintenance of the vehicles.

“By the end of this year, we will have trained about 5,000 Afghan soldiers,” Walmsley said.

The company’s second big non-U.S. client is Canada. Textron won a $600 million contract in what Walmsley terms a “highly competitive” bid to provide 500 tactical armored patrol vehicles for the Canadian armed forces, along with a long-term contract to provide training and support for the program.

Textron looked southward for more international business and has since delivered several dozen armored vehicles to Colombia, where soldiers use them in the ongoing war against the illegal drug trade and FARC, the Revolutionary Armed Forces of Colombia.

Defense contractors, as a rule, are not known for adapting easily to changing market conditions. Companies that are heavily dependent on big government spending programs, such as shipbuilding or aircraft construction, generally don’t show the flexibility and risk tolerance seen in private-sector innovators, said aerospace and defense consultant Randy Starr.

“Big contractors won’t take the same kind of risks in terms of investing in a new product or technology the way a commercial company might,” said Starr, a New Jersey partner with management consulting firm Booz & Co.

Starr said complex requirements the Defense Department imposes on contractors add many layers of cost to a product’s development.

“If you make a wrong bet, it can be very costly if the military decides not to invest in what you’ve developed,” he said.

During its 45-year history of contracting with the military, Textron Marine and Land Systems has run parallel manufacturing operations that produce lines of oceangoing vessels and land-based equipment. Its amphibious vessels, known as LCACs (landing craft air-cushioned), have long transferred troops and equipment between Navy ships and land for military operations around the world.

Today, Textron’s marine business remains focused on the U.S. military with a new generation of amphibious vessels called ship-to-shore connectors. The company expects to start this year on a test and training vessel for delivery in 2017. The contract includes options for up to eight production craft to be delivered by 2020.

Textron will keep an eye on defense budget decisions that could affect the contract, Walmsley said, but he added that the program has “strong support” because of the ongoing need for the amphibious connector.

The future of the ground vehicles is another story.

During decades of turbulence around the globe, Textron’s armored security vehicles became the gold standard for troop transportation in war zones riddled with land mines and improvised explosive devices. Surrounding its occupants with thick layers of steel while providing off-road mobility, the ASV is credited with saving many U.S. lives in violent regions.

Textron for years profited on the “massive buildup” of mine-resistant, ambush-protected ground vehicles for operations in Afghanistan and Iraq, Walmsley said. During peak production, the company delivered 48 new vehicles per month to the U.S. Army and employed more than 1,000 full-time workers.

When the political winds in Washington, D.C., began to shift, Textron read the signs. Anticipating defense budget cuts, the company invested heavily to develop a new generation of wheeled, armored vehicles that could perform a wider range of functions.

The result was the COMMANDO line, which offers users a high level of protection with advanced technology options that can tailor the vehicle for uses from an ambulance to a personnel carrier to a turreted vehicle with gunner protection.

The COMMANDO is higher off the ground, faster, more maneuverable and “is more survivable” for its users, Walmsley said. More than a thousand of the vehicles, ranging from basic utility units to technology-rich “elite” models, will soon be in service in Afghanistan, Canada and Colombia.

Walmsley declined to say how much Textron spent to develop the COMMANDO line, noting only that the sum was in the “tens of millions” and was self-funded by the company. The company also reduced employment during this time, to about 850 full-timers.

If the international marketing strategy continues to pay off for the company, Textron Marine and Land Systems likely will be among those contractors that emerge intact from the U.S. defense industry’s latest downturn.

According to defense analyst Starr, the “very cyclical” industry is headed for harder times in the short term. “Over long periods of spending, the market will fluctuate up and down, driven by external events like wars or national security agenda of the United States,” Starr said.

The U.S. defense industry hit a peak of funding around 2008. Now several years into a downturn, “the industry will probably bottom out in the next four to five years before we see any sort of uptick,” he said.

Starr said a previous down cycle in the early 1990s forced rounds of deep cost-cutting and produced mergers among some of the industry’s biggest players — Lockheed Corp. merged with Martin Marietta, and Boeing joined with McDonnell Douglas, for instance.

He thinks the current environment could produce a defense industry with a more commercial bent, as large companies seek to develop products that have broader applications and further consolidation occurs.

“I see a different composition of players emerging over the next five to six years,” Starr said. Recalling a time when corporations such as General Electric and AT&T were heavily involved in defense contracting, he said: “I think we’ll see a higher proportion of companies that have a small focus on the military market and a big focus on the commercial side.”

Whether Textron Marine and Land Systems evolves in that direction remains to be seen, but the company clearly has espoused one tenet of successful commercial businesses — product diversification. “I’m a big proponent of having more than one product,” Walmsley said.

Pointing out that the company’s product mix now includes advanced amphibious vessels, motorized lifeboats for the Coast Guard and “a whole family” of armored ground vehicles with wide-ranging capabilities, he said Textron Marine and Land Systems is equipped to compete over the long haul. “Our company will continue to adapt to where the markets are,” he said.

Editor’s note: This story was changed March 3, 2014, to note that Textron Marine and Land Systems is an operating unit of Textron Systems, a Textron Inc. company; that work will start this year on a test and training ship-to-shore connector vessel for delivery in 2017, under a contract that includes options for up to eight production craft to be delivered by 2020; and that more than a thousand COMMANDO vehicles will soon be in service in Afghanistan, Canada and Colombia.