Plasan North America is not a well-known name in the defense industry. But a $300 million contract to build armored cab components for the JLTV has put this small business on the map.
The Army’s selection of AM General to build the second large tranche of the Joint Light Tactical Vehicle (JLTV A2) over incumbent, Oshkosh Defense, set the stage for western Michigan-based Plasan North America (PNA) – a component manufacturer with about 85 employees – to become a major subcontractor.
AM General announced the five-year contract with PNA in mid-July, about a month after it was confirmed as the JLTV follow-on production winner following a protest of the selection by Oshkosh.
While the headline $300 million valuation is an attention-getter for such a small firm, PNA’s contract value is approximate based on projections of the vehicle quantities the company and AM General expect the government will buy. AM General’s contract nominally calls for manufacturing up to 20,682 JLTVs and 9,833 trailers for the U.S. military and foreign customers providing all optional orders are confirmed.
Nonetheless it’s mega win for PNA, company president, John Cavedo, confirms.
“This win – even though it’s small margin build-to-print manufacturing – begets additional wins… We’ve been fortunate to stay alive over the last five years or so. We had some profitable years but they were never big profitable years. Even though we didn’t have to rely on it, part of that comes from the backstop of a parent company when times got difficult.”
The parent to which Cavedo refers is Israel’s Plasan Sasa Ltd., a respected armor designer and manufacturer. The company launched its U.S. subsidiary in 2006 with the acquisition of Michigan-based Vermont Composites Inc., an automotive components supplier.
When Plasan Sasa partnered with Oshkosh to design the initial JLTV in 2008, the joint project led to a contract for PNA to supply a small set of armored subcomponents for the JLTV cab to Oshkosh.
As PNA did so, it worked on other small defense subcontracting projects and continued to operate the automotive composites business as Plasan Carbon Composites (PCC). Co-located in adjacent facilities in Walker, Michigan, PNA actually had a smaller physical-plant footprint than its sister commercial business.
But in recent years PCC’s orders gradually diminished and the nearly 200,000 square feet of manufacturing and tooling space it occupied became under-used as layoffs at the company took effect. When Cavedo took over as PNA president late 2018, he saw PCC’s empty space as both a problem and an opportunity.
With support from the parent company, he acquired the space and its robotic tooling for PNA, consolidating operations in the plant as PCC was wound-down. PNA assumed full operations in the combined spaces in February of this year. During several years of transition however, it was a manufacturing facility in search of space-filling opportunity.
“We were poised, taking a lot of risk with that size of a facility without existing revenue, to seize this opportunity,” Cavedo acknowledges. “It was almost a Field of Dreams scenario – if you build it, they will come.”
Cavedo may have seen an example of what could come during his tenure as a Colonel in the Army and project manager for the JLTV program in its competitive phase from 2012 to 2015. Back then, the initial award to Oshkosh Defense came as a surprise to many in the tactical wheeled vehicle industry which viewed AM General, long established as the Army’s light vehicle provider with its renowned Humvee, as the favorite.
But Oshkosh’s success in quickly designing and building the larger M-ATV five years previously as American soldiers struggled with deadly improvised explosive devices (IEDs) in Afghanistan played an influential role in the Army’s JLTV selection. Plasan Sasa designers had significant input into the JLTV’s armor configuration. In the space of less than a decade Oshkosh went from a minor player in the industry to a major force.
PNA’s small role in that evolution effectively landed its recently announced subcontract.
“We’re very familiar with the Army’s specifications for the type of steel. We’re already certified for doing armor welding and have proven that over the last seven years,” Cavedo explains. “We were also in a position where we had unused space and under-utilized equipment. We didn’t have to go break ground on new space and learn new skills in a very short time frame.”
Time is of the essence for AM General. The Army expects the firm to deliver the first low-rate production batch of JLTVs less than 18 months from now. Despite its vast Humvee experience, the company faces a JLTV production know-how void – a factor highlighted by Oshkosh Defense in its protest of the selection to the Government Accountability Office.
Like PNA, it too had unused capacity at its 96-acre Mishawaka, Indiana campus. Though it won’t need to acquire new real estate, AM is building a new assembly line facility with new tooling. It does have a leg-up insofar as it has had access to the technical data package (essentially the vehicle’s engineering DNA) which the Army bought from Oshkosh.
Bringing in experienced subsystem contractors to speed the plow was part of AM’s plan from the outset company CEO James Cannon told me earlier this year. That obviously played a part in PNA’s selection. Armor bending, welding and fabricating (as needed for the JLTV cab) is an art Cavedo says and a competency that few companies possess.
Cavedo’s previous experience as JTLV program manager was likely an additional factor, increasing AM General’s confidence in PNA’s determination to deliver on schedule. “Because of my background as a retired Army Colonel and having been the program manager for JLTV, I look at this as an absolutely no-fail mission,” Cavedo says.
He also acknowledges that PNA had “5 to 6” other undisclosed subcontracting opportunities aside from the AM General work. PNA is now entirely focused on meeting its JLTV subcontract Cavedo affirms. Despite that mission focus, other future opportunities for PNA have no doubt been enhanced by the deal.
The company is expected to deliver its first sets of cab components to AM General late this year or early next. The timeline calls for hitting various delivery targets throughout 2024 to be in a position to supply components as AM hits full-rate production in 2025.
That will require expanding PNA’s workforce, a challenge in the current labor market and more daunting still thanks to the highly skilled welders, fabricators and engineers required to accelerate production.
Cavedo acknowledges that “there is risk” in seeking to grow to about 170 people for full-rate production but says PNA’s leadership is trying to get ahead of the curve by hiring skilled workers now even though the company may not need them until late 2024.
It’s an interesting position to be in and in a way, reflective of the niche spot Plasan North America occupies. “Plasan North America is still very much a small business,” Cavedo affirms. Even though its official headcount includes its parent and global affiliates as required by the U.S. government, it remains within the threshold number to be considered a small business potentially eligible for small business set asides.
However, it has none of these, no special ownership status (veteran/female/minority ownership) or the ability to seek government research funding via Other Transaction Authorities (OTAs) like the Small Business Innovation Research (SBIR) funding that has become a ubiquitous target for U.S. defense startups. The company’s foreign ownership bars it from competing for such funding.
“Plasan North America has rarely, if ever, had the opportunity to take advantage of being a small business. We have no caveats and we can’t compete for SBIRs,” Cavedo says. He also stresses that there is a substantial corporate/legal firewall between PNA and Plasan Sasa. The parent company had no involvement in seeking or winning the AM General contract.
Unlike other non-traditional U.S. defense small businesses, PNA long ago obtained a secured facility clearance (a special security agreement with U.S. Defense Counter Intelligence Security Agency). Getting access to classified projects and facilities is an issue that many defense startups face and one which has drawn the attention of congress which has put language into the 2024 NDAA to address it.
Startups also face the so-called Valley of Death, the gap between getting initial government research funding and reaching an acquisition competition leading to a production or services contract. The time in between can be four to six years, a period in which small firms struggle to stay afloat. Too often they either turn to foreign investment or sink entirely, taking innovative ideas and technology with them.
Cavedo is well aware of the problem and of the advantage PNA has had in its relationship with Plasan Sasa. However, he stresses that PNA has always sought alternative business to sustain itself independent of its parent company. Contracts with other defense OEMs and business in Canada helped sustain the firm though its president acknowledges that, “it was never at the volume it needed to be especially with the risk we took.”
Still, having a bridge strategy is a must for defense startups, one too often overlooked Cavedo says.
“In the last five years I’ve seen other companies about our size fail to acknowledge the real possibility of facing a Valley of Death. They’ll make up a Power Point chart that waves over gaps [in government sustaining funding]. They know that in three years they’ll have a struggle because it takes DoD five to six years to stand up a program of record.”
PNA’s struggle appears to have paid off. Now it has to execute. If it does, it will likely have other wins and its higher profile should extend to its Israeli parent. “I think this is absolutely a feather in [Plasan’s] cap,” Cavedo says. “Our success rolls up hill.”
Read the full article here