WARRENVILLE, IL – Navistar International Corp. said it has teamed up with BAE Systems PLC to compete for the contract to produce the Pentagon's planned joint light tactical vehicle, according to the Chicago Tribune.

The British aerospace and defense giant, which competes against Navistar in other defense sectors, "is going to be a great partner," predicted a spokesman for the Warrenville-based truck and engine-maker's rapidly growing military-vehicle unit.

The Defense Department wants the new vehicles to replace its current fleet of Humvees. The winning bidder stands to receive orders for tens of thousands of vehicles valued at billions of dollars in future years, and a number of major contractors are working on designs or prototypes for the new light tactical vehicle, reported the Chicago Tribune.

BAE said the link with Navistar "will allow us to leverage our combined design strengths and production capabilities to build the next generation of light armored, wheeled tactical vehicles."

In trading on the "pink sheet" electronic bulletin board Tuesday, Navistar's often volatile shares surged $3.75, or 5.8 percent, to close at $67.90.

For decades, Navistar had virtually no presence in the military sector, opting to focus instead on its medium- and heavy-duty trucks, school buses and diesel engines. Under a strategy devised by Chairman and Chief Executive Daniel Ustian, however, the company has successfully entered the defense area.

According to the Chicago Tribune, the company's most prominent military product to date has been the mine-resistant, ambush-protected armored vehicle, which is designed to resist the roadside bombs that have proven devastating to U.S. troops in Iraq. The Defense Department, in a rush to obtain thousands of the vehicles in the shortest time possible, has broken with its customary practice and divided its several billion dollars' worth of orders among a handful of different contractors.

In recent months, Navistar has garnered more than $1 billion in such orders. BAE also has received orders, and the British company bolstered its presence in the segment a few months ago by acquiring another major vehicle-maker, Texas-based Armor Holdings Inc.

While they will continue to compete with each other for future orders, the two companies will jointly bid for the contract to produce the successor to the workhorse Humvee.

Although the timeline isn't firm, the government is expected to pick a winning bidder in 2010, with initial production likely to begin the following year. In the early years of the contract, the services are expected to buy about 40,000 of the new vehicles, but if the entire fleet of Humvees is replaced, the total has been estimated to be as high as 160,000.

Early this year, Humvee-maker AM General formed a venture with General Dynamics Corp. to compete for the JLTV contract, and other companies also are reported to be preparing to compete.

"Teaming with BAE Systems, a well-respected and global-reaching company, is an exciting milestone in our company's growth plans for our military business," Ustian said.

Originally posted on Fleet Financials