Specialty truck builder Oshkosh Corp. (OSK) lowered its risk for bankruptcy by capturing a pair of large military truck contracts this summer that analysts say should sustain the company until demand improves for its construction vehicles.

Oshkosh said Thursday that it won a five-year contract to build up to 23,000 medium-sized trucks for the U.S. Army. The initial phase of the contract will pay Oshkosh $281 million for 2,568 trucks starting late next year. Thursday's contract extends the surge in military truck orders Oshkosh received June 30 when it was chosen to build mine-resistant all-terrain patrol trucks, or M-ATVs, for U.S. troops in Afghanistan. So far, the Pentagon has ordered 3,944 of those trucks worth about $2.12 billion. The military is expected to order at least 5,200 M-ATVs by the time the production run is completed early next year.

"The big worry with Oshkosh after they won the M-ATV is what comes after that," said Ben Elias, an analyst for Sterne Agee & Leach. "But this other contract is going to sustain them until their other businesses get back on their feet."

Oshkosh's stock rose 24% on Thursday's news. Its shares were recently trading down 1.90% at $33.55 a share. The stock has more than doubled since the end of June.

"We're very delighted we won," said Oshkosh Chairman and Chief Executive Robert Bohn in an interview with Dow Jones Newswires. "This is the worst [market] we've seen in 70 years."

The collapse of new housing and commercial construction in the U.S. has choked off demand for the Wisconsin company's cement trucks, mobile cement mixing plants and JLG aerial work platforms, a business Oshkosh purchased in late 2006. For the first nine months of its fiscal year, sales dropped 25% to $3.8 billion from the same period a year earlier. Oshkosh lost $1.22 billion amid large charges and one-time costs.

Moreover, Oshkosh is heavily leveraged from the JLG purchase with more than $2 billion in debt, prompting concern on Wall Street in recent months that a liquidity shortage could force Oshkosh into bankruptcy. But industry analysts predict the military revenue should improve Oshkosh's liquidity.

"It basically takes the bankruptcy risk off the table," said Charles Brady, director of capital goods equity research for BMO Capital Markets.

An Oshkosh spokesman said that without the military contracts, the company may have had to renegotiate the financial requirements for some of its loans, but added the company wasn't contemplating bankruptcy.

Oshkosh used the recent surge in its stock price to help deleverage. Earlier this month the company raised $358 million for debt reduction by issuing nearly 15 million new shares.

Although Oshkosh has built various military trucks for years, including medium-size trucks for the Marine Corps, the company's recent success at beating larger, better-known defense contractors for highly competitive contracts has surprised defense industry analysts. In winning Thursday's contract for the so-called Family of Medium Tactical Vehicles, or FMTV, Oshkosh displaced U.K. defense contractor BAE Systems PLC (BAESY). BAE and Stewart & Stevenson Services, a company acquired by BAE earlier in this decade, built more than 56,000 of the FMTV trucks since 1991.

"It's very difficult to unseat an incumbent in these kinds of contracts," Brady said.

Linda Hudson, president of BAE's Land and Armaments unit, said Thursday the company was disappointed by the Pentagon's decision to select Oshkosh. The FMTV series features up to 17 different truck models for a variety of uses with payloads from 2.5 tons to 5 tons.

Oshkosh will largely be building the same trucks as BAE Systems to maintain continuity in the military's vehicle fleet. Oshkosh's Bohn said the company already does business with about 90% of the component suppliers used by BAE, giving Oshkosh the ability to offer the military favorable prices on parts. The trucks' engines come from Caterpillar Inc. (CAT), axles from ArvinMeritor Inc. (ARM) and transmissions from Allison Transmission Inc.

"Purchasing is an advantage," said Bohn. "Past performance is important too. We've always been on time and on schedule."

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com