U.S. Allies Move In Different Directions On Missile Defense

(MoneyWatch)  The United States since the early Nineties has made significant investment in theater missile defense systems. The first of these was a modification to the PATRIOT air defense system that was used in the first Gulf War in 1991. Since then the longer range THAAD as well as a Navy system were developed. The Navy systems was modified to provide defense of larger areas first to support the ground based system set up by the Army in Alaska but then with the shift in focus of the Obama Administration to be the primary long range program.

The most prolific system though is the continued evolution of the PATRIOT into the PAC-3. This features an advanced radar and software made by Raytheon (RTN) with a missile from Lockheed Martin (LMT). Not only is this system being deployed by the U.S. Army but it has enjoyed robust sales with U.S. Allies as a means of improving their air and missile defense. Like the air defense system it is based on PATRIOT PAC-3 provides protection of local areas and targets not whole countries like the Navy's and Ground Based Mid-course system. With its air defense capabilities it is a practical solution for nations looking to protect their high value targets against limited missile attack.

The countries buying it are those that feel threatened the most. So Israel and the U.A.E. are buying the system due to potential threats from Iran or other Middle Eastern states. Asian countries that feel a potential from attack from North Korea are also doing it.

Taiwan due to its fear of the People's Republic of China (PRC) invasion whether real or not has just announced a significant investment in PATRIOT. They have been cleared to buy over $1 billion worth of the system to provide protection for their key targets. Obviously for the U.S. to allow sales like this there are a great deal of administrative and political approvals to go through.

Japan on the other hand had been making a steady investment in the system but the new, more liberal government that was elected recently has decided to slow down those moves. Japan's budget and economy have struggled for the last twenty years and there have been questions of the cost of the system. The plan may see a delay in the deployment of the next sets of PATRIOT by a few years. The original plan was to spend $1 billion over five years to buy PATRIOT for air base defense. This now may not start in 2011 as originally planned.

That is one of the issues faced by a contractor who is receiving large overseas orders for a system. Changes in government or policies may end up shrinking or canceling a contract. True a good contract will have sufficient penalties built in or be structured in such a way that it is hard to get out of the deal but if their is sufficient political will it still can be done. The situation in Japan is just a good illustration of this.