Raytheon And Lockheed To Gain With Obama's Shift In Missile Defense

Last Updated Sep 23, 2009 6:05 AM EDT

President Obama decided to end the United States' plan to install a ground based missile defense system in Eastern Europe. The plan was to place a similar system as that currently based in Alaska with missiles at one site and a variety of high powered search and track radars at others. In this case the missiles would have been in Poland and the main radar in the Czech Republic. The arrangement of the system was to protect Western Europe from possible threats to the South and East.

The U.S. system and this one are primarily produced and operated by Boeing. The cancellation of this as well as the ending of further expansion of the Alaskan deployment have meant serious losses of future work to that company. The contract to support the deployed system is also planning on being competed so Boeing could lose that as well.

With the end of this land based system Obama and Secretary of Defense Gates have stressed that the coverage gap would be replaced by shorter ranged systems including those based on U.S. Navy ships. The Navy has invested since the early Nineties in modifying their AEGIS air defense ships and STANDARD Missiles (SM-2) to carry out the missile defense mission. Raytheon manufactures the SM-3 missile and Lockheed the radar. Neither were the original developer or producer but have subsumed those businesses from other companies through either mergers or acquisitions.

The idea of possibly placing ships in the Mediterranean and possibly the shorter ranged PATRIOT PAC-3 and THAAD ground based systems in several locations which is what would be necessary to get the same coverage as planned for the large system previously planned may be attractive as they are assets that could be moved elsewhere. It does mean though that more of these would have to be produced to cover all contingencies. Since a SM-3 costs several million dollars and a PAC-3 battery tens of millions it would mean more revenue for Raytheon and Lockheed. This money that originally would have been spent on Boeing products if the original concept was followed.

Raytheon was developing and producing the large radars that were to be used with the ground based systems and place in the Czech Republic. There is still a need for systems like that even without the associated missiles and could still move forward if necessary. Of course the politics involved are complicated and some see this decision as a way to placate Russia at the expense of America's new Eastern European allies. There should also be a concern that countries like Turkey may not want to have the new short range systems placed in their territories. The U.S. Navy ships at least can operate from international waters. The ground based system once built would be hard to move or shut down in a similar situation.

Like most policy decisions of this sort with defense spending there are always losers and winners among the defense contractors. Gates may cancel all of the programs he wants but eventually a new system to meet the requirements will come along and some company will get that business. Unless there is a whole sale reduction in defense spending some program will eventually come along to make up for this loss.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, DefenseProcurementNews.com.