It didn’t take much insight to see who the big loser was in the Obama Administration’s decision to reconfigure missile defenses planned for Eastern Europe. Boeing lost the opportunity to be prime contractor on the so-called “third site” in the U.S. shield, an effort budgeted at $3.9 billion in the current six-year defense spending plan. Boeing’s lost revenues from the change probably exceed a billion dollars.
But identifying the big winner was a bit trickier — until this week. The administration says Iran is lagging in efforts to develop long-range ballistic missiles, so it wants to redesign the European defense to focus on intercepting medium-range missiles. Lockheed was pitching a land-based version of its Aegis fire-control and radar system, while Raytheon wanted the Missile Defense Agency to adopt a fire control system developed for the Theater High Altitude Area Defense (THAAD). What makes this confusing is that although Lockheed is prime contractor on both Aegis and THAAD, it makes the fire control system for Aegis and the missiles for THAAD, whereas Raytheon makes the fire control system for THAAD and the missiles for Aegis.
The bottom line is that Raytheon wanted the government to use its THAAD fire control and radar for a redesigned land-based defense of Europe, whereas Lockheed wanted the government to build a variant of its Aegis architecture. At a conference in Boston this week, the Missile Defense Agency said it had decided to embrace the Lockheed solution. MDA found that the Lockheed solution was cheaper, less risky, and available sooner. The agency thus handed Raytheon another setback in its efforts to displace Lockheed’s long-running Aegis air-defense franchise. When you combine this decision with the likely addition of Lockheed’s THAAD and PAC-3 missiles to a layered European defense, Lockheed Martin emerges as the big winner from MDA’s reshuffling of priorities.
Like Lockheed’s continuously improved C-130 transport, Aegis has become one of the longest running, most lucrative franchises in modern military history. The Navy has selected an upgraded version of the Aegis architecture as its main solution for future sea-based missile defense, and the Missile Defense Agency now is giving Aegis the nod for European land-based missile defense. Raytheon has complained bitterly about the lock that its competitor has on Aegis technology, but to no avail. Lockheed’s role could actually grow in the future when the Navy conducts a competition to determine which company builds the next generation of Aegis missiles. So while Joint Strike Fighter will get a lot more media attention over the next few years, Aegis looks likely to remain a key revenue generator for the Bethesda-based contractor.
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