Lockheed Martin Courts International Buyers for its Missile Defense Systems

Countries such as a Turkey, Qatar and South Korea are in the market for missile shields to protect themselves from hostile attacks. Other nations across Europe, Asia and the Persian Gulf have increasingly made anti-missile systems a priority in their defense budgets.

Heightened concerns about Iran’s and North Korea’s ballistic missiles have created golden opportunities forU.S. companies such as Raytheon and Lockheed Martin, which designed and built the bulk of the missile-defense systems used by the U.S. military and the Pentagon’s Missile Defense Agency.

U.S. suppliers in this sector have a huge advantage over any other competitors, said Mike Trotsky, vice president of air and missile defense at Lockheed Martin Corp.

When a country decides to commit billions of dollars to a missile-defense system, it wants to be assured that the manufacturers will be around to maintain it and upgrade it, Trotsky said Sept. 10 at a Lockheed news conference in Washington, D.C.

“One key thing that makes countries take a hard look at U.S. systems is that we have the only history of supporting systems for 20 to 30 years, even if the systems are no longer in the U.S. inventory,” Trotsky said. No other country has a comparable track record, he added.

Turkey, for instance, is evaluating bids from China, Russia and the United States. The U.S. proposed a system of Patriot air defense batteries — made by the Raytheon Co. — that would fire Patriot advanced capability 3 (PAC-3) interceptor missiles made by Lockheed.

“The Patriot would be in Turkey for 20 to 30 years,” said Trotsky. “They want to know that industry will continue to support it” even after the U.S. government retires it from its inventory, he said.

“The Russians, Chinese and Europeans have never sold an air and missile defense capability of this category, nor have they supported one for years. They have no history,” he said.

Manufacturers covet acquisitions by foreign buyers as they guarantee not only production orders but also lucrative maintenance work. Two thirds of the total cost of a system like the Patriot is in operations and maintenance. The United States spends approximately $8 billion to $10 billion a year on missile defense programs, but the Pentagon faces budget reductions of 10 to 20 percent over the next decade and companies see the foreign military sales market as a lifeline.

Lockheed officials have waited for two years for the Turkish government to select a winner in a competition to build a national missile defense. There are signs that a decision could come in the next several months, Trotsky said. The sale would include about 100 PAC-3 missiles, which is a relatively small order as the company seeks to keep up annual production of at least 200 missiles. But a win in Turkey would be significant because it could motivate other countries to follow suit.

Non-U.S. buyers of the PAC-3 include The Netherlands, Germany, Japan, The United Arab Emirates, Taiwan and Kuwait. Boeing, which provides the PAC-3 “seeker” that targets incoming missiles and guides them to the interceptor, also benefits from foreign sales. According to industry figures, PAC-3 missile costs about $3 million apiece, and one-third of that price tag is for the seeker.

Another contender for new international deals is the THAAD, or Terminal High Altitude Area Defense, a system used for regional missile defense. A THAAD battery consists of a truck-mounted launcher armed with eight interceptor missiles, a radar and fire-control software.

Lockheed recently signed up the United Arab Emirates as its first international customer for THAAD. “There is growing interest in the Middle East and the Pacific Rim,” said Trotsky. Countries such as Qatar, Saudi Arabia and South Korea are seen as potential buyers, he said. Qatar recently submitted a request to the U.S. government to purchase two THAAD batteries.

These opportunities are surfacing at a time when Lockheed is trying to recover from a significant setback in its Medium Extended Air Defense Systems, or MEADS, a tri-national program funded by the U.S. Army, as well as the German and Italian governments. The Army decided to back out of the program after spending more than $2 billion on its development. Germany and Italy, however, have vowed to press on with production, although it is unlikely that they would commit enough funding to make up for the U.S. portion.

After the U.S. Army decided to ditch MEADS, Congress passed legislation that requires the Defense Department to transition key components of MEADS into existing Patriot systems. The details of how that would be done have not been yet discussed, Trotsky said.

Lockheed is hoping that Poland, which has indicated it wants to invest in a modern air and missile defense system, will sign onto MEADS and turn it into a broader European effort. In a program called “Polish Shield,” MEADS would have to beat competitors from Israel and Europe.

“The Poles have the most mature acquisition,” said Trotsky. “We see a market for MEADS for anybody who was aging short range air and missile defense systems.”

Lockheed officials also foresee growing international demand for the Navy’s Aegis air-defense system, which already is sold to NATO countries and is a centerpiece of the Obama administration’s effort to build a European missile shield. Lockheed is the prime contractor for the system and is developing new software upgrades aimed at improving ship-based air and missile defense. The European shield includes a shore-based Aegis system in Romania. The installation of the first-ever land-based Aegis will begin next year, said Jim Sheridan, director of U.S. Navy Aegis programs at Lockheed Martin.

Existing U.S. Navy plans call for 41 ballistic missile defense-capable Aegis vessels and more than 300 Raytheon-made SM-3 interceptor missiles deployed by 2018.

Japan, meanwhile, is investing considerable funding on ship-based Aegis upgrades, said Sheridan. The country is bolstering its missile defenses out of concern about North Korean ballistic missiles. For its international buyers, Lockheed Martin designed new command-and-control software, called Diamond Shield, that has been approved for export. The technology is used by commanders to create a picture of friendly and enemy forces.  Diamond Shield is less complex and less customized than comparable software used by the U.S. military, said Greg Hinchman, technical director for C4ISR systems. “It has open architecture so customers can integrate Patriot and THAAD but also legacy systems that are 30 years old.”

Topics: Business Trends, International, Logistics, Manufacturing, Missile Defense