Foreign Buyers Vital to Lockheed's Missile Defense Business
Top U.S. military contractor Lockheed Martin Corp. is putting a full-court press on the international missile-defense market. While the Pentagon remains the company's primary buyer of antimissile weapons, foreign customers are being actively pursued.
U.S. antimissile and antiaircraft weapons used to be regarded as gee-whiz technology, but they are now a mature market. Foreign buyers want missile shields to ward off attacks but also see these programs as a source of economic development.
Making U.S. weaponry more attractive to international buyers now requires novel industrial partnerships and co-production agreements. Export incentives are key to winning deals, said Richard McDaniel, vice president of Patriot Advanced Capability-3 programs at Lockheed Martin Missiles and Fire Control.
The pressure is on at Lockheed Martin to step up non-U.S. business. CEO Marillyn A. Hewson has challenged the company to raise foreign sales from 17 percent to 20 percent of total revenues over the next year. While the F-35 joint strike fighter is expected to become Lockheed's largest international moneymaker, some of the most promising overseas opportunities are in missile defense.
Within Lockheed Martin's $8 billion a year Missiles and Fire Control, 33 percent of sales are to foreign buyers, and the goal is to reach 40 percent by 2016.
The Patriot Advanced Capability-3 — an interceptor missile used with the Patriot air defense system — is now sold to seven countries. The company soon will reach a major milestone when its 2,000th missile comes off the line this fall. Foreign buyers include the United Arab Emirates, Germany, Japan, the Netherlands, Taiwan and Kuwait. An eighth customer, Qatar, is expected to sign an order soon, McDaniel said Sept. 23 at a news conference in Washington, D.C.
Lockheed is pushing its MEADS medium extended air defense system — a tri-nation program funded by the United States, Germany and Italy — in Poland and Turkey. Both nations are being aggressively courted by suppliers as they weigh the deployment of a regional missile shield. In Poland and Turkey, Lockheed is sweetening its offers with opportunities for local firms to partake in the production. These deals are estimated to be worth $10 billion and $4 billion, respectively.
Turkey a year ago selected China Precision Machinery Export-Import Corp. to supply its missile shield. The French-Italian contractor Eurosam and U.S. contractor Raytheon Co. came in second and third. The Turkish government, under pressure from NATO officials, decided to reconsider and is now reviewing a new round of bids.
"It's very important for these countries to add domestic opportunities," McDaniel said of both Turkey and Poland. A win in Poland would be a boon for Lockheed's MEADS as the U.S. military decided not to field the system and ended its involvement in the program in 2013.
In Japan, Lockheed has had a long-term agreement with Mitsubishi Heavy Industries for coproduction of PAC-3. The country also is codeveloping a new version of the U.S. Navy's Standard missile with prime contractor Raytheon.
This partnering model is being considered for other countries, said McDaniel. "We work to come up with industrial sharing opportunities."
Lockheed expects to increase foreign sales of its terminal high altitude area defense (THAAD) theater air and missile defense system that the U.S. Army has deployed around the world. THAAD interceptor number 100 will come off the line before the end of the year, said McDaniel. The UAE last year became the first foreign buyer when it signed a $3.4 billion contract. Saudi Arabia and Qatar have "expressed interest," he said. "We expect deals."
Lockheed gets a great deal of marketing help from the U.S. Missile Defense Agency, which advocates independently for American weaponry. MDA benefits from foreign deals because it helps keep U.S. contractors' manufacturing lines in business when Pentagon orders dwindle.
"We work together with them," Thomas J. Oles, vice president of strategy and business development at Lockheed Martin Missiles and Fire Control, told National Defense in June. "With MDA, it's a partnership when we go internationally. They've been a really strong partner with us."
Oles said Japan is considering buying THAAD as one piece of a wider missile shield it would build to thwart ballistic missile attacks from North Korea. The shield would include the naval Aegis air-defense system, THAAD and PAC-3. "As more countries look to establish their own capability, it's a logical next step to integrate," Oles said.
International growth, too, is expected for the Navy's Aegis combat system as a ballistic missile defense option that can be deployed at sea or ashore. "We have two dozen international partners," said Mike Salvato, Lockheed's senior manager of Maritime Integrated Air and Missile Defense. Although the system is already three decades old, it is gaining new relevance with features such as "engage on remote," and "launch on remote," Salvato said at the news conference. That means commanders on ships or on land, for instance, can share target data and launch weapons based on cues from other parts of the grid. "There is a marriage of ballistic missile defense and anti-air warfare in the traditional approach," Salvato said. The first Aegis ashore system is now being built in Romania as part of the U.S.-funded European missile shield.
Naval analyst Ron O'Rourke, of the Congressional Research Service, said Aegis is benefitting from countries' desires to deploy collective missile shields for regional defense. "The diffusion of Aegis BMD capability abroad is occurring quietly," he wrote in a recent CRS report. "Governments that have made naval force-structure investment decisions based primarily on inwardly focused national interests have discovered that their investments also enable them to combine their resources in collective defense." This started with the Aegis sale to Japan, and then expanded to relationships with Australia and South Korea, and now includes a commercial connection with Spain as well as an enterprise between Norway and Spain. Several other nations have expressed interest in acquiring the Aegis weapon system and Aegis BMD, O'Rourke said. "Australia and other countries that are acquiring the Aegis system are stipulating that the systems they buy must have the capability of adding BMD in the future."
Gen. Vincent K. Brooks, commander of U.S. Army Pacific, said allied countries in the region plan to “integrate” existing air and missile defense systems, rather than have them operate in isolation.
“We have adversaries who are increasing their missile stocks on hand, their surface-to-surface fire, causing danger to the region,” he said in 2013. “There is increasing demand for integrated air and missile defense.”