Lockheed Steps Up Marketing of Naval Missile Defense System

Facing a slowdown in U.S. Navy orders, Lockheed Martin Corp. is eyeing opportunities in the international market for the Aegis air-defense antimissile system.

Aegis uses an array of ship-based computers and radar to track and guide interceptor missiles to destroy enemy targets. It has been sold to five navies outside the United States, which have equipped 19 ships with the system.

Lockheed is now looking to expand the international Aegis market by offering business incentives to current buyers — Spain, Japan, Norway, Australia and the Republic of Korea — to continue to invest in the system, and also is bent on attracting new customers.

Arms sales of big-ticket systems like Aegis now require substantial industrial incentives and technology transfer, said Doug Wilhelm, director of international Aegis programs at Lockheed Martin. “One of the constants in international programs is the growing desire for technology transfer and for the local defense industries to have a significant role in the program,” he told reporters.

“Aegis has become the naval combat system of choice for top tier navies,” Wilhelm said. Brand-name appeal alone, however, is not enough. To open up the Aegis market, Lockheed is sweetening deals not only by offering traditional industrial offsets but also by funding technology upgrades to make it easier for foreign buyers to adapt Aegis to their specific ships models and command-and-control systems.

The company is making a big push for international sales amid worries that the U.S. Navy is delaying Aegis upgrades for current and future ships. Although Aegis is a 40-year-old system, it has been updated over the years. Its latest version, baseline 9, is capable of simultaneous anti-air warfare and ballistic missile defense. Aegis tracks, cues and fires automatically. The newest version uses the Standard missile 6, made by Raytheon. The Aegis system includes Lockheed Martin's SPY radar. Ships can intercept and destroy short and medium-range ballistic missiles.

The Navy a year ago had allotted funds to upgrade nine ships with the latest Aegis version over the next five years, but the funding was nixed from the Pentagon’s fiscal year 2016 budget.

“I would have thought there would have been a greater outcry from the Navy about that,” said Jim Sheridan, director of Aegis U.S. Navy programs at Lockheed Martin.

Navy leaders frequently warn about shortages in the sea-based missile defense fleet to meet the demands of regional commanders, Sheridan said. “Yet you look at the president’s budget for 2016 and several ships have been removed.”

Of the Navy’s fleet of 62 destroyers and 22 cruisers, just 33 (28 destroyers and five cruisers) are equipped with the Aegis ballistic missile defense system. Sheridan believes the Navy needs at least 40, and some combatant commanders have hinted they need 70.

Sheridan predicts the number might drop below 33 as the Navy begins to temporarily take some aging cruisers out of service until it can modernize them. “And new construction ships are not moving that quickly,” he said. The Navy continues to fund hull, mechanical and electrical ship upgrades but combat systems modernization is slowing down. Navy leaders have asked Congress to restore funding for one destroyer in 2016, but whether that happens won’t be known for months.

Lockheed officials are skeptical. “The way I observe the Navy balance its books is always by reducing the number of modernizations,” Sheridan said. “Back in the day, four to five ships would be modernized per year. Now we are lucky if we get one. Maybe two.”

With growing uncertainty about U.S. defense spending, Lockheed is ratcheting up efforts abroad. Besides 19 Aegis ships already in service — six in Japan, five in Spain, five in Norway and three in South Korea — there are three more soon to be commissioned by Australia.

Two of Japan’s newest ships will be undergoing an Aegis modernization similar to the U.S. Navy’s program, said Wilhelm. This will be the first time that Aegis baseline 9 with the most advanced integrated air and missile defense configuration will be brought to an international partner, he said. These upgrades are scheduled for 2017 and 2018.

Lockheed has teamed up with Spain’s largest shipbuilder Navantia, and with other top yards in South Korea, Japan and Australia for Aegis work. “Our designs are adaptable,” said Wilhelm. This is a good deal for everyone, he said, as governments seek advanced military technology while also creating jobs for their countries’ economy, and it could lead to more Aegis sales. The partnership with

Navantia paved the way to the deal with Norway and possibly to more sales in the coming years. Navantia was chosen as the designer for an air warfare missile destroyer in Australia.

Spain likely will place additional Aegis orders when it builds a new ship class to replace older frigates, said Wilhelm. “They are interested in what we can do with baseline 9.”

Lockheed’s business philosophy: “make it easier to increase the role of our partners,” said Wilhelm. Other foreign partners have developed components for Aegis and for the SPY radar, and sell them to the United States and other countries. “The engineering know-how we transfer helps them improve. They want the benefits to flow back into their economies.”

The company invested internal corporate R&D funds to design an “international Aegis fire controller” so foreign navies can use their own computer systems to operate key Aegis components. “It’s really resonating well with customers,” Wilhelm said. Navies want to use command and control systems with which they are familiar, he said. When Aegis was first sold to Japan and Spain, the approach was that the U.S. government would sell them the “whole thing and that’s what was installed,” Wilhelm explained. “That doesn’t allow the use of their own operator look-and-feel systems.”
Lockheed hosted a demonstration in Turkey in 2013 and will be showing it in Brazil next week.

The Middle East could present more opportunities, according to industry analysts. Countries like Saudi Arabia have ambitious naval modernization plans, including the potential acquisition of the U.S. littoral combat ship equipped with Aegis-like technology. A new report by the consulting firm Avascent identified maritime systems as the fastest growing segment of the international arms market.

Members of the Gulf Cooperation Council are projected to triple their annual spending on surface vessels and associated equipment between 2015 and 2019, the study said. “They have regional ambitions for naval expansion.”

Topics: International, Missile Defense