Europe Joins Middle East as Battleground for U.S. Missile Defense Sales
U.S. defense firms are stepping up their marketing game in Europe as they seek to boost sales of big-ticket missile defense systems.
The U.S. government has committed to funding and deploying a European missile shield to protect the continent from Iranian ballistic missiles. But as Europe faces the prospect of continuing Russian aggression, several nations are weighing new investments in antiballistic missile systems.
“Russia now looks less likely to 'invade' another ex-Soviet territory [but] its behavior could still prove a serious test for NATO,” said industry analyst Robert Stallard of RCB Capital Markets. “In our view, the increased recognition of a Russian threat is likely to stabilize European defense spending, with those nations closest to the Russian border probably moving up the most.”
For U.S. missile defense powerhouses Raytheon and Lockheed Martin,the fight for overseas deals has primarily focused on the Middle East, where countries that are friendly to the United States have been buying billions of dollars worth of American-made missile defense systems in an effort to thwart Iran’s military influence in the region. But Europe is now commanding more of the industry’s attention.
As the Paris Air Show gets under way this week, Lockheed is cheering Germany’s decision to become the first country to buy MEADS, the medium extended air and missile defense system that competes with Raytheon's Patriot.
The German Federal Ministry of Defense announced last week it selected Lockheed’s MEADS for its next generation tactical air and missile defense system, known as Taktisches Luftverteidigungssystem. The TLVS would replace Germany’s 12 air-defense Patriot batteries made by Raytheon. Lockheed is teamed with the German firm MBDA Deutschland.
MEADS was conceived in the 1990s as a Patriot replacement and its development was initially funded by Germany, Italy and the United States. The U.S. Army later lost enthusiasm for the program and backed out in 2011 despite an aggressive campaign by Lockheed to keep it going. Germany’s announcement gives the program new life.
Although Patriot won a tightly contested deal in Poland, Raytheon sees the defeat in Germany as an ominous sign that a new competitor could eventually challenge Patriot’s dominance. Raytheon got a big boost when Patriot was selected last year by Poland as the centerpiece of its homeland defense, making it the 14th country that buys the system.
Raytheon Vice President Tim Glaeser said Germany’s decision had caused “angst” in the company and insisted that Patriot is not completely out of the running.
“Raytheon will continue to support the German government as they consider alternatives before their final contract award [to MEADS] in 2016,” Glaeser told reporters June 10. “Germany will remain a
Patriot partner,” he said. Raytheon is proposing a modernization program for Germany’s current Patriot systems so it is up to date with the latest technology, he said. The newest “configuration 3”
Patriot uses Lockheed’s PAC-3 missiles as interceptors.
Industry analysts said it is unlikely that MEADS will pose any immediate threat to Patriot as long as the latter continues to be in use by the U.S. military, as many countries prefer to buy missile defense systems that are interoperable with the United States and for which the Pentagon can provide logistics support and training.
Germany’s Defense Minister Ursula von der Leyen stood by the MEADS decision. "We are not alone with MEADS. We are offering an open system architecture, which other countries are free to join if they want to,” she said at a news conference. "It can protect whole cities. We will need this defense capability in the future.”
Glaeser said it is still possible that Germany will change its mind between now and when MEADS completes development next year. “We are trying to understand the road ahead. They [the Germans] said they will continue to modernize Patriot. We’ll continue to keep Patriot as an alternative solution.”
Besides MEADS, the only other missile defense competitor in Europe is MBDA’s Aster, known as the SAMP/T, for surface-to-air missile platform/terrain, deployed by France and Italy. Russia and China produce air defense systems that could compete with Patriot and MEADS, but are tough sells to countries that prefer to be interoperable with the United States.
The government of Turkey in 2013 selected a system from China Precision Machinery Export-Import Corp. But the $3.4 billion deal collapsed under political pressure. A Raytheon-Lockheed team believes it still has a shot. “The government of Turkey has shown renewed interest for Team USA,” said Raytheon spokesman Bailey Sargent. “Team USA has held several discussions over the last few months with Turkish Industry and government. These informal discussions may result in an improved offer from Team USA as appropriate.”
Raytheon executives were meeting with Polish defense officials last week in Huntsville, Alabama, to iron out the details of the Patriot sale and how it will be integrated into Poland’s homeland defense network. The Polish buy for eight batteries to be delivered by 2025 could be worth up to $7 billion.
“We are very excited,” said Glaeser. Since December, Raytheon has racked up $5 billion in Patriot contract awards, including the most recent deals with Qatar, The Republic of Korea, Saudi Arabia and Poland.
International Patriot customers collectively invest about $200 million a year for technology upgrades. Patriot will continue to be produced and updated for decades, he said. With more international sales in mind, Raytheon has invested in active electronically scanned array technology to produce a radar that would provide 360-degree coverage, which is one the touted features of MEADS. In 2013, at White Sands Missile Range, New Mexico, MEADS became the first air and missile defense system to demonstrate a dual intercept of targets attacking simultaneously from opposite directions.
“Many international customers have a desire or a requirement for 360-degree capability,” Glaeser said. The U.S. Army is considering the possibility of upgrading its Patriot systems with the new radar.
The issue is whether it can afford it. “Germany and Poland have expressed some interest in 360 capability,” he said. The current Patriot requires multiple radars to provide all-around coverage, whereas the electronic stare radar does it automatically.
Raytheon also is bullish about foreign sales of its AN/TPY-2 ballistic missile defense radar. The company announced it has just received U.S. government approval to sell the radar to allies as a stand-alone “forward based” system. Past sales of the radar required it to be integrated with tactical missile launchers, as part of Lockheed Martin’s theater high altitude air defense system. Without that restriction in place, Raytheon is hoping to attract new business from current Patriot users who may want the radar without having to buy the entire THAAD system.
In forward-based mode, the radar can be positioned near hostile territory to detect ballistic missiles early in their ascent. The European missile shield being built by the U.S. Missile Defense Agency uses the TPY-2 in forward-based mode for early warning, but other non-U.S. buyers did not have that option until now.
“We have seen strong interest from Patriot customers,” said Raytheon business development executive Tom Laliberty. “In forward-based mode, the radar can interface with the Patriot and Aegis [air defense system]. It can be positioned as close as you can get to the enemy.”
Raytheon also sees a bright future for its Standard missile interceptor, many of which will be produced for the European missile shield that the Obama administration approved in 2009.
The shield, called the “European phased adaptive approach,” will provide NATO countries protection from short- and medium-range ballistic missiles launched from the Middle East. The U.S. government estimated that there are more than 6,000 ballistic missiles that are outside the control of the United States, NATO, Russia and China.
EPAA is centered on the U.S. Navy’s Aegis missile defense system that is made by Lockheed Martin. A layered missile shield will be deployed in three phases by 2018. The price tag for the entire project is still unknown. NATO agreed to contribute 200 million euros over 10 years, but the preponderance of the bill will be paid by the United States.
One of the newest Standard missile models, the SM-31B, will be tested later this year for the Aegis ashore system, said William L. Blair, Raytheon vice president of business development for air and missile defense systems. “We’ll be expanding with the second site in Poland in 2018 with SM-32A,” the most advanced version that the United States is co-developing with Japan. “This will be key to extend Europe’s protection,” Blair said. When deployed in Romania and Poland, the Standard missile will be operating from a land base for the first time. Twenty-four interceptors would go to each site.