The growing number of countries with ballistic missiles has fueled a boom in the market for theater-based interceptors in recent years, and as developer of the Patriot air and missile defense system, Raytheon is reaping the benefits.
Tewksbury, Mass.-based Raytheon Integrated Defense Systems now provides Patriot to 12 countries and is in the midst of upgrading the U.S. Army’s entire fleet to the Patriot Advanced Capability-3, currently the most capable variant. The December 2008 agreement to sell Patriot to the United Arab Emirates contributed to a 6 percent revenue increase for the division during the first half of this year. Patriot also is among the competitors for a Turkish missile defense procurement, but win or lose, the program will soon be the biggest at Raytheon Integrated Defense Systems, according to Dan Smith, who runs the division.
With sales of $5.1 billion last year, the division is the second largest at Raytheon, and the most profitable by a wide margin. It has a broad and diversified portfolio ranging from integrating the electronics and weapon systems on the U.S. Navy’s new DDG 1000 destroyer to developing lighter-than-air surveillance platforms for the Army.
A big customer for the division is the Missile Defense Agency: Raytheon developed ground- and sea-based radars for the national ballistic missile defense system as well the radar system for the Terminal High Altitude Area Defense system. The company is upgrading ground-based radars with new gallium arsenide sensors, and has developed even more powerful and efficient gallium nitride sensors that it hopes the military will adopt. Raytheon also built the original Space Fence network of radars for tracking objects in Earth orbit and is now competing against Lockheed Martin and Northrop Grumman to build the next-generation system for the U.S. Air Force.
With many of its air- and missile-defense sensors and shooters reaching technological maturity, the Army is putting a greater emphasis on system integration, Smith said. For example, Raytheon is competing with Northrop Grumman to build the Integrated Battle Command System, which will create a common command and control element for many of these systems.
Success in the defense business is tied in part to attracting and retaining the best work force, and Raytheon’s strategy for doing so includes a program called Mission Innovation, Smith said. For two years, engineers at the company take a break from working on defense programs to start commercial ventures, such as one that uses radio frequency technology for harvesting oil shale.
Smith spoke recently with Space News staff writer Turner Brinton.
What’s the latest with the potential Patriot sale to Turkey and what other nations are interested in the system?
is going through essentially a country-level competition with systems developed by China, Russia and the United States. I think the proposal due dates are extended out through the end of the year, and Turkey’s plan is to make a downselect in 2010.
You’ve seen that Poland has talked not necessarily to us but to the U.S. government about Patriot. Qatar has talked to us and the U.S. government. Pretty much anywhere where there has been a missile threat, Patriot immediately comes to mind as the answer for most countries. There’s lots of interest around the world because some of the best marketing in the world is done by Iran and North Korea.
How do you see Patriot evolving over the next few years?
The system that we field over the next few years for the United Arab Emirates we’ve been calling Advanced Capability 3-plus. So that will be one set of technologies that come in. We’re also looking at an open architecture approach, so that it could actually fire different missiles than the two missiles it currently has. If a country had a particular type of missile they wanted to deploy with the rest of the system, we could do the system engineering and allow it to be Patriot-based.
I think Patriot will continue to evolve, and we will see it being an integral part of what we call the integrated air and missile defense battlespace, where it will be tied in directly with the other missile defense radars and other shooter platforms and controlled by a single distributed command and control system. That’s what we are working toward with the Integrated Battle Command System. Early fielding of that system around 2014 will enable the kind of data fusion that generates one target number for one target, instead of multiple target numbers from multiple sensors for one target.
From a business standpoint, what will be the impact of the United States’ recent decision to go with the Standard Missile-3, built by Raytheon Missile Systems, for European missile defense?
There are a lot of people who say it’s good for Raytheon, but we’re a business, so you’ve got to show the money that goes with that good feeling. I don’t think we’ve seen any of that yet.
In a more serious vein, I really believe that the implementation details that surround the public announcement aren’t mature yet. As those come to fruition, then we’ll be able to make assessments about what it means to Integrated Defense Systems and what it means to Raytheon. Right now, our view would be that it is way too early in this process to make assessments about what the change in direction is really going to mean for the company.
What percentage of your business now is international?
We’ve always been the highest business at Raytheon in terms of international sales. We’re approaching the mid-30s, percentage wise. We’ll see how that all works out toward the end of the year, which we can’t forecast right now, but we run roughly in that neighborhood.
About five years ago, I think it was in the mid-20s. So the trend line is moving up with more international revenue, but almost everything we do is via Foreign Military Sales, so our actual buying customer is in Huntsville, Ala. [home of Army Space and Missile Defense Command], not in some country around the world.
How is your Space Fence development work going?
The Space Fence continues to go on the recent path that the Office of the Secretary of Defense outlined for prototypes and those kinds of things. We think we’re doing really well in the competition, and the feedback has been good. We like to say we’re trying to win this program for the third time, because we built the original Fence, and then we were selected by the Navy to build the next-generation system, but responsibility for that was transferred to the Air Force a couple years ago. So now we’ve completed a whole series of mini-contracts that ultimately led to this Space Fence development contract. We just hope someday to get to build something.
It is widely assumed that the administration of U.S. President Barack Obama intends to rein in defense spending. What’s your business outlook for the next few years?
We certainly don’t have any crystal ball that no one else has, but probably the defense spending ramp up is slowing down, but we don’t think it’s going to be a substantial slowdown. We’re still at war, and I think the last thing this administration or any other administration wants is to be the one in charge when the next attack comes on U.S. soil. So I think there’ll be some adjustments. But I don’t think it’s in terms of volume; I think it’s in terms of where the emphasis gets placed. It might go down a little bit, but we’re going to continue to have a robust defense of this nation.
We have roughly 1,200 contracts or programs within Integrated Defense Systems, so an important part I think is that none of these is a high percentage of the total business base in terms of looking at something that’s a backbreaker if it gets delayed or canceled.
What has your Mission Innovation group been working on and has it been profitable?
We’ve recently developed a food pasteurization technology we hope to market commercially. It’s healthier than chemical washes and it uses less energy than other directed-energy pasteurization methods.
We don’t look at Mission Innovation as a profitability thing. It’s been beneficial to us from an employee standpoint as a tremendous recruiting tool to bring in kids out of college and show them they can do this. Now it’s turning into part of building better relations with international partners. For example, we just had a group of 10 engineering students from the United Arab Emirates spend two weeks with us in Boston, and they were very excited to work on some of these projects. It was kind of a trial balloon type of thing, and it’s turning out to have huge benefits we never realized it would have.