Defense Procurement News

The Boston Herald writes today about how the various defense companies in Massachusetts are planning for the expected cuts in the defense budget with the end of the fighting in Iraq. While it is certainly expected that the US defense budget will decline beginning in FY09 with either a Republican or Democrat administration, it will probably be slow. The biggest shift will be away from Operations & Maintenance (O&M) funding to more new systems. It will also be interesting to see if the Army and Marines will get smaller after several years of growth. Obviously the biggest player in Massachusetts is Raytheon, they may be cushioned a bit, as they tend to make high-tech weapon and C4ISR systems.

For more see the article “Massachusetts companies brace for wind down in Iraq”.

Raytheon had higher income this quarter compared, but had a decline in net.  See a story release here.  Raytheon continues the trend of defense contractors reporting increases in sales and income but not necessarily profits.  Raytheon did predict that 2008 will be a good year for the company with a 15% increase in revenue.

Raytheon was awarded a contract today to continue work on Cooperative Engagement Capability (CEC).  See a press release here.  CEC is a natural development of the work the Navy has done with datalinks for the last 50 plus years.  By the Nineties the Navy was able to share the sensor picture from one ship with others over a tactical data link.  Even during the Gulf War this was not good enough for targeting.  CEC’s goal is to develope a netted sensor grid that will support providing a fire control solution good enough that one ship can guide a missile launched from another.  The Navy was installing CEC on selected ships by the end of the Twentieth Century. For more on CEC see this.

Raytheon subcontracted with the small business Sonju Industrial to build missile components. See an article here. Sonju Industrial is a small business and will partner with Raytheon through the Missile Defense Agency (MDA) mentor-protege program. The contract will allow significant growth of Sonju Industrial. This is another example of how defense dollars flow to every part of the US and their significance to the nation’s economy.

Kuchera Defense Systems won a sub-contract from Raytheon to build parts of the transmitter for the Sea Sparrow ship based air defense system. See an article here. The contract could be worth over $3 M if the next option is awarded as well as this $1.6 M base contract. The company employs less then twenty people in making the part, but it shows that bigger systems spill down to small companies and that building a modern weapon integrates a variety of suppliers and components.

Raytheon posted a solid quarter with profits rising 15%. See the press release here. Much of this was due to the work on PATRIOT and other missile systems, including significant foreign orders. This means that the first two large defense contractors to report, Boeing and Raytheon, have done very well recently. This should continue as long as the defense budgets remain large which can be expected for at least the next two years.

The Malaysian government ordered from RaytheonThalesSystems an upgraded air defense surveillance and control system for the country. See the story here. The system will be based on a central command and control facility designed and built by Raytheon for the US and Canada. Thales will make a long range radar in France to provide surveillance and data to the command center. No details on the size of the contract were announced.

Two of America’s largest defense contractors will join together to pursue the next generation air launched missile. Raytheon and Boeing announced that they signed a teaming agreement to prepare for the Joint Air to Ground Munition (JAGM) development program. See the press release here. The JAGM will replace Hellfire and Maverick missiles for launch from both fixed wing aircraft and helicopters. JAGM is at the early stages of its life and was started after the failure of the Joint Common Missile (JCM) program. See this for more on that. There is certainly no denying that the aging Hellfire and Maverick need replacing, although the Hellfire especially has seen a lot of use from OH-58D, AH-64 and Predator UAV in Afghanistan and Iraq. If Boeing and Raytheon team that leaves Lockheed Martin, Northrop Grumman and General Dynamics as the only other US companies that might bid on such a program.

The Army’s Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System (JLENS) passed its Preliminary Design Review (PDR). See the press release here. This is a key step of the System Design and Development (SD&D) phase of the program. The next major step will be the Critical Design Review, and then lead into testing. The JLENS is a sensor suite and fire control system that uses an aerostat to carry the sensor.

A great deal of contracts were announced today by DoD. See Defenselink.mil press release for more here. Highlights include a $50 M contract to General Atomics for the Air Force to buy 24 Predators and a $119 M contract to Raytheon for South Korean FMS of PATRIOT PAC-3.

Raytheon announced that they had won two contracts to support the Army’s PATRIOT program. See the article on bizjournals.com for more. The two contracts are worth $377 M and provide for the refurbishment of launchers and missiles.

Raytheon reported increased sales for 2007 with a solid fourth quarter. Sales were $6 B for the year. Profit in the fourth quarter surged 84% to almost $1.50 a share. See Bloomberg.com for more information. The company also raised its 2008 forecasts by a minimum of $300 M.

CNNMoney.com has a preview of Raytheon’s earnings report planned for Thursday. Wall Street is expecting a good 2007, and most likely a better 2008. Raytheon continues to gain work from the US military through their established programs, like PATRIOT, and also through some newer ones. If Raytheon does disappoint expect much of the recent gains in the stock to be lost.

According to the Tampa Bay Business Journal, Raytheon was awarded a $62 M contract to provide support to a network of ship based air defense sensors. See the full story here. This system is called Cooperative Engagement Capability (CEC) and the Navy has been working on this for 10+ years. Ideally when finished CEC will provide fire control solution data good enough that one ship can control another’s missile. The primary missile will be the STANDARD Missile Block III used by AEGIS ships.

The US Air Force awarded a $37.5 M contract to Raytheon to upgrade the Minuteman Essential Communications Network Program. Forbes.com has more here. The program is to allow the various sites to communicate as necessary. There is more information on this here.

According to DefenseNews.com, the US Army will proceed with a development program to produce a guided round for the M1 tank.  See the story here.  Raytheon and General Dynamics will work together on this program with a contract valued at $232 M.  The round will have a target recognition device in it that will allow it to autonomously locate and attack targets.  As the article says “When no friendly forces are in the firing area, the round can use its autonomous seeker system: a 3-inch infrared camera that takes 30 snapshots of the view ahead per second, and a computer that picks edges and shapes out of the images.”  The key phrase is when their are no friendly forces in the area.  The Russians had developed a Anti-Tank Guided Missile (ATGM) that could be fired from the main gun of a tank, but that used conventional laser or radio guidance.  This new round will also have the ability to home on laser energy, like a Hellfire ATGM.

The US Navy awarded Raytheon a $126.7 M contract for AIM-9X Sidewinder Air-to-Air Missiles (AAM) production for both the Navy and Air Force. See DefenseLink.mil here for more. The contract also includes FMS sales to Australia and South Korea.

With an increase in the 2008 defense budget, the Taiwanese military plans to buy AH-64 Apaches and Patriot PAC-3 missile systems. See DefenseNews.com here for more. The military also plans to invest in new cruise missiles and a study for an advanced submarine. Taiwan will also upgrade its Anti-submarine warfare aircraft by purchasing P-3 Orion aircraft.

Raytheon was awarded a $9 M contract to provide Contractor Logistics Support (CLS) for Predator A and Predator B Unmanned Aeriel Vehicle (UAV) by the Air Force. See the information here. Predators have been used quite a bit in Iraq and Afghanistan since 2001, by both the Air Force and other Government agencies. As time passes UAVs will become even more capable then current versions. For information on the Predator see this.

Raytheon has been awarded a $2.9 million, six-month contract, by the Department of Homeland Security, to begin developing a Stand-Off Radiation Detection System (SORDS). This is the second award for the company in the area of radiation detection systems. More details on the award can be found at Trading Markets and at Mass High Tech.