(Reuters) -
Raytheon Co is poised to book billions of dollars worth of orders for
its Patriot air and missile defense system in the coming months,
underscoring the resurgence of a weapon first developed to defend Europe
against a possible Soviet attack.
Three decades later, the system
has been upgraded multiple times and more than 200 fire units are in
use in a dozen countries, with additional customers in talks to buy into
a system that just a few years ago looked ready to wind down.
Raytheon
Chief Executive William Swanson last month called the system "a
never-ending opportunity" after a major redesign as part of a $3.3
billion order from the United Arab Emirates in 2008 that has spawned
multiple new orders and launched a new chapter in the program's history.
"Once
you upgrade it you can go back to all your other customers and offer
them the upgraded hardware to reduce their costs, reduce the spare
content and so forth. So it's a never-ending opportunity for us here at
Raytheon," Swanson told analysts on an earnings call.
Raytheon
builds Patriot - a long-range, high-altitude, all-weather system - and
acts as the systems integrator for the PAC-3 missile, which is built by
Lockheed Martin Corp.
Raytheon
officials say they expect several large orders for Patriot systems in
the second half of the year, including a deal for 11 fire units from
Qatar valued at around $2 billion. They also expect an order exceeding
$500 million from Kuwait that could expand further in coming years
through related contracts for modernization, spares and services.
Turkey is also weighing a large order that would be worth around $500 million initially, but could expand later.
The Patriot system is already used by 12 countries - United States, Netherlands, Germany,
Japan,
Israel,
Saudi Arabia, Kuwait, Taiwan,
Greece, Spain,
South Korea
and UAE. Raytheon is in active talks to enlarge that group and upgrade
existing systems, according to Tim Glaeser, a vice president with
Raytheon's Integrated Defense Systems (IDS) division.
Poland is considering buying equipment from
Germany, which Raytheon would then upgrade, and India has expressed an interest, as have Singapore and Malaysia, Glaeser said.
The
company says more than $400 million has been invested into making the
Patriot system faster, smarter and tougher. Components have gotten
smaller, computer chips are an eighth of the size they were in 2006, and
new units are built in an upgraded facility that uses
computer-controlled tools.
Glaeser said the company has streamlined production significantly, making it cheaper to build the Patriot system.
For
instance, he said the company had driven the cost of the system's
complex antenna down 300 percent, making it possible to swap the whole
antenna out if it was not working, rather than having to waste time and
money troubleshooting its 5,800 parts.
Raytheon
doesn't just earn by building the systems. It also makes money through
constant software and other upgrades and maintenance. In June, the
company won a $116 million contract from the U.S. Army to provide
engineering services, which company officials say will allow them to
work on enhancements funded jointly by the U.S. military and
international customers.
All Patriot users participate in a special council that meets yearly to consider engineering changes.
MORE USERS, LOWER COSTS
Will
Lovell, director of production in the Army's Patriot project office,
said the international partnership helped push down the cost of owning
and operating the system for all users.
The
addition of each new user helped reduce the cost per unit for
participating country since the program's baseline costs remained the
same, Lovell told Reuters.
"It ... benefits everyone when more countries select Patriot as their missile defense system," he said.
Loren
Thompson with the Virginia-based Lexington Institute said Raytheon's
Patriot system was riding a major military modernization wave in the
Middle East, but also benefited from the U.S. Army's decision to pull
out of the next-generation MEADS system that was initially meant to
replace Patriot.
A Lockheed-led
international consortium is developing the Medium Extended Air and
Missile Defense System with funding from the United States, Germany and Italy. Washington plans to end funding this year, after the development program is completed.
"With
the waning of MEADS, Patriot is likely to remain the pre-eminent air
defense system in the world for the next 20 years," he said. "The reason
it's a never-ending opportunity for Raytheon is because its successor
was killed."
One of MEADS's key
attributes was a 360-degree radar that allows the system to spot threats
coming from any direction, something Patriot cannot do.
Glaeser
said Raytheon is "exploring options for a 360-degree sensor to meet the
requests of our international parties." The Army has said it hopes to
harvest some technologies from the MEADS program and reuse them, but it
has not released details.