Missile Shield Decision Hurts Boeing, Could Help Raytheon

President Obama's decision to scrap a proposed ground-based missile defense system in Europe, announced Thursday, was bad news for Boeing and other contractors associated with the plan, but could be a boon for Raytheon and other companies that produce ship-based systems, analysts said.

Boeing had been slated to manage the construction and installation of 10 ground-based interceptors in Poland that were part of the Bush administration's original plans.

"The losers are clear," said Phil Finnegan, of the defense and aerospace research firm Teal Group. "Boeing was going to develop that site, and obviously that's not going to happen."

The announcement also came as bad news, he said, for Dulles-based Orbital Sciences, which was going to supply 10 interceptors for the missile shield.

During the Bush administration, the U.S. military designed its defense plans with the expectation that Iran would soon develop long-range missile capabilities, defense industry consultant Loren Thompson said. That didn't happen, he said.

"This is a classic example of what happens when a threat does not materialize as expected and the government decides to go with a lower cost solution," he said. For Boeing, he said, the announcement is just the latest setback the company has faced under the Obama administration, following the cancellation of several programs, including a search-and-rescue helicopter and its airborne laser.

In a statement, Boeing said that it will continue to develop its ground-based interceptor technology. "We will continue to support the requirements that our customer, the U.S. Missile Defense Agency, and U.S. policymakers, determine for missile defense for the homeland and abroad," the company said.

Raytheon and Bethesda-based Lockheed Martin stand to benefit from what will likely be an increase in contracts from the U.S. government, analysts said. Raytheon makes the ship-based missiles, and Lockheed Martin makes the electronics system that controls them.

John Pike, director of GlobalSecurity.org, a defense industry research firm, said that under the Obama administration's proposed approach of using ship-based missiles to protect against threats from Iran, "you're going to need all these missiles that Raytheon makes, zillions of them . . . it's nothing but Raytheon for the next decade."

However, Pike added that he has a difficult time taking the Obama plan at face value, chiefly because he believes it will call for Raytheon's missile to perform tasks beyond its current abilities -- such as intercepting long-range missiles.

"It's going to require massive upgrades to the standard missile," said Pike of the new plan. "They've got it doing things by the end of the coming decade that it wasn't physically designed to do."

Raytheon, based in Massachusetts, employs about 5,000 people in the Washington area; Chicago-based Boeing employs 2,500.

Peter Arment, an analyst with Broadpoint AmTech, argued that the missile policy shift probably did not take Boeing, or its shareholders, off guard. The Obama administration had already expressed interest in a less expensive and more flexible approach than that of the Bush administration, he said.

"This is a change that has been forecast for quite a while, so I don't think it surprises anyone in the industry," he said.

Howard Rubel, an analyst with Jefferies, made the same point and declined to issue a scorecard for the defense industry based off this week's news; the stock market had already anticipated the absence of Boeing missile system in Poland, he said. Boeing stock rose 14 cents Friday, closing at $53.02.

"To say one defense contractor is up and another is down as a result of this, that's like looking at one inning of a baseball game," Rubel said. "It fails to look at the whole issue. The big question is, what does the 2011 [defense] budget look like?"