The Boston Globe May 03, 2003
Raytheon's Battle Maker Of Patriot Missile Aims For Big Postwar Orders
By Ross Kerber
As the shooting ends in Iraq, Raytheon Co. faces a different battle: closing international sales for its Patriot air-defense systems.
These lucrative orders would help Raytheon maintain profit margins and preserve jobs in Massachusetts, after a layoff of about 200 employees last month because of soft overseas demand for the Patriot.
Lexington-based Raytheon faces a complicated marketing task however. US officials credit the Patriot surface-to-air defensive missile with knocking down nine Iraqi tactical ballistic missiles. But Patriot batteries also were involved in several friendly-fire incidents that killed at least two allied jet pilots and perhaps a third.
Absent more facts, such as how many Patriot missiles were fired, some potential customers, including Brig. General Sumit Mukerji, a defense official in the Indian embassy in Washington, say they are not ready to buy the system just yet. Mukerji wonders whether the latest missiles showed technical improvements over the versions used in the 1991 Gulf War. "I don't think it lived up to its reputation," he said.
Raytheon also faces competition from the European Aster surface-to-air defensive system, Russia's S-300, and an upgraded version of the Patriot missile made by Lockheed Martin Corp.
Some competitors, including those backing the Aster, don't hesitate to point out the questions surrounding the Patriot's record in Iraq. "I don't know for sure if the performance of the Patriot system . . . created any doubt among potential buyers, but in my view, it should," said a French military official involved in the sales process, speaking on condition of anonymity.
Ed Franklin, president of Raytheon's integrated defense systems unit in Tewksbury, said he's not worried. The Aster remains unproven, and Raytheon persuaded the Greek military to switch from the S-300 by showing the Patriot, with a smaller crew, costs less to own and operate.
Patriot is also more accurate, said Franklin, a former Air Force general who said he was willing to put the system in head-to-head tests with competitors. "Let's go have a shoot-off" he said.
Raytheon doesn't put a list price on Patriot, and foreign sales terms often include complicated offset agreements for reciprocal foreign investment. But previous Patriot customers have paid more than $200 million per battery, consisting of eight launch trucks carrying 32 missiles, a command-and-control van, and radar equipment. A 1994 Patriot sale to Taiwan, for instance, was valued at about $600 million - a hefty order for Raytheon, whose annual sales are around $17 billion. Outsiders estimate the more advanced versions of the Patriot's missile cost $2 million apiece.
Like other large defense contractors, Raytheon hopes the performance of its weapons during the Iraq war will boost exports, both to previous customers and to new markets like India, where the Bush administration lifted sanctions in late 2001.
Questions about Patriot's performance in the 1991 Gulf War didn't prevent Raytheon from booking $2.4 billion in foreign sales by 1994 from customers including Saudi Arabia, Germany, and Israel. More recently, Raytheon's overall exports slipped to $2.6 billion in 2002 from $3 billion in 2000.
Raytheon president William Swanson hinted last week that South Korea and Taiwan have renewed their interest in weapons used in the Middle East, such as Patriot and the Paveway laser-guided bomb system." There is activity, where people are asking for more information from us and the [US] government," he said.
But representatives from the Asian countries say they want more specific information. David Wong, a Taiwanese Air Force general, said his country may delay a Patriot order expected to be worth as much as $2.8 billion while waiting for briefings from Washington.
The Patriot fires two types of missiles, the traditional PAC-2 design made by Raytheon, which explodes near its target, and a hit-to-kill design made by Lockheed Martin Corp. called the PAC-3. Only versions of the PAC-2 have been exported, although Lockheed Martin has approvals to sell them overseas.
For Taiwan and other current customers, a main question is whether to upgrade to PAC-3. Kuwait, for instance, is expected to place a large order with one of the US contractors to replenish the missiles it fired during the war. (The US Army says Kuwaiti batteries accounted for three of the nine Iraqi missiles shot down.) PAC-3 orders from Lockheed would come at the expense of more orders for Raytheon's PAC-2 missiles, though Raytheon still builds the systems' ground equipment and radar.
Lieutenant Colonel Abdullah Alasfoor, a Kuwaiti defense official, said the country's military is torn between the two products, although Kuwaiti officers were pleased with the Patriot's performance overall.
Franklin said he can't address specific questions about Patriot's performance until ongoing US military investigations are complete, except to say Patriot "did everything it's supposed to do."
US military officers wouldn't discuss Patriot export activities or the timetable of reviews, which India's Mukerji said might not be released for six months or more. Outside defense experts said the Pentagon and Raytheon need to explain more about the systems' automatic-fire mode and just what parts of the friendly-fire engagements are under investigation. Identification friend-or-foe systems are also under review.
John Pike, director of GlobalSecurity.org, a Washington research group, said US officials will have to provide more data. "I think that at some point they're going to have to have some unclassified answers to these questions for customers," he said. On the other hand, some of the questions from foreigners might just be meant to haggle down the price of the systems, said Paul Kaminsky, a former Pentagon procurement official. "I think a lot this is bargaining," he said.
Franklin said Raytheon is trying to make the best of the facts it can muster. In South Korea, for instance, Raytheon representatives seek out the US Army's limited public briefings about the Patriot and pass them along to military officials.
The message presented by sales representatives is, "We can't tell you exactly what's going on, but we can tell you what the Army has said," Franklin said.
PLEASE REFER TO MICROFILM FOR CHART DATA Ross Kerber can be reached at kerber@globe.com.
GRAPHIC: PHOTO CHART, 1. RAYTHEON PAC-2 2. LOCKHEED MARTIN PAC-3 3. MBDA ASTER 30
Copyright © 2003, Globe Newspaper Company
