The Arizona Daily Star February 18, 2011
US budget could end 2 Raytheon programs
By David Wichner
Tucson-based Raytheon Missile Systems faces elimination of two weapons programs in the recently unveiled Pentagon budget for 2012.
But the local Raytheon unit would get a boost from a proposed increase in the missile-defense budget, and parent Raytheon Co. and other major defense contractors escape major cuts in the Obama administration budgets, analysts say.
The Pentagon is asking for base funding of $553 billion for the budget year that begins Oct. 1, including program cuts designed to save $78 billion over the next decade.
Proposed cuts include termination of Raytheon's Surface-Launched Advanced Medium-Range Air-to-Air Missile (SLAMRAAM) and an advanced version of the Standard Missile-2 ship-defense system.
The SLAMRAAM - a land version of the AMRAAM missile mounted on aircraft - is managed by Raytheon Integrated Defense Systems, based in Tewksbury, Mass. Tucson-based Raytheon Missile Systems makes the system's missiles and a data link antenna.
The SLAMRAAM system, which was budgeted at $56 million in fiscal 2010, was supposed to provide the Army with a new short-range air defense system.
But since the program's inception in 2004, procurement costs have tripled, while missiles, rockets and artillery have emerged as bigger threats than the manned aircraft threat the SLAMRAAM was designed to defeat, according to White House budget documents.
However, the Pentagon has recommended leaving $19 million in the 2012 budget for SLAMRAAM to enable the program to be restarted if necessary.
The Pentagon also has proposed elimination of the Standard Missile-2 Block IIIB, an advanced version of the ship-defense missile introduced in 1999.
The Navy requires a longer-range, more capable missile to meet the evolving threats including drones and cruise missiles, the White House said.
Raytheon already is developing a longer-range version of the SM-2, called the SM-6.
Meanwhile, Raytheon will likely benefit from a boost in the nation's missile-defense budget.
The overall budget for missile defense is proposed to increase from $10.2 billion to $10.7 billion, including $2 billion for the "phased adaptive array" missile defense plan, which would use Raytheon's Standard Missile-3 based on ships and ground installations to defend Europe.
Raytheon's SM-3 is already deployed as part of the ship-based Aegis Ballistic Missile Defense system. But Raytheon will compete with defense firms including Lockheed Martin and Boeing Co. for the next-generation interceptor.
Raytheon declined to comment on the Pentagon budget.
Overall, the Pentagon proposal reflects more of a flattening of defense spending than major cutbacks, a Wall Street analyst said.
"It further baked in stable, albeit low, growth for the defense industry," said Peter Arment, senior analyst and managing director with Gleacher & Co.
Targeted savings have been shifted to weapons modernization and procurement, and Raytheon overall should benefit from boosts in missile defense, advanced radars and electronics programs, Arment said.
"I think they are going to end up with some of the highest organic growth in the industry," he said.
A military analyst said the proposed defense cuts are modest at best, noting that the U.S. defense budget has essentially doubled in the past decade.
"They are making small cuts to avoid big cuts," said John Pike, director of GlobalSecurity.com.
It's not surprising that Raytheon's SM-3 missile interceptor is getting support, noting that the system has a strong test record, Pike said.
Whatever happens with the U.S. defense budget in Congress, Raytheon is courting a growing market in the Middle East and Asia because of threats from China, North Korea and Iran.
More than 20 percent of the Raytheon's sales last year were to foreign allies, Arment noted.
© Copyright 2011, Arizona Daily Star
