Home Nike store Is Boeing’s new missile too good for the US Navy?

Is Boeing’s new missile too good for the US Navy?

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For at least two years now, the US Navy has been trying to choose a new missile: long-range, affordable, and key to the Navy’s new doctrine of “distributed lethality.” The Naval Air Systems Command (NAVAIR) chooses from three distinct systems to equip its littoral combat ships with an over-the-horizon (OTH) capability to strike long-range targets.

For at least two years now, Boeing ( BA -0.40% ) developed a new missile to meet the needs of the Navy – a “Block II Plus Harpoon” missile. Carrying a 300-pound warhead about 60% the size of a standard harpoon and featuring an all-new engine, the new missile has an advertised range of 134 nautical miles. This is twice the range of Boeing’s previous version of Harpoon, and longer range than that offered by a competing Naval Strike Missile (NSM) from Raytheon (RTN)although it pales in comparison to Lockheed Martinit’s (LMT 1.23% ) Long Range Anti-Ship Missile (LRASM), which also has a larger warhead.

Boeing’s Harpoon missile has sailed aboard Navy warships for decades – but for how much longer? Image source: NAVAIR.

But here is the most serious obstacle to Boeing obtaining the NAVAIR contract: Boeing decided not to bid at all.

Boeing takes the ball and goes home

As reported earlier this month on DefenseNews.com, Boeing withdrew its bid from the competition, citing “Navy changes” to requirements for its new missile. According to Boeing, “each iteration of the [Navy’s request for proposals cut] high-level requirements” for the new missile. In particular, Boeing said the Navy no longer requires contractors to offer it an “all-weather” or “net-enabled” missile so that it can be guided to target by units other than the one that fired it, which Boeing says means that if its offer is reviewed, the company would receive “no credit for the full capabilities of” the new Harpoon.

“We carefully considered this,” Boeing lamented, and ultimately decided “that at this point, it doesn’t make sense for the Boeing Company to bid on this.”

In other words, the Harpoon that Boeing designed for one set of Navy requirements now exceeds the revised requirements to such an extent that other bidders would likely undercut it on price by offering less capable weapons. If so, Boeing could lose this game before it even begins – so Boeing has decided not to play.

What this means for Boeing

It’s a logical reaction, but it’s still bad news for Boeing – and possibly even worse news than many investors think. If Boeing had succeeded in winning the OTH missile contract, the company could count on revenues from equipping 40 planned littoral combat ships with missiles. (How? ‘Or’ What many revenue will depend on how many OTH missiles can possibly be crammed onto each ship – which are currently not equipped to carry them. But that would probably be tens or hundreds of millions.)

More importantly, by winning OTH, Boeing would most likely have been hired to upgrade existing Harpoon stocks (7,500 Harpoons have been sold worldwide over the past four decades) to the new Harpoon configuration – a project that could yield Billions dollars of new revenue. While those prospects haven’t completely died out, and Boeing says it still expects to sell ground-to-ground, as well as submarine and air-launched variants of its newest Harpoon, the increase additional of the popularity of the new missile that an OTH win would have given Boeing will be sorely missed.

What this means for Raytheon and Lockheed Martin

Conversely, Boeing’s exit from the OTH competition is very good news for its former rivals Raytheon (and its Norwegian partner Kongsberg) and Lockheed Martin. Here’s why: Boeing may think changing Navy requirements turned Harpoon into more missiles than the Navy wanted to buy, and may have hurt the missile’s ability to compete on price. But in fact, the numbers I see suggest that Harpoon would have posed a very real threat to offers from Raytheon and Lockheed.

Consider: Boeing estimated the cost of its upgraded Harpoon at $1.2 million, roughly the equivalent of a current-model Harpoon. For comparison, the US Government Accountability Office estimates the cost of LRASM to be around $3 million per unit, significantly more expensive than Harpoon. Meanwhile, other sources suggest that Raytheon’s NSM would cost around half the cost of the LRASM, implying a price tag of around $1.5 million.

Conclusion: Although it offers capabilities beyond what the Navy is currently looking for, it seems that Boeing’s Harpoon would still have cost less than Lockheed and Raytheon’s offerings, and would have had a good chance of winning the OTH competition – if Boeing had decided to continue. Whatever the real reason the company backed down, the fact that Boeing East stepping back is very good news for its former competitors.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.