Raytheon’s [RTN] big win in the competition for the new ship-based defense radar was not only a major blow to rival Lockheed Martin [LMT], but could also signal a reshaping of the market for providing the advanced technology to the Navy, analysts say.
The Navy said on Oct. 10 that Raytheon had won an initial $156.9 million award in a contract that could reach $1.6 billion for the engineering and development of the Air Missile Defense Radar (AMDR), slated to first be installed on a destroyer in 2016.
The AMDR S-band radar will replace the AN/SPY-1 that has served on Navy ships for decades and is built by Lockheed Martin. AMDR will be integrated with the Lockheed Martin’s Aegis combat and ballistic missile defense systems to track and engage threats, and some analysts noted Raytheon’s win could amount to billions of dollars in business in the years ahead.
Raytheon beat out incumbent Lockheed Martin and Northrop Grumman [NOC] for the contract, although Northrop Grumman’s bid was expected to have the least chance of winning.
“Raytheon has won a breakthrough victory to develop the next-generation radar at the heart of naval defenses against overhead threats, which presumably means it will also build the radar that is installed on future surface warships and may be retrofitted onto those already in the fleet,” defense analyst Loren Thompson of the Lexington Institute think tank wrote on Oct. 11.
Raytheon’s win was also the second in a major Navy competition in the electronic warfare category. In July Raytheon unseated incumbent Northrop Grumman in a surprise victory for the Navy’s Next Generation Jammer (NGJ) that will in installed on electronic attack aircraft.
An analysis provided by the Jeffries LLC equity firm noted that the latest win further shows a “shift in market share.”
Speaking to reporters the day after the award, a Raytheon executive said he believes the company’s advanced application of Gallium Nitride (GAN) technology and the use of open architecture approaches and scalability were the major reasons behind the win.
Thompson, whose think tanks receives funding from Raytheon and the other major defense contractors, added that with the AMDR and NGJ wins Raytheon has become a different player in the defense industry.
“There was a time when few industry observers would have considered Raytheon to be a serious threat to the competitive position of Lockheed Martin or Northrop Grumman in the defense market, but those days clearly are over,” he said. “A company once viewed as the defense sector’s biggest subcontractor has ascended to the top ranks of system integrators, poised to upset the existing order among military contractors.”
Lockheed Martin issued a strongly worded statement saying it was “very disappointed” with the Navy’s decision and was requesting an explanation, language that could signal a protest of the award.
Thompson cautioned that Raytheon still has a long ways to go in demonstrating it can execute the AMDR contract, pointing to the size, powering and cooling challenges associated with installing the system on Arleigh Burke-class (DDG-51) destroyers.
“Lockheed Martin will likely protest the outcome of the radar competition, and even if that fails it will be waiting to re-enter the fray the moment Raytheon stumbles in meeting Navy performance and price expectations for the system,” he said in commentary published online on Forbes.