Raytheon [RTN] has edged out two rivals to win the Navy’s competition to provide the new Air Missile Defense Radar (AMDR) that will be installed on Aegis guided missile destroyers for theater and ballistic missile defense, the service said Thursday.

It defeated Lockheed Martin [LMT] and Northrop Grumman [NOC] for the lucrative contract that could exceed $1.6 billion.

A Raytheon rendering of AMDR.

The Navy was able to award the initial $156.9 million because it was funded in fiscal 2013, which ended Sept. 30, and before the lack of a congressional spending bill for fiscal 2014 forced the government to shut down.

The AMDR award is a major victory for Raytheon in the highly anticipated outcome of a competition that began when the three firms submitted their bids in July 2012.

"We are confident in our AMDR solution, leveraging our decades of radar development and integration experience," Raytheon spokeswoman Carolyn Beaudry said. "We are eager to move forward and deliver this exceptional capability to the Navy."

A spokesman for Lockheed Martin said the company will request a brief from the Navy to determine why its proposal was not selected and “evaluate our next steps.”

“Lockheed Martin is very disappointed to learn the U.S. Navy has not selected us to procure the next generation Air and Missile Defense Radar (AMDR) system,” Tom Casey said. “We believe we presented the most affordable solution, founded on decades of performance with naval radar systems.” Northrop Grumman added it was “disappointed” by the announcement.

AMDR is planned to replace the Lockheed Martin-built AN/SPY-1 on Arleigh Burke-class (DDG-51) destroyers, beginning with the first Flight III version of the ship in 2016, Naval Sea Systems Command spokesman Chris Johnson said.

Prior to installation–and provided AMDR is ready–the Navy will issue an engineering change proposal to DDG-51 shipbuilders General Dynamics [GD] and Huntington Ingalls Industries [GD] to accommodate the larger radar that will require more space, power and cooling capacity than its predecessor.

The cost-plus-incentive contract award covers the engineering and modeling development phase, integration, testing and delivery of the S-band AMDR and radar suite controller, and options for low-rate initial-production beginning in 2017, Johnson said.  It is also to integrate the existing Northrop Grumman-built AN/SPQ-9B X-band radar to give it dual-band capability, he said.

The Navy controls the data rights and could choose to re-compete the program for full-rate production, Johnson said.

There have been concerns about some of the technical challenges of putting AMDR on the DDG-51s, mainly over the amount of space it will occupy. In a January 2012 report, the Government Accountability Office (GAO), the investigative arm of Congress, predicted the Navy will face difficult technical challenges even as it has taken a "reasonable" approach to curtail risk.

The GAO also said the DDG-51s will require “significant” redesign to accommodate AMDR, and that the presence of the radar on the ships will restrict their ability to host future systems. “This decision also limits the radar size to one that will be at best marginally effective and incapable of meeting the Navy’s desired capabilities,” the GAO report (GAO-12-113) said.