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Protecting Unfriendly Skies

A year has passed since I last wrote about the efforts of our nation's defense contractors to protect airplanes from terrorist rockets.

In 2002, al-Qaeda terrorists fired two shoulder-launched antiaircraft missiles at an Israeli airliner in Mombasa, Kenya. They missed. However, the terrorist group has what some might call a failure of imagination -- or dogged determination to keep trying a plan until it succeeds. Either way, the fear is that having failed in Mombasa, al-Qaeda will eventually try to shoot down a civilian airliner again -- perhaps here in the United States.

Two opposing camps within the military-industrial complex offer solutions to the problem that are miles apart. Up in the air, we have Northrop Grumman (NYSE: NOC  ) , which advocates installing anti-missile technology on commercial airliners, similar to the flares and electronic countermeasures (ECM) used aboard military planes. The cost, according to Northrop, would be approximately $1 million per aircraft, or roughly $5.2 billion over 20 years.

Down on earth, rival Raytheon (NYSE: RTN  ) advocates a "zone defense" strategy of protecting aircraft at their most vulnerable points -- the airports where they take off and land. (Planes are much harder to hit when at cruising altitudes.) High-traffic airports would be encircled with infrared sensors to detect a missile launch, and they'd be equipped with microwave countermeasures to blast the missile and scramble its guidance system.

Raytheon's solution also recently incorporated the Norwegian Advanced Surface-to-Air Missile System (NASAMS). This command-and-control system has been in use since 1994 and was recently incorporated into the air defenses for Washington, D.C. By adding a proven product like NASAMS, Raytheon likely strengthened its bid. Raytheon puts the cost of its "Vigilant Eagle" system at less than $1 billion to cover the 35 highest-traffic U.S. airports.

Of course, defense contractors are notorious for underestimating the costs of their wares, then billing the government for the difference between bid price and reality. For instance, the Rand think tank says that equipping 6,800 aircraft with jamming equipment would cost $11 billion initially and as much as $40 billion over 10 years, including maintenance costs -- far more expensive than Northrop's estimate. And although Raytheon's solution looks like the cheapest by far, it's also the system with the biggest holes in it. Smaller airports would almost certainly demand the same protection being proposed for the "lucky 35."

Either way, this will likely be a more expensive proposition than the contractors let on -- and thus more lucrative for the shareholders of whoever wins. Homeland Security will be reviewing both proposals this month. No date for a final decision has been set.

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Fool contributorRich Smithdoes not own shares of any company named above.

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10/27/2016 3:10 PM
NOC $225.08 Down -2.97 -1.30%
Northrop Grumman CAPS Rating: ****
RTN $136.76 Down -4.52 -3.20%
Raytheon CAPS Rating: ****