Who Will Build NATO's Ballistic Missile Shield?

If it really takes a billion dollars here, and a billion dollars there, to add up to "real money," is a mere $91 million defense contract even worth mentioning? It is ... when it's the contract Raytheon (NYSE: RTN  ) hopes to win.

Late last week, we learned that Raytheon has joined a team of five companies -- four from Europe -- that will soon bid on a $91 million project for NATO. NATO being a multinational organization, Raytheon is teaming up with partners from all across the Continent: Franco-German defense giant EADS (NASDAQOTH: EADSY  ) , France's Thales, IABG of Germany, and from the Netherlands, consulting firm TNO. Together, the team will offer to design a new anti-ballistic missile defense system for the alliance.

Competing with these worthies will probably be America's two biggest defense firms, Lockheed Martin (NYSE: LMT  ) and Boeing (NYSE: BA  ) . The question is: Why?

How much times "$91 million" is "real money?"
After all, by all accounts, the most any of these companies will get for their work is $91 million -- and $91 spread out over seven years of work, at that. And they'll have to work hard for this relative pittance.

According to EADS director of defense programs Philippe Clar, the winner of this contract must design a "missile defense architecture," "set up requirements for the NATO command-and-control systems," and build "a test bed to test this architecture and connect with sensor and weapons systems" -- all for a piddling $13 million a year.

If that were all there was to this story, it would hardly bear mentioning. But the ultimate goal is much more ambitious. Once a groundwork has been approved, the winning bidder will probably be asked to go ahead and actually build the missile shield -- capable of protecting the entirety of Europe from threats such as an eventual nuclear-armed Iran. That's a pretty ambitious project, and should bear a price tag to match.

How big of a price tag? Well, to give you an idea of the monies involved, the U.S. Congress has authorized payments of $2.1 billion for America's Aegis Ballistic Missile Defense program. That's $2.1 billion in 2014 alone. At last report, Lockheed's share of this loot exceeded $1.4 billion. Raytheon has won U.S. BMD contracts in excess of $700 million. Why, Boeing nabbed a $325 million BMD contract just last month.

With their appetites for missile defense cash already whetted here at home, it's no wonder these companies are all keen to dine out in Europe -- even if the first contract looks like a relative appetizer.

Editor's note: Contrary to reporting in a previous version of this article, EADS subsidiary Astrium is leading the five-company team, including Raytheon, bidding on this missile defense contract. The Fool regrets the error.

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  • Report this Comment On December 04, 2013, at 12:44 PM, peterwolf wrote:

    My bet is no one will build it because the Democrats in this country will have killed it off to spend the money on ObamaCare by then.

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