Who's to Blame for Boeing's $40 Billion Missile Failure?

Is there hope on the horizon for the Ground-Based Midcourse Defense system?

Jun 21, 2014 at 9:30AM

Gmd Test
A successful flight test on Dec. 13, 2006. The launch was part of the flight test program for the Ground-Based Midcourse Defense program. Photo credit: Boeing. 

You'd think that $40 billion would get the United States one heck of a missile defense shield. Unfortunately, the Ground-Based Midcourse Defense (GMD) system is still suffering from the same problems I wrote about last year: the inability to intercept targets. But is Boeing (NYSE:BA), the prime contractor on the GMD team, to blame?

Nope, missed that missile, too
According to the Los Angeles Times, so far the United States has spent $40 billion on the GMD system, and for good reason. According to Boeing, the GMD system is the "first and only operationally deployed missile defense program to defend the homeland against long-range ballistic missile attacks." 

In other words, the GMD system is supposed to protect the U.S. from enemy warheads by intercepting them in space. Of course, in order to actually protect the U.S., the interceptors would have to be able to hit an incoming missile. Sadly, of the 16 tests the Missile Defense Agency, or MDA, has conducted, only eight were successfully intercepted. Moreover, the last successful intercept was back in 2008, while the last three tests have failed.  

Hope on the horizon?

Ftg

Ground-based Midcourse Defense. Photo credit: Boeing.

The above news isn't great for Boeing's reputation. But Boeing isn't the only defense contractor working on the GMD system. Some of the other defense contractors include Raytheon (NYSE:RTN), which makes the kill vehicles, and Northrop Grumman (NYSE:NOC), which is responsible for the BMC2, or battle management command and control subsystem. Still, as the prime contractor on the project, Boeing is responsible for "designing, producing, integrating, testing and sustaining all GMD components."  

The good news is that there will be another test of the GMD's ability later this month, and it'll be the first test since July 2013. Hopefully, there have been significant improvements, and the interceptor will hit its intended target.

Who's to blame?
If the interceptor fails to hit its target, it's likely that there will be plenty of blame to go around. Last time, lawmakers blamed President Obama and his administration's decision to cut funding for GMD testing and maintenance. This time, however, it's likely that Raytheon's kill vehicle will get the blame.

As Reuters reports, for its fiscal 2015 budget, the U.S. Defense Department requested $99.5 million for a new ground-based interceptor kill vehicle, specifically because of Raytheon's kill vehicle test failures. And Frank Kendall, the Pentagon's acquisition chief, said "bad engineering" on the current system necessitates a new kill vehicle. 

What to watch
An operational missile shield that can defend the U.S. against long-range ballistic missile attacks is absolutely essential. In fact, thanks in part to evolving threats from North Korea and Iran, the Obama administration plans to build an additional 14 ground-based interceptors by 2017, and the U.S. Defense Department's fiscal 2015 budget includes $8.5 billion for missile defense programs.  

As such, it's highly unlikely that the GMD system will be scrapped -- in its 2015 budget request, the Pentagon specifically asked for $1 billion for the GMD program. Furthermore, the threats posed by Iran and North Korea don't show any signs of dissipating. Consequently, it's likely that missile defense programs will continue to be a significant source of revenue for defense contractors -- that's good news for Boeing and its partners on the GMD system.

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Katie Spence owns shares of Northrop Grumman. The Motley Fool owns shares of Northrop Grumman and Raytheon Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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