By Doug Cameron 

Boeing Co. this week was ejected from a contest to provide the U.S. with a new anti-missile defense system, a setback to the company's efforts to rely on its military business for more revenue.

Lockheed Martin Corp. and Northrop Grumman Corp., instead of Boeing, were selected Tuesday to compete to provide a new system aimed at knocking out long-range missiles fired by adversaries, estimated to cost $12 billion. North Korea this week conducted its first ballistic missile test in almost a year.

The Pentagon is revamping the Boeing-developed silos in California and Alaska designed to shoot down enemy ballistic missiles. It has already spent more than $50 billion on the long-delayed program, with the next stage including the fielding of 20 Next Generation Interceptors by the end of the decade.

Boeing said it was disappointed by the agency's decision in the latest contest but will wait for a debriefing before deciding on next steps.

Boeing has led the Pentagon's domestic missile defense program for more than two decades. Its elimination from the opportunity to provide a replacement system to intercept and destroy threats highlights the fierce competition for a shrinking band of big programs. Lockheed Martin and Northrop Grumman are both growing at a faster clip, with an expanding pipeline of orders.

"Losing out on the new interceptor could endanger Boeing's leadership of the nation's missile defense program," said Loren Thompson at the Lexington Institute, a consultant to many of the major defense contractors, including Boeing.

David Calhoun, Boeing's chief executive, said in January that its defense unit was well positioned, and it succeeded in reviving sales of its F-15 fighter as well as a range of classified work for the Pentagon.

Sales growth in the defense unit this year was forecast to grow by a percentage in the low- to mid-single digits after being flat in 2020. Its backlog of new business fell 5% last year to $61 billion.

Sales at Boeing's Defense, Space & Security unit last year eclipsed those at the commercial airplanes business to be the largest for the first time in a decade. It delivered almost as many military aircraft as jetliners, with the 737 MAX grounding and pandemic-driven travel downturn hitting commercial revenues. The company expects jetliner sales to remain a drain on cash into next year. Analysts estimate the defense unit will generate $8 billion in cash in the three years to the end of 2022.

Boeing said it will continue to support the existing missile defense system, though the Pentagon's Missile Defense Agency may take over more of its operation, further denting potential revenues from strategic defense systems.

Boeing's removal from the missile defense contest follows two other defeats in programs that executives had said were a priority for its defense franchise, including the B-21 bomber and planned replacement of the U.S. land-based nuclear missile arsenal, which were both won by Northrop Grumman.

The setbacks follow a period when Boeing had cut jobs and improved margins at the defense unit, and reprioritized investments. The company in 2018 secured a trio of contract wins, the first for new programs from the Pentagon in a decade. The deals for a new Navy refueling tanker, an Air Force training jet and helicopters to patrol nuclear bases started generating cash just in time to help compensate for the grounding of the 737 MAX after two fatal accidents.

Boeing and Raytheon Technologies Corp. had won an earlier version of the interceptor program that was canceled in 2018 after running into technical problems. Boeing's losing team for the new version included Aerojet Rocketdyne Holdings Inc., the rocket motor maker, which is also partnered with Lockheed Martin.

Write to Doug Cameron at doug.cameron@wsj.com

 

(END) Dow Jones Newswires

March 25, 2021 08:50 ET (12:50 GMT)

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