ARMS TRADE-US missile-defense salvage operations under way

(Reuters correspondents worldwide are looking this week at how recession and changing threats are affecting the global arms trade. For highlights, please double-click on [ID:nARMS])

* US contractors aim to cash in on anti-missile know-how

* Obama seeks to cut $1.2 billion in spending

* Concerns mount over North Korea and Iran

By Jim Wolf

WASHINGTON, June 9 (Reuters) - U.S. missile-defense contractors and their allies are pushing to salvage what they can of prized, multibillion-dollar programs that Defense Secretary Robert Gates is seeking to scrap or cut back.

Amid mounting concern over nuclear and missile programs in North Korea and Iran, Northrop Grumman Corp (NOC.N), for instance, is calling on the Defense Department to rescind a stop work order and carry out a major flight test of its Kinetic Energy Interceptor.

Once valued at $6 billion, KEI is intended to shoot down enemy missiles soon after they are launched. Its "booster flight test" had been scheduled for September. But Gates said the system had very limited capability, cost too much and would have to be fired from what he suggested was perilously close to the target.

Northrop argues it had completed 90 percent of everything needed to do the test when the Pentagon pulled the plug on May 11, part of a restructuring of missile-defense efforts that have cost taxpayers more than $100 billion overall.

"Taxpayers have invested some $1.1 billion in KEI over the last five-plus years," said Bob Bishop, a Northrop spokesman. "It would be a shame to spend that money without a test to prove whether the technology works and forego an opportunity to gather valuable data on this first-of-a-kind, high-acceleration agile missile."

The Pentagon's Missile Defense Agency is going ahead with plans to launch this summer two Northrop-built prototype satellites designed to track missiles in all phases of flight. Known as the Space Tracking and Surveillance System, it would add a space-based sensor to the layered missile defense system deployed by then-President George W. Bush in 2004.

For the 2010 budget year that starts Oct. 1, President Barack Obama has asked Congress for roughly $7.8 billion to fund ballistic missile defense, a cut of about $1.2 billion from 2009.

The spending plan calls for greater focus on "rogue state" and "theater" ballistic missile threats in line with requests from top U.S. military commanders.

Gates also would terminate Lockheed Martin Corp's (LMT.N) Multiple Kill Vehicle, or MKV, on the grounds it was not needed for the limited threat posed by countries such as Iran and North Korea "for the next 10 to 15 years." Under Bush administration plans, the 2010 outlay for MKV was to have been $441 million.

Lockheed spokesman Jeffery Adams, in an email response to a query from Reuters about how the company might leverage the know-how it had gained, said Lockheed "developed some very promising kill vehicle technologies for the Missile Defense Agency to include battle management algorithms, the MKV infrared sensor, and divert and attitude control systems; we would hope that these could apply to next generation kill vehicles."

With an MKV aboard, a land- or sea-based U.S. interceptor would have been meant to destroy not only an enemy warhead but any decoys or other countermeasures deployed to spoof U.S. defenses.

"It was designed to deal with a more complex threat that would have come potentially from either China or Russia," Gates told the House of Representatives Armed Services Committee on May 13.

In a belt-tightening move, Gates recommended sticking with the 30 underground silos for long-range missile interceptors in Fort Greely, Alaska, and Vandenberg Air Force Base, California -- instead of adding 14 more as had been planned.

Boeing Co (BA.N) is the prime contractor of the system, known as the ground-based midcourse defense. Top subcontractors include Northrop Grumman, Raytheon Co (RTN.N), Lockheed Martin and Orbital Sciences Corp (ORB.N).

Gates said 30 interceptors in the ground would provide a "strong" defense against North Korea. In addition, his 2010 spending plan would add $700 million to field more Raytheon-built Standard Missile-3 and Terminal High Altitude Area Defense (THAAD) systems built by Lockheed Martin.

The plan to forgo building 14 new silos for a savings of $170 million will be "challenged strongly in Congress," said Riki Ellison, head of the Missile Defense Advocacy Alliance, an industry- and member-supported pressure group.

He said he was bringing grass-roots missile-defense advocacy leaders to Washington from 33 of the 50 U.S. states to tell Congress that Americans "are not wanting to be less protected against North Korea and Iran."

A wide range of lawmakers have argued that, with Pyongyang and Tehran demonstrating growing ballistic missile capabilities now is no time to cut U.S. long-range defenses.

"A reinvigorated national missile defense system would remind our enemies that regardless of who occupies the White House, America's commitment to its security is not negotiable," Representative John Boehner of Ohio, the Republican leader of the House, said in a June 4 guest column in the Chicago Tribune.

As part of its salvage operation, Boeing hopes to spin off the directed-energy technology it has been developing as part of its Airborne Laser, a high-powered chemical laser in a 747 jumbo jet.

Gates would turn the ABL, as it is called, into a research program and cancel a second prototype aircraft. The Government Accountability Office estimates about $5 billion has been spent on ABL so far, ahead of a planned attempt to shoot down a target missile later this year.

"ABL is the pathfinder for directed energy weapons," Michael Rinn, Boeing's program director, said. He said it had shared "expertise and lessons learned" with a range of other programs.

"The true value of ABL is in developing the technologies required for useful military applications of target acquisition, precision pointing, active tracking, and beam control/fire control," Rinn added in a statement to Reuters.

Gates toured the missile-defense complex at Fort Greely on June 1, after North Korea carried out its second underground nuclear test and test-fired a barrage of short-range missiles notwithstanding international pressure not to do so.

Halting the expansion of the base's anti-missile silos, he said, was "not a forever decision." (Reporting by Jim Wolf; editing by Dave Zimmerman)