Boeing expects missile-defense job through 2013

WASHINGTON (Reuters) - Boeing Co (BA.N) said on Tuesday it expected to get a new exclusive contract for the continued development of the core U.S. missile-defense system through 2013 along with a proposed new European leg designed as a hedge against Iran.

Boeing officials, speaking to reporters, declined to estimate the value of this follow-on missile-defense work for the Pentagon.

Work on the core missile-defense system has brought Boeing about $16 billion over the past 10 years. The system is the sole U.S. defense against long-range ballistic missiles that could be tipped with chemical, germ or nuclear weapons.

Northrop Grumman Corp (NOC.N), one of Boeing's current subcontractors on the project, said in December it would seek more of the work after the Pentagon launched a process that could have led to competition for development and maintenance deals.

At issue is a system designed to shoot down enemy ballistic missiles in the middle of their flight paths while they cruise through space. Known as ground-based midcourse defense, or GMD, it is the Pentagon's costliest missile-defense program, accounting for about $2.3 billion in fiscal 2008, which began October 1.

The United States spends about $10 billion a year overall on missile defense, the biggest annual arms-development outlay under President George Bush.

The Pentagon's Missile Defense Agency, in an announcement to industry on Friday, said it had determined Chicago-based Boeing was the "only qualified source to perform this completion effort within cost and schedule constraints."

The statement, made public by Boeing, said MDA plans to negotiate on a "sole-source basis" with Boeing for upgrades to interceptors in Alaska and California and "European Interceptor Site integration support" among other work.

"Only Boeing, the incumbent GMD System prime contractor, has the necessary engineering, manufacturing and software knowledge and expertise to perform and manage multiple major sub system developments, hardware/software programs and related integration activities without unacceptable delay to program schedules and unnecessary duplication of sunk development costs which cannot be recouped through competition," MDA said.

The Bush administration is negotiating to put tracking radar in the Czech Republic and 10 missile interceptors in Poland to enhance defense against any long-range missiles from Iran.

Bush is seeking $719.8 million in fiscal 2009 to start construction of the European leg. Funding for the system would total $4.5 billion through 2013, according to Missile Defense Agency spending plans sent to Congress in February.

Boeing, the Pentagon's No. 2 supplier by sales, was awarded a contract in 1998 to put together the ground-based mid-course system. It is the hub of a layered shield that also includes interceptors on ships, sensors in space and a potential airborne laser aboard a modified Boeing 747-400F aircraft.

The system-development portion of Boeing's GMD contract is scheduled to expire at the end of 2008.

Key Boeing subcontractors included Orbital Sciences Corp (ORB.N), Raytheon Co (RTN.N) and Northrop Grumman.

MDA intends to negotiate the cost of a new deal with Boeing, said Richard Lehner, an MDA spokesman.

Los Angeles-based Northrop Grumman already supplies several U.S. antimissile technologies, including for space tracking and surveillance and "kinetic energy interceptors" designed to destroy enemy ballistic missiles.

Lockheed Martin Corp (LMT.N), the Pentagon's No. 1 supplier and Raytheon Co (RTN.N), the fifth largest, also had shown interest in taking away some of Boeing's GMD work.

Although Boeing had been widely expected to remain the prime contractor, Scott Fancher, general manager for Boeing's missile defense systems business unit, said this was not a foregone conclusion.

"They could have come through differently," he said, referring to MDA.

(Reporting by Jim Wolf; Editing by Andre Grenon)