While other US contractors began emphasizing foreign sales in the last year, “54 percent of the revenue for the IDS business is from international [already],” said Kennedy, president of Raytheon’s Integrated Defense Systems (IDS) division, in a breakfast with reporters on the sidelines of this week’s Association of the US Army conference. For Raytheon as a whole, he said, the percentage of foreign sales is a smaller but still impressive 25 percent, higher than (for example) Lockheed.
“Raytheon has been in the Middle East region for 48 years,” bragged Kennedy, who recently awarded a 45-year service pin to a Saudi Arabian employee. In the burgeoning Pacific market, focus of the moderately famous strategic pivot to the region, “we have a company called Raytheon Australia; it’s now the second largest defense company in Australia.”
The Australian subsidiary works mainly on naval systems, like the Air Warfare Destroyer and submarines. Last December Kennedy’s US-based IDS division announced a deal to sell $80 million worth of sonars to Canberra (specifically the Airborne Low Frequency Sonar, which lets helicopters hunt for submarines). And just last week, Raytheon revealed a $45.3 million contract to sell air-dropped, anti-submarine torpedoes called Mark 54s to both Australia and India. (India would use the torpedoes from its new Boeing P-8 Poseidon aircraft). Kennedy hinted at “more to come” in India, a notoriously difficult market for US companies.
These are not huge programs but Raytheon has a few big foreign sales. The company’s biggest international sellers seem to be anti-missile systems for the Middle East, particularly the Patriot (a program Lockheed badly wants to beat). “One of the threats in the region obviously is Iran,” said Kennedy, and Iran’s ballistic missile arsenal has pushed its neighbors to invest in missile defense. Raytheon is upgrading Kuwaiti Patriots, selling advanced TPY-2 anti-missile radars to the UAE, and bidding on a missile defense contract in Turkey worth up to $4 billion.
Even $4 billion, though, is relatively modest by Pentagon standards. But Kennedy argues that small is beautiful in an era when big programs are facing big cuts. “Raytheon has 8,000 programs,” he said. “No one program takes us down. We don’t have a JSF — we have stuff on the JSF [as a subcontractor]. We don’t have a DDG-51 ship. But we have equipment on the ship.”
Selling one bite-sized program at a time is certainly an easier prospect for most countries’ budgets to swallow. But top Deloitte analyst Tom Captain was skeptical that foreign sales will ever replace budget cuts in the US and NATO. The Mideast and Asia are going strong, he said, but “those bright spots don’t make up for the decreases in giant markets like Europe and the United States.”
What’s more, warned Captain, those foreign companies are fighting harder for a shrinking amount of sales. Just at this week’s AUSA conference, despite a smaller US military presence, “I detected a higher degree of presence from French, Norwegian, Canadian, and other countries that are selling their military wares,” he said. “The competition is going to be tougher.”
For that Turkish missile defense program, for example, acknowledged Kennedy, “we’re competing against the Russians, the Chinese, [and] a European consortium, MBDA.” Buying Russian or Chinese systems would complicate Turkey’s cooperation with its NATO allies, so MBDA and Raytheon arguably have an edge, but so far the Turks have postponed their decision, originally set for July. Now, said Kennedy, “they’re stating that they’re going to make a decision in December of this year.”
Coincidentally, that would be just before the automatic cuts known as sequestration are scheduled to hack about $50 billion out of the Pentagon’s 2013 budget — a figure over three times Turkey’s entire defense spending for the year.