Missile contract with NATO allies at risk over House spending cuts: Navy

WASHINGTON: The Pentagon is at risk of breaching a missile production contract shared with several allied countries if a spending cut originating in the House makes its way to this year’s defense spending bill, according to the Navy.

The contract, held by Raytheon, is for the Evolved SeaSparrow Missile, an interceptor being jointly developed and purchased by the United States and a consortium of 10 NATO countries, plus Australia. An improved version of the RIM-7P missile, ESSM can be fired at higher velocity and will have upgraded seeking capabilities.

In the fiscal 2022 president’s budget the Navy is seeking $248 million for the weapon system, but the House Appropriations Committee recommended cutting roughly $118 million from the program.

“This reduction will delay awarding/exercising the U.S. FY22 AURs [all-up-rounds] for ESSM Block 2 under the Raytheon production contract (FY22 & FY23 quantities are firm fixed priced options),” according to a Navy document outlining the service’s many objections to lawmakers’ cuts and obtained by Breaking Defense. Other notable objections in the document include cuts to surge sealift, F-35C and hypersonic weapons.

“Any decrease in quantity and/or delay in funding will compromise the terms and conditions of the contract and affect the overall international effort as US quantities are combined in the contract” with the other consortium nations, the document says.

If the funding is cut, the Navy warns, the Pentagon will have to re-negotiate the contract’s terms and pricing with Raytheon because the service would be unable to buy the minimum number of missiles.

The document goes on to explain the ESSM program had already overcome a previous delay resulting from Raytheon’s 2019 merger with United Technologies Corp. The merger forced Raytheon to re-develop company cost data used for 2021-2023 ESSM production and testing.

“In response to these challenges and to meet previously budgeted quantities, the program has structured contract negotiations for FY21-23 production with a Long Lead Material award to mitigate impacts of awarding the majority of funding in SEP 21 and the remaining 11 AUR’s in NOV 2021,” according to the Navy document.

The service has purchased roughly 1,200 ESSMs in recent years and is currently developing the second block which upgrades a “largely obsolete guidance section.” Initial production deliveries for Block II were expected to start in FY21, and full rate production is scheduled for 2024.

However, the Navy is already operating below “the fleet minimum inventory requirement,” and it warned lawmakers that delays to Block II missile procurement could worsen that gap.

Both the defense policy and spending bills have been stalled on Capitol Hill this week over a variety of issues. Top lawmakers announced Thursday they had agreed to a continuing resolution that is expected to avert a government shutdown on Friday night. With the continuing resolution funding the government into the middle of February 2022, the final defense bills may not be passed into law until well after the winter holidays.