June 5 (Bloomberg) -- Raytheon Co., the world's largest missile maker, beat General Dynamics Corp. for a U.S. Army contract worth as much as $11.2 billion to provide training equipment and services.

The initial award is valued at about $3 billion and would rise to the ceiling if all options are exercised over 10 years, Army spokeswoman Kristen Dooley said today in a phone interview.

Army spending on training has approximately doubled in the past five years as the U.S. prepares troops for conflicts in Iraq and Afghanistan. The service is consolidating three separate contracts for live and computer-based training into a single award to save $568 million over a decade, Dooley said.

``Training is one of the services that we think will be continued at high levels even after the Iraq war is finished,'' said Paul Nisbet, a Newport, Rhode Island-based analyst with JSA Research Inc. He rates shares of Raytheon ``buy'' and doesn't own any. ``The war on terror is something that is likely to continue, regardless of location, and that will prompt us to keep our forces well trained.''

The new contract, called the Warfighter Field Operations Customer Support program, is run by the Army's Office for Simulation, Training and Instrumentation in Orlando, Florida. Today's award is the largest ever given by the office.

Shares of Raytheon, based in Waltham, Massachusetts, fell 60 cents, or 1.1 percent, to $56 at 4:01 p.m. in New York Stock Exchange composite trading. They have gained 6.1 percent this year. General Dynamics, based in Falls Church, Virginia, dropped 55 cents to $78.95.

Raytheon's Team

Raytheon led a team called the Warrior Training Alliance, which included Computer Sciences Corp. in El Segundo, California, and L-3 Communications Holdings Inc. in New York. There are more than 60 other companies on the team.

Raytheon held the Army's previous award for live training programs from 1999. That original eight-year contract had an initial value of as much as $400 million, which more than doubled to exceed $900 million as demand increased for troops to fight abroad.

The award may add as much as 2 cents to Raytheon's earnings per share in 2008, said Cai Von Rumohr, a Boston-based analyst at Cowen & Co. He estimates profit of $3.85 next year, excluding the award. He rates the shares ``outperform'' and some members of his family hold them as personal investments.

``This will accelerate growth in that sector and add a little bit to earnings,'' Von Rumohr said in an interview. ``This is going to be their biggest program in tech services. This will give them more growth there than they have had in some time.''

Computer Sciences

Computer Sciences held the second Army training award -- for virtual-reality work -- for the past five years, Austin Yerks, president of the company's defense division, said on a conference call today. In virtual-reality training, a person interacts with a situation created by the computer. Sales from that award almost doubled to about $350 million from the originally anticipated value of $200 million, Yerks said.

Together, Raytheon's team already manages about 99 percent of the Army's training devices, and has staff at 93 percent of the service's training sites, said program manager Mike Edwards.

``Our position as the incumbent and the team's readiness ensures training continuity,'' Edwards said on the conference call.

The third contract that will be folded into the new award to Raytheon had previously been held by General Dynamics, said Kendell Pease, a spokesman for General Dynamics.

Training Ranges

That contract for training ranges and digital battle areas belonged to Anteon International Corp., which was acquired by General Dynamics in June 2006.

Anteon said in November 2005 the award was worth as much as $350 million, and Pease didn't provide an updated figure.

General Dynamics headed a team bidding for the new award called the Warfighter Focus Alliance, and it included Bethesda, Maryland-based Lockheed Martin Corp., the world's largest defense company, and Northrop Grumman Corp. in Los Angeles.

To contact the reporter on this story: Edmond Lococo in Boston at elococo@bloomberg.net.

Last Updated: June 5, 2007 16:40 EDT