Raytheon Fights Ex-Partner CSC as Air Force Pares Contracts

Exelis Inc., Computer Sciences Corp. (CSC) and Raytheon Co. (RTN) risk losing $3 billion in rocket-launch revenue during the next decade as the U.S. Air Force consolidates contracts to reduce costs.

The Air Force plans to save at least 5 percent by eliminating redundancies in three maintenance and engineering contracts, Christina Sukach, a spokeswoman for the Air Force Space Command, said in an e-mail.

Exelis may have the most at stake. The company has received $1.4 billion under its contract since 2001, according to data compiled by Bloomberg Government. Boeing Co. (BA), Lockheed Martin Corp. (LMT) and Bechtel Corp. plan to challenge Exelis and the other incumbents for the work, according to a notice the Air Force posted online Jan. 20.

“The Air Force is desperately looking for anywhere that it can get creative and cut, and it knows that it can’t do very much on the systems side,” or the rockets and satellites themselves, Marco Caceres, a senior space analyst at the defense research firm Teal Group of Fairfax, Virginia, said in a phone interview.

The Air Force awarded $319 million in the year ended Sept. 30 under the contracts that will be combined, according to federal procurement data compiled by Bloomberg. Exelis received the most, with $146 million, followed by a joint venture of CSC and Raytheon, with $92 million, and closely held InDyne Inc., with $81 million.

Source: NASA/Getty Images

A Delta II rocket with a NPOESS Preparatory Project (NPP) spacecraft payload waits to launch on Oct. 27, 2011 at Vandenberg Air Force Base, California. Close

A Delta II rocket with a NPOESS Preparatory Project (NPP) spacecraft payload waits to... Read More

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Source: NASA/Getty Images

A Delta II rocket with a NPOESS Preparatory Project (NPP) spacecraft payload waits to launch on Oct. 27, 2011 at Vandenberg Air Force Base, California.

Duplicate Contracts

The consolidation follows a Sept. 29 order from Dan Gordon, then the Obama administration’s top procurement official, to avoid overlapping and duplicate contracts.

Exelis (XLS), based in McLean, Virginia, has a partnership with London-based BAE Systems Plc (BA/) and New York-based L-3 Communications Holdings Inc. (LLL) to bid on the new contract. Exelis was spun off from ITT Corp. in October.

“We see this consolidation as a chance to expand our business with the Air Force,” Pat Carr, Exelis’ vice president of information systems, said in an e-mail.

CSC, based in Falls Church, Virginia, will end its joint venture with Raytheon and has formed one with Honeywell International Inc. (HON) of Morris Township, New Jersey, to pursue the consolidated contract.

CSC and Raytheon, based in Waltham, Massachusetts, have provided launch services at Patrick Air Force Base near Satellite Beach, Florida, since 1988. The joint venture received $356 million in orders since 2008, according to data compiled by Bloomberg.

Expansion Opportunity

The combined contract provides CSC with an opportunity to expand, Michael Maier, vice president of the company’s Air Force range programs, said in an e-mail statement. It is “one of the largest range technical services contracts across the entire Department of Defense,” he said.

Amy Smith, vice president of communications for Raytheon’s technical services unit, confirmed that the company planned to bid on the new contract.

“We are pursuing this and are excited to bring Raytheon’s capabilities to the table in this next chapter for the Air Force,” she said today in a phone interview.

InDyne, based in Reston, Virginia, has received $287 million since 2008 for launch work at Vandenberg Air Force Base near Lompoc, California. The company is pursuing the contract with partners Lockheed Martin of Bethesda, Maryland, and URS Corp. (URS) of San Francisco. Exelis’s existing contract is for services at both the Patrick and Vandenberg bases.

Eight Bids

The contractors oversee missile and rocket launches at the bases and operate command and control systems. There were 11 launches from each range in fiscal 2011, the Air Force’s Sukach said. This year, 15 launches are planned at the Florida range and nine at the California range.

Proposals probably will be due in May, with an award likely in November, Sukach said. The service expects as many as eight bids for the work under the Launch and Integrated Support Contract, or LISC, she said.

Combining contracts is a common way of reducing duplicative work and saving money, said Scott Pace, a director of the Space Policy Institute at George Washington University in Washington.

There are large economies of scale in the business of operating launch facilities and “only a few sources of customer demand,” Pace said in an e-mail. That is why it makes sense for the government to combine the contracts, he said.

To contact the reporter on this story: Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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