Raytheon’s $621 Million Halted by U.S. on Missile Delays

The Air Force is withholding $621 million in payments to Raytheon Co. (RTN), the biggest U.S. maker of missiles for the U.S. military, citing chronic delays in delivering the most advanced air-to-air missile for the service and the Navy.

Raytheon’s Missile Systems unit, based in Tucson, Arizona, was 193 missiles behind schedule as of Feb. 29, according to Air Force data. The Air Force notified Raytheon on March 3 that it was withholding $419 million in fiscal 2010 payments, the service said in an e-mail. That’s in addition to $202 million the service was already withholding for 2007 to 2009.

Alliant Techsystems Inc. (ATK), Raytheon’s subcontractor, “has had difficulty for the past year consistently producing rocket motors to specification,” according to the Air Force.

The missiles are the newest version of the Advanced Medium- Range Air-to-Air Missile. These missiles are intended for deployment to Air Force fighter wings and Navy aircraft carriers once testing is done and they are declared combat-ready in fiscal 2013, the service said. The missile has been bought by more than 33 U.S. allies, including Jordan, Morocco and Kuwait.

“The government believes the suspension of payments is an appropriate and measured response to incentivize Raytheon contract compliance,” Lieutenant Colonel Jack Miller, an Air Force spokesman, said in an e-mailed statement. “Payments will resume after consistent delivery of functional missiles. The government is actively engaged in a joint industry-government team production improvement effort.”

Alliant’s ‘Top Talent’

Raytheon Missile Systems spokesman John Patterson declined to comment on the withheld money. Raytheon’s missile unit had $5.59 billion in 2011 net sales, the largest of the Waltham, Massachusetts-based company’s six units, according to filings with the Securities and Exchange Commission.

Alliant Techsystems has “committed top talent and resources to identify and implement actions necessary to quickly return to full-rate production,” Steve Cortese, a spokesman for the Arlington, Virginia-based company, said in an e-mailed statement.

“We’ve made significant positive progress as evidenced by recent rocket motor tests,” Cortese said. “We look forward to resuming deliveries to Raytheon in the near future.”

Miller said the Air Force defined “consistent delivery” as demonstrating a “steady growth in rocket motor production” and Raytheon “achieves a maximum rate of 125 deliveries per month.” Raytheon delivered its highest number, 33, in November, according to service data.

‘We’ve Grown Them’

Raytheon has been building the missile for more than 25 years, William Swanson, the company’s chairman and chief executive officer, said during an October 27 analyst call.

“Every year we’re asked to deliver AMRAAMs,” he said. “We’ve grown them from model A to model D, and if you look at it, the government looks to us to give them increased capability and to be able to do that at a lower price.”

Since January 2011, Raytheon has met or exceeded planned monthly delivery goals three times, according to Air Force data.

The delivery delays last year prompted House and Senate budget negotiators to cut $190 million, or about 38 percent from the Air Force fiscal 2012 request.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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