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Raytheon 900 Missiles Behind in Deliveries, U.S. Says

(Corrects spelling of Tucson in 13th paragraph of story published Dec. 20.)

Raytheon Co. (RTN) has fallen almost 900 missiles behind in deliveries of the military’s most advanced air-to-air weapon to the U.S. Air Force, Navy and allies because of a subcontractor’s difficulties manufacturing motors.

The delayed weapons are the newest version of the Advanced Medium-Range Air-to-Air Missile. They are intended for deployment to Air Force fighter wings and Navy aircraft carriers once testing is done and they are declared combat-ready. Raytheon was to have delivered about 1,800 missiles as of last month, according to Air Force figures.

The missile “is a critical tool of several nations’ air forces, most importantly our own,” Lieutenant General Charles Davis, the military deputy for Air Force acquisition, said in an e-mail statement.

Since February, the Air Force had withheld $438 million in payments from Waltham, Massachusetts-based Raytheon, the world’s largest missile maker. On Dec. 11, the service reached agreement with Raytheon on a revised delivery schedule that lifts the payment suspension and triggers an initial $104 million payment that’s now being processed, according to an Air Force statement.

The $104 million is likely to be paid by Dec. 31, Air Force spokesman Charles Gulick said in an e-mailed statement. The remaining money will be paid as fully assembled missiles are delivered, he said.

The company is required to get back on schedule by mid-2014, according to the Air Force statement. The agreement also provides extended warranty coverage by Raytheon. Some of the missiles that have yet to be provided were ordered in fiscal 2008 for delivery by Sept. 30, 2011, according to Air Force data.

‘Motor Issues’

The missiles have been delayed because Alliant Techsystems Inc. (ATK), a Raytheon subcontractor, has had difficulties producing the correct blend of rocket-motor propellant, according to the Air Force.

“Motor issues with components produced by ATK remain unresolved,” the Air Force said in the statement.

In the U.S., Raytheon had delivered 525 of a required 723 missiles as of Nov. 30. The company has provided 369 of 1,066 missiles to customers such as Taiwan, the United Arab Emirates, Finland, South Korea, Morocco, Chile, Jordan, Kuwait, Singapore and Turkey, according to the service.

The Air Force is pressing Raytheon on the missile deliveries as the Pentagon puts in place “Better Buying Power 2.0,” an initiative intended to improve contractor performance and lower the costs of major weapons programs. The Defense Department has pledged to expand incentives for exceptional performance while making contractors more accountable for lagging efforts.

Help From Norway

Steve Cortese, a spokesman for Falls Church, Virginia-based Alliant Techsystems, referred a request for comment to Raytheon. Jon Kasle, a Raytheon spokesman, said in an e-mailed statement that getting missile production re-established “has been a top priority” and “we have engaged all resources to achieve this goal.”

Raytheon continues to produce guidance and control sections that represent 95 percent of its work on the missiles, Kasle said.

Motor deliveries to Raytheon’s Tucson, Arizona-based missile systems unit haven’t resumed as Alliant Techsystems works to resolve its issues, the service said.

Raytheon has contracted with a second motor manufacturer, Nordic Ammunition Group of Raufoss, Norway, to work with Alliant Techsystems on a limited number of motors while building its own production capability, the Air Force said.

“Raytheon has accelerated the introduction of a second motor supplier and developed a workable recovery plan,” Davis said in his statement.

Payments, Upgrades

Raytheon invested two years ago in developing the Norwegian company as a second source and “this month we are delivering the first missiles” with its motors, Kasle said. The company “will be ramping up quickly” to increase production, he said.

The Air Force said it negotiated with Raytheon for the U.S. and its coalition partners to receive payments from the company of as much as $33 million in consideration for the late deliveries.

Raytheon also agreed to install software upgrades for countries harmed by late deliveries, the service said.

The Air Force said it also negotiated new language that extends warranties for the time that missiles are in the contractor’s factory for repairs.

“Now it’s time to execute the plan and deliver hardware,” Davis said.

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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