Raytheon Storing Missiles Awaiting Motors, Air Force Says

Raytheon Co. (RTN) has put almost 900 air- to-air missiles for U.S. and allied air forces in storage because they’re missing a major component -- motors.

The Advanced Medium-Range Air-to-Air Missiles are fully assembled guidance sections “without rocket motors and they are being stored at Raytheon Missile Systems awaiting final assembly as new motors become available,” according to a statement from U.S. Air Force spokesman Charles Gulick.

The Air Force earlier provided data indicating that the missiles had been “delivered” through Nov. 30, a quantity about 900 short of contract requirements. The service didn’t mention that those missiles were missing their motors and were still held by Raytheon.

“The Air Force has not actually taken delivery of the missiles,” the service acknowledged in a follow-up statement. The missile sections are in storage in Tucson, Arizona, where Raytheon’s missile systems unit is based, because subcontractor Alliant Techsystems Inc. (ATK), based in Arlington, Virginia, has had difficulty manufacturing motors.

The delayed weapons are the newest version of the Advanced Medium-Range Air-to-Air Missile (AMRAAM). They’re intended for deployment to U.S. Air Force fighter wings and U.S. Navy air wings once testing is done and they’re declared combat-ready.

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.

New Company

“I am just now having a brand new company coming up to speed developing rocket motors to replace a company that has been unable to produce rocket motors and pass their acceptance test,” Lieutenant General Charles Davis, the military deputy for Air Force acquisition, said in an interview today.

“Within the plant at Tucson, they believe they kept to a reasonable schedule for the original contract to develop guidance sections,” Davis said.

Since February, the Air Force withheld an estimated $438 million in payments from Waltham, Massachusetts-based Raytheon, the world’s largest missile maker.

“The reason why there’s been up to $400 million-something worth” withheld is because “they have not delivered missiles that I could go kill someone with,” Davis said. “That’s the only thing I care about.”

‘Can’t Kill’

“If it’s just a guidance section, I can’t kill anybody with a guidance section,” he said.

Raytheon invested two years ago in developing the Norwegian company as a second source, and “this fall, Raytheon delivered more than” 120 missiles, company spokesman Jon Kasle said in an e-mail.

“This month we are delivering the first missiles” with motors produced by the Norwegian company, Kasle said. The second supplier “will be ramping up quickly” to increase production, he said.

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

Davis said the company “will be quick to tell you that 90 percent of the cost of the missile’s in the guidance section, and they are well on schedule.”

“We do not accept guidance sections,” Davis said.

Raytheon has said that payments shouldn’t be withheld “because ‘we have made 90 percent of the missile, and they are stacking up in our warehouse,’” Davis said. “We have not agreed with that.”

Revised Agreement

On Dec. 11, the service reached agreement with Raytheon on a revised delivery schedule that lifts the withholding of payments 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 Gulick said. 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, Davis said.

The delayed missiles have been ordered by the U.S. and Taiwan, the United Arab Emirates, Finland, South Korea, Morocco, Chile, Jordan, Kuwait, Singapore and Turkey, according to the Air Force.

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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