Since the end of the Cold War, nations across Europe have spent relatively little time or money defending their borders from aggressive neighbors. But, as tensions between Russia and the west rise, several nations in the region are boosting defense budgets and eyeing new sophisticated air defense weapons systems.
That’s set the stage for a showdown between U.S. defense contractors Raytheon RTN and Lockheed Martin LMT , the world’s leading makers of missile defense systems capable of knocking incoming airborne threats out of the sky.
Over the past decade, any conversation about European missile defense largely centered on a theater missile shield. The shield relies on a series of radar installations and missile batteries installed in Poland and Romania (largely funded by the U.S.) to defend against an Iranian ballistic missile threat. However, as Russia flexes its military might, Baltic and Scandinavian nations—as well as countries in central and Western Europe—are starting to feel nervous. Most are now shifting their attention away from pan-European missile shields and towards rapidly deployable piecemeal systems that can defend an individual nation’s airspace.
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This type of defense means possibly buying anti-aircraft and anti-missile defense systems, which currently no one in the world does like U.S. defense firms Raytheon and Lockheed Martin, says Roman Schweizer, a defense policy analyst at Guggenheim Securities. “Missile defense is one of those categories that’s on its own right now,” he says. “U.S. defense systems are the best, or at least the proven technologies that outdistance the competition in many respects.”
Heightened interest in missile technology places Raytheon and Lockheed Martin on opposite sides of a marketing battle, which has billions of dollars and decades of contracts hanging in the balance.
Such a competition is already playing out in the Middle East and Asia, where perceived threats from North Korea, China, and Iran have pushed neighboring countries to bolster defenses. Since December 2014, Raytheon has piled up $5 billion in Patriot contracts from countries like Qatar, Saudi Arabia, and South Korea. Qatar and Saudi Arabia are also working to acquire Lockheed’s Terminal High Altitude Area Defense (THAAD) anti-ballistic missile system, on which the United Arab Emirates has signed deals totaling $1.9 billion in recent years.
But, while tensions in those regions have developed over decades, Russia’s diplomatic about-face has been a bit more abrupt and generated a lot of interest in Europe in a short amount of time. Given tightening defense budgets across the globe, options for countries wary of new threats are slim. “We’re in an environment of constrained dollars today, and no nation can go it alone, no one can take a blank sheet of paper and design a new weapons system,” says Raytheon vice president Tim Glaeser.
That makes Europe a ripe market for companies that can offer missile defense systems that are affordable and easy to deploy. “Europe could become a growth area,” Schweizer says. “Certainly Poland and Germany have made two big decisions lately that have been meaningful to Raytheon and Lockheed, and there are plenty of other opportunities.”
Raytheon sells the Patriot Air and Missile System, an interceptor missile system borne directly out of Cold War tensions with Russia in the 1980s. The Patriot rose to prominence during Operation Desert Storm in the early 1990s and is now deployed across the globe, including with four European militaries and the United States Army.
Meanwhile Lockheed Martin—the underdog, but by no means the inferior in this competition—is aggressively marketing the Medium Extended Air Defense System (MEADS), its own ground-mobile air defense system. Jointly developed by the United States, Germany, and Italy, MEADS was designed to replace the Patriot, with Lockheed Martin as the prime contractor. In 2011, the U.S. decided not to purchase MEADS and instead upgraded its existing Patriot systems. In December of last year it pulled its support from the 10-year, $3.4 billion MEADS program, placing huge pressure on Lockheed to quickly find a customer for the program or risk shouldering much of the ongoing program costs itself.
MEADS suffered another setback earlier this year when Poland, after long considering the system for its air defenses, decided to go with the Patriot in April. However, the program’s luck began to change when in June Germany breathed $4 billion worth of new life into MEADS, selecting the system for its own defenses and opening the door to further exports. “Germany’s was an incredibly significant decision for us,” Marty Coyne, MEADS business development manager at Lockheed Martin, told National Defense magazine last month. “What is significant is that they extended an open invitation to the rest of Europe to come join them.”
Lockheed’s challenge will be convincing other countries already using Patriot to transition to MEADS. A nod of approval from Germany—which holds a lot of sway in the European defense community—could go a long way towards changing officials’ minds. Raytheon, for its part, will continue pressing the case for Patriot and its long track record.
Neither company is ceding ground just yet. Coyne has said publicly that Lockheed doesn’t believe Poland’s business is a lost cause, as the country plans to deploy eight total air defense batteries and its contract with Raytheon only covers two. Raytheon likewise isn’t counting out Germany. “The contract won’t be awarded until 2016 sometime,” says Raytheon’s Glaeser about Germany’s contract with Lockheed. “So if MEADS stumbles, Patriot will remain in the hunt.”
The rest of an increasingly wary Europe is still up for grabs.