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Raytheon Wins FAB-T Deal, Loses Space Fence Bid

It was a mixed week for military business at Raytheon Co., which landed a sizable Air Force contract to develop communications terminals but lost a larger award with the service to build a so-called space fence.

The Waltham, Massachusetts-based defense contractor on Monday beat out Boeing Co. for a $298 million contract modification for a program called Family of Advanced Beyond-Line-of-Site Terminals. Outfitted in ground stations and aircraft, the terminals relay secure communications at higher bandwidth using a network of military satellites. The system is designed to ensure the president can talk to commanders after a nuclear attack.

The same day, Raytheon lost one of the largest space-related contracts in years to Lockheed Martin Corp., which won a $915 million deal to build a ground-based radar system to better track space debris, known as the space fence.

"Certainly, it’s a big loss for Raytheon," Marco Caceres, a senior analyst at the Teal Group, said in an e-mail. "The issue of tracking space debris will only grow substantially in importance over the next few years, as potentially thousands of new micro, nano, pico, and femto satellites will be launched to low earth orbit."

He added, "The Space Fence is a billion-dollar program that will continue to grow in value for decades to come, so it would have represented a long-term revenue stream for Raytheon."

Even so, the defeat didn't appear to faze investors. Raytheon's stock traded at $98.59 at 12:30 p.m. in New York, down less than 1 percent since Monday and up 10 percent since the beginning of the year.

Raytheon appears to have unseated Boeing from the FAB-T work by offering a lower-cost bid. The Air Force in 2012 invited Raytheon to compete for the program after becoming concerned that Boeing, which began developing the devices more than a decade ago, would have to further delay the schedule because of design changes.

In an interview last year with, Paul Geery, a Boeing vice president who manages the FAB-T program, said the company had completed incorporating design changes requested by the Air Force and addressed all of the service's concerns. But he acknowledged that cost would be a decisive factor.

"It's just a question of price," he said at the time. "Budgets are going to drive a lot of decision-making."

The deal is potentially lucrative for Raytheon, whose system uses a modem and other technology the company previously developed for the Army and the Navy. The contract modification was expected to call for 84 command post terminals -- though no quantity was specified -- and lead to orders for aircraft terminals, as well.

"As a result of this down-select decision, low rate initial production, full rate production and interim contractor support contract options may be exercised to deliver FAB-T CPT-Only Terminals," states both the Pentagon's contract announcement and a company press release. "The Phase 2 production contract options for [low-rate initial production], [full-rate production], and [interim contractor support] may be exercised after completion of Milestone C."

Overall, the program is projected to cost $4.8 billion, a 50-percent increase from the original estimate of $3.2 billion, according to Pentagon acquisition figures released last month. Close to half of that amount has been spent.

The latest estimate assumes buying a total of 259 devices to upgrade existing command post terminals located on the ground and in E-4B and E-6 aircraft, and to install in B-2 and B-52 bombers and RC-135 reconnaissance aircraft.

The Air Force, however, is considering scrapping its plans to outfit the bomber fleets with the terminals. Under such a move, the Government Accountability Office has warned, "FAB-T may not meet its full range of planned communications capabilities as some are based on the interaction of bomber aircraft with intelligence, surveillance, and reconnaissance aircraft and command terminals."

But the competition may not be over yet. Boeing could still protest the Air Force's decision.

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