Missiles away! The guided missile cruiser USS Shiloh conducts a live-fire exercise in the Indian Ocean. Source: U.S. Navy.

The aircraft carrier is dead. Long live the missile carrier.

That's the upshot of retired U.S. Navy Captain Henry (Jerry) Hendrix's argument for phasing out America's large aircraft carrier fleet, which we summarized for you last week. In a nutshell, Capt. Hendrix believes the age of aircraft carriers is over -- that as military assets, aircraft carriers have become too big, too expensive, and too vulnerable to risk in an age of anti-access/area-denial (A2AD) warfare.

In an even more recent column, Hendrix shifted gears somewhat. Citing "a need to shift to an offensive imperative to control the seas," Hendrix argued that instead of big, armed-to-the-teeth yet vulnerable aircraft carriers, the U.S. Navy should develop "distributed lethality." Among other things, Hendrix says the Navy should arm surface warships and submarines with more long-range missiles capable of undertaking "offensive, sea-control, and power-projection" missions out of range of enemy counterattack.

Now, Capt. Hendrix doesn't always see eye to eye with the Navy brass. But on this particular subject, they seem to agree. In evidence of this, the U.S. Navy is getting ready to bring on board a new missile.

Enter the Harpoon
Dubbed the "Harpoon Next Generation," the Navy's new long-range anti-ship missile will be a successor to the venerable Boeing (NYSE:BA) Harpoon. First deployed in 1977, the lethal, sea-skimming Harpoon anti-ship missile carries a 500-lb. warhead and can strike targets at ranges up to 67 miles.

The Harpoon Next Generation will be even more dangerous.

As reported on DoDBuzz.com last week, Boeing plans to upgrade the venerable Harpoon with "improved guidance technology, a new engine and new warhead." By improving the warhead's effectiveness, Boeing will cut its weight to 300 pounds. With less weight to carry and an improved engine, the missile's range will double -- to 134 nautical miles.

As a result, Boeing's Harpoon Next-Generation will boast the same killing power of the original missile -- but the increased range will enable Harpoon-armed warships to reach four times as many targets as the original. (When a missile's range doubles, the area it can cover quadruples.) That's a lot of distributed lethality.

Boeing's multifaceted Harpoon missile can be loaded on a ship, a fighter jet, or even a... truck. Which way to the nearest whale? Source: Marinens Biblioteks Arkiv.

What comes next?
Boeing intends to begin selling the Harpoon Next Generation in 2017, and at a price similar to the original Harpoon. So, how big is this market opportunity for Boeing?

Boeing has sold more than 7,500 Harpoons and upgraded Harpoon "Block II" missiles over the past four decades. At an estimated cost of $1.2 million per Harpoon, replacing these missiles holds the promise of perhaps $9 billion in new revenue for Boeing over the next four decades. But there's no need to wait that long. Thousands of these weapons remain in the inventories of the nearly 30 nations equipped with the Harpoon, and Boeing will be offering upgrades to the new configuration, with all of its new advantages, to owners of the original Harpoon -- perhaps as early as 2018. 

How much might those upgrades be worth?

The exact answer depends on how many missiles remain in inventory. But to give you a sense of the opportunity, defense analysts at Janes cite Boeing's claim that retrofitting an existing Harpoon could cost about half the $1.2 million price tag on a new missile. If we assume there are, say, 5,000 Harpoons still sitting around in world armories today, and apply a cost of $600,000 to each upgrade, then this alone is a $3 billion market opportunity for Boeing -- before the company sells even one entirely new missile.

Applying the 9.6% operating profit margin of Boeing's defense unit to these revenues, upgrades and new sales from this single weapons system could produce anywhere from $290 million to $868 million for Boeing.

The upshot for defense industry investors
Granted, weighed against the $7.6 billion in operating profit Boeing as a whole produced last year, even $868 million might not sound like much. All on its own, Harpoon won't "move the needle" for a company as big as Boeing. But it's a start.

If Boeing stock is to hit the 12% long-term growth target analysts have set for it, making a big profit from a new-and-improved Harpoon is a great way to get started.

Harpoon could help to lift Boeing profits. But to hit 12% growth, Boeing needs to sell a lot of them. Source: U.S. Navy.