Shouldn't this rather be
> Flares are used to decoy heat seeking missiles.

That seems like a good sentence, too. It feels more precise than this one.

Is this sentence incorrect?

Aren't such adjectives better written in one word (hyphenated or not)?

I'd say "to avoid" suggests that the plane changes its course to avoid the missile, but that's not the case. I'd prefer a more precise wording in order to avoid misunderstandings:

to avoid being hit by heat seeking missiles.

to avoid hits by heat seeking missiles.

to avoid heat seeking missile hits.

to decoy heat seeking missiles.

Nonetheless, I guess the sentence in its original form is acceptable too.

@al_ex_an_der I agree that your sentences are better because they're more precise. If the original formulation is acceptable, albeit hand-wavy, I'd prefer to leave it as it is, and you can add a new and improved sentence as you like.

@Ooneykcall I have seen both "heat-seeking" and "heat seeking" in print. The former seems more common. Is the latter incorrect?

"heat seeking missiles" changed to "heat-seeking missiles".