08 Dec 04. A recent U.S. government report shows that the Air Force’s Global Hawk is costing a lot more than expected.

The Washington Post reported Tuesday that the Global Hawk program’s cost has surged by almost $900m since 2001. Each drone is now expected to carry a price tag of $123.2m vs. a 2001 projection of $85.6m. As a result of the higher price, the Air Force has decided to scale back its purchase — to 51 aircraft, rather than 63. While cost overruns are nothing new in the military contracting arena, they may take on new meaning in the current budgetary context. Over the past several weeks, news stories on the U.S.’s bloated budget deficit and the potential dangers of continued deficit spending have been popping up everywhere. Fiscal sanity seems to be returning to the country, and this portends cuts in spending. The growth in military expenditures seems likely to slow from this point, and that could translate into procurement reductions and program cancellations.

Given the high priority Global Hawk has received from the Air Force, this program certainly does not appear to be in danger. But some of Northrop Grumman’s other contracts and those of its competitors, such as Lockheed Martin (NYSE: LMT – News) and General Dynamics (NYSE: GD – News), may be increasingly under the gun.

Comment: With Germany engaged in the EuroHawk programme for its naval surveillance programme and the UK looking at Global hawk as a possible Canberra replacement and Australia looking at the system for coastline patrols, the rise in the systems costs will come as an alarm to these countries who may now look back at Predator B and its sister UAVs as a cheaper and more economic alternative with little sacrifice in overall performance.