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16 Jan 06. Reuters reported that the U.S. Army likely will pay Lockheed Martin Corp. tens of millions of dollars in contract termination fees for a botched attempt to produce a spy-plane meant to serve the needs of both the army and the navy, a senior army official said Monday.

Bethesda, Maryland-based Lockheed Martin, the Pentagon’s No. 1 supplier, was not at fault in the scrapping of the initial, $879 million contract announced Thursday, said Edward Bair, the army’s program executive officer for electronic warfare and sensors. The total estimated production value of the program had been $8 billion, with the army expected to buy 38 aircraft and the navy, 19. The army killed the deal because problems with the aircraft, the Aerial Common Sensor, were too pricey to fix. This set the stage for Lockheed to negotiate a settlement.

Bair said the armed services failed to think though whether a single aircraft could meet the separate needs of both services for communications-gathering, surveillance and reconnaissance. The army would fly the aircraft at 37,000 to 45,000 feet to monitor enemy signals and track troop movements. But the navy sometimes must fly lower, requiring the aircraft to carry more jamming equipment and systems built to withstand more severe maneuvering, Bair said. The army halted work on the project in September after determining Lockheed’s chosen platform for the project, the ERJ-145 regional jet built by Brazil’s Embraer SA was too small to carry all the gear intended for it.

Bair said he did not expect Embraer to get a “significant” part of the settlement because it had not signed a formal contract with Lockheed.

A new six-month study of the mission and requirements would look at potential roles for remotely piloted vehicles, including the high-flying Global Hawk reconnaissance system built by Northrop Grumman and the Predator, built by closely held General Atomics Aeronautical Systems, he said.

“Frankly, we have not done a thorough enough operational ends study on combining the navy and army into a potential single solution,” he added in a teleconference with reporters.

Bair said the army had spent roughly $200 million on the project before pulling the plug. He said he expected the termination settlement to be in the tens of millions of dollars, with most of it going to subcontractors

On Thursday, Claude Bolton, the army’s chief weapons buyer, said the army, navy, air force and industry would review challenges to the aircraft.

Bair said the army expected a new competition to take place in late fiscal 2008 or early 2009 after the services determined whether a single aircraft would work. He said it was too soon to say whether the same number of aircraft would be built, although factoring in remotely piloted aircraft would certainly change the “scope” of thinking.

Lt. Herb Josey, a navy spokesman, said the navy would decide in conjunction with the army whether it could sign on to the follow-on project. He declined to comment on whether the navy had fallen down by failing to anticipate problems that killed the current contract. Lockheed beat Northrop Grumman for the August 2004 award of the $879 million system design and development contract for the spy-plane.

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