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Air Force to Require Lockheed Cost Details

Aircraft Contract Will Be Modified

By Renae Merle
Washington Post Staff Writer
Thursday, April 14, 2005; Page E03

The Air Force said yesterday it is restructuring its C-130J transport plane program to gain more cost and pricing information from Lockheed Martin Corp.

This is the second multibillion-dollar military contract the Pentagon has agreed to modify in the past month rather than face off against Sen. John McCain (R-Ariz.), who has complained that some military procurement contracts are too favorable to the companies.

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At a hearing last week, McCain questioned why the C-130J, unlike most military hardware, is being purchased with a commercial contract that does not require Bethesda-based Lockheed to provide complete pricing and cost data, including its profit margin. Pentagon Inspector General Joseph E. Schmitz called the commercial strategy "fundamentally unjustified," and McCain threatened to subpoena the company for the financial information.

"For the first time, this program will be subject to provisions typically used to protect taxpayers' interests and help prevent fraud, waste and abuse," McCain said in a statement yesterday after the Air Force announcement.

Last week, the Army said it would restructure Boeing Co.'s contract for the $120 billion Future Combat Systems, a modernization of battlefield equipment, after McCain questioned it at an earlier hearing. The senator led a campaign last year against an Air Force deal to lease and buy tankers from Boeing Co. that helped kill the proposal.

Lockheed has delivered more than 62 of the C-130J Hercules, which cost about $66.5 million each and are used to transport troops and supplies around the world.

An inspector general's report last year said the plane could not perform its intended missions. The plane will be tested this summer and is expected to be cleared for all missions, said Doug Karas, an Air Force spokesman.

A Pentagon proposal to cancel the C-130J to save billions of dollars met resistance from lawmakers fearful of job losses in their districts.

If the program survives the budget battle, any future purchases will be made using a traditional contract, Karas said. This "action will provide us insight into the cost of the C-130J, allowing us to do a better job when negotiating future buys," he said.

Lockheed has said it began developing the plane in the early 1990s at the urging of the Air Force and Congress, using more than $1 billion of its funds and expecting to find commercial customers. That market did not materialize, though. Lockheed sold some of the planes to foreign customers, including Britain.

"We recognize that the acquisition environment has changed to a more traditional one, and we adapt as necessary to meet our customer's needs and requirements," said Tom Jurkowsky, a Lockheed spokesman.


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