Court Sides With U.S. in Scuttled Navy Jet Deal

The United States was justified in canceling a contract for General Dynamics and Boeing to develop the A-12 Navy jet fighter after executives admitted that they couldn't meet the deadlines, a federal appeals court said.

The U.S. Court of Appeals for the Federal Circuit in Washington said yesterday that even though there was no agreed upon completion date, the government was within its right to cancel the project when little progress was made.

The federal government has been trying for more than 17 years to get Boeing and General Dynamics to repay $1.4 billion in progress payments and about $1.4 billion in interest. Boeing had argued that because the Navy agreed to extend the terms of the original 1987 contract without setting a new delivery schedule, it had no basis for declaring the companies in default in 1991.

While it was a mistake for the Navy to stipulate this type of contract, it was also wrong for the contractors to accept it, the court said, echoing the lower court's finding.

"Both are at fault," though contract law allows the government to terminate the agreement, the appeals court said. "The default termination of the A-12 contract was justified," the court said.

General Dynamics, based in Falls Church, said in a regulatory filing last month that its after-tax charge would be $780 million, or $2.02 a share, to be recorded in discontinued operations, if it lost the case.

General Dynamics said in a statement last night that it plans to appeal the ruling. The company has said it has the resources to satisfy its obligation.

Boeing said in a regulatory filing in February that if the company loses the appeal, it would be required to pay about half of the progress payments the company received, or about $675 million, plus more than $1.4 billion in interest.

John Dern, a Boeing spokesman, the second-biggest U.S. defense contractor, declined to make an immediate comment on the ruling.

The A-12 was one of the largest defense procurement failures in history. The plane, designed to penetrate heavily defended locations, never made it into production.

"The United States is pleased with the court's decision," said Charles Miller, a spokesman for the Justice Department.