Defense Secretary Richard B. Cheney yesterday killed the Navy's highest-priority aircraft program, the A-12 "stealth" bomber, in what officials said was the largest weapons contract cancellation ever by the Pentagon.
Cheney said he ordered the Navy to terminate the $6.2 billion program for research, development and limited production of the carrier-based jet because contractors and Navy officials could not project how much it would cost to correct major problems.
"This program cannot be sustained unless I ask Congress for more money and bail the contractors out," Cheney said in a statement announcing the extraordinary action yesterday. "But I have made the decision that I will not do that. No one can tell me exactly how much more it will cost to keep this program going . . . . If we cannot spend the taxpayers' money wisely, we will not spend it."
Cheney's decision, made after six hours of meetings with senior naval officials on Saturday, is the culmination of weeks of controversy that contributed to the resignation of the Pentagon's senior procurement chief and led the Navy to fire two admirals and a captain for mismanaging the program. The Justice Department is conducting a criminal investigation of contract payments to General Dynamics Corp. and McDonnell Douglas Corp., the contracting team that was building the A-12.
"We have lost faith in the ability of everyone to perform under this current contract," Pentagon spokesman Pete Williams said in announcing Cheney's decision.
While Cheney said cancellation of the A-12 contract was based on poor performance by the contractors and deficiencies in the aircraft, military analysts said the decision could portend future terminations of costly weapons programs at a time of diminishing budgets.
The A-12 Avenger, the Navy's newest aircraft, was designed to replace the aging A-6 bombers now deployed on carriers. It was to use advanced "low-observable" shapes and materials that would have allowed it to slip into enemy territory on bombing runs with less chance of radar detection than more conventional planes. The A-12 was to be one of an entire new generation of aircraft, including the Air Force's larger B-2 bomber, created to counter increasingly sophisticated Soviet radars.
But the contractors have had major problems with some of the high-technology aspects of the airplane, particularly its skin, which was to be made of "composite" materials that have proven troublesome. After repeated delays, the first flight of the plane had been scheduled for November this year.
The Navy, under orders from Cheney, canceled the contract, charging the companies had defaulted on their agreement and could not design, develop and test the airplane within the cost and schedule set by a 1988 contract to build the first eight of a planned 620 aircraft. The complete program could have totaled $52 billion by some estimates.
Contractors told senior Pentagon officials that they could not proceed with the program without more money and a relaxed schedule. Defense Department officials estimated they would have had to increase the $4.8 billion development portion of the contract to more than $7.5 billion to pay for this phase of the program alone. The Pentagon also expected increases in the $1.4 billion portion for initial production.
General Dynamics, calling yesterday's decision "extremely disappointing," denied defaulting on the contract and blamed the aircraft's problems on "government insistence on a fixed-price type of contract for a program that is on the cutting edge of technology." Both General Dynamics and McDonnell Douglas said yesterday they would contest the cancellation.
In an attempt to control runaway costs in weapons development, the Pentagon in the 1980s moved toward fixed-price contracts, which imposed ceilings on what the government would pay for weapon systems -- even if unanticipated problems occurred during development. Experience with the A-12 and other high-technology programs has prompted some Pentagon officials to reconsider the fixed-price approach.
The A-12 is one of only a handful of major programs the Pentagon has canceled beyond the earliest stages of development. In 1986, Defense Secretary Caspar W. Weinberger canceled the Army's DIVAD anti-aircraft artillery system because it "didn't work well enough" to justify adding $3 billion to the $1.8 billion already spent on 618 of the guns. Other programs killed include the T-46A jet trainer in 1987, a laser-guided bomb in 1985, the Roland anti-aircraft missile in 1984 and the XB-70 supersonic bomber in 1967.
While Congress has frequently ordered the Pentagon to reinstate some programs canceled in the past, the A-12 -- until recently a secret program -- has had no major constituency outside Fort Worth, Tex., and other areas where the aircraft would be built. Senior congressional leaders, ordering major defense budget cuts coinciding with the end of the Cold War, have asked the Pentagon to reconsider some of the expensive aircraft programs, such as the A-12, which were designed to counter the now-diminished Soviet threat.
General Dynamics had said it would be forced to lay off about 4,000 of its 100,000 employees if the A-12 were canceled. McDonnell Douglas yesterday said it would cut about 3,000 employees as a result of the cancellation decision.
Wall Street analysts said yesterday the two companies could survive the cancellation, although it comes at a time of painful retrenchment in all defense contracts.
Cheney made the "tough but smart" choice of weighing the loss of 8,000 jobs against billions of dollars in development costs still to come, said Wolfgang Demisch, director of research at UBS Securities, a New York investment firm.
Cheney said yesterday that despite his decision on the A-12, the Navy still needs to develop a new generation of bombers for the aircraft carrier force.
"We need an all-weather plane, capable of attacking at night, with the latest electronics and stealth technology," said Pentagon spokesman Williams. Options under consideration by the Navy include even further improvements in the A-6 bomber and a major overhaul of the F-14 Tomcat fighter, according to Pentagon officials.
Staff writer Stuart Auerbach contributed to this report.