Cheney halts Navy contract for stealth jet $57 billion pact is largest ever ended by Pentagon

WASHINGTON -- In the largest military contract termination ever, Secretary of Defense Dick Cheney canceled yesterday the $57 billion A-12 Navy attack plane, saying that the plane's builders had so badly mismanaged the program that they could never meet the government's contract terms.

Mr. Cheney rejected pleas from the Navy and the two prime contractors -- McDonnell Douglas Corp. and General Dynamics Corp. -- to restructure the program to build fewer planes for unspecified billions of dollars in additional funds. The government has already spent an estimated $5 billion on the A-12 program, which employs 10,000 workers in 42 states, including Maryland.


"This program cannot be sustained unless I ask Congress for more money and bail the contractors out," Mr. Cheney said last night in a statement issued after the financial markets closed. "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. And I do not believe a bailout is in the national interest."


He said the contract was terminated for "default," based on the "inability of the contractors to design, develop, fabricate, assemble and test A-12 aircraft" under the contract's performance and schedule terms.

Mr. Cheney said that the Navy still needs an all-weather, carrier-based attack plane to replace the 25-year-old A-6 Intruder.

The move stunned Navy officials, contracting companies' executives and financial analysts -- all of whom had been expecting the plane to be saved under revised contract terms.

The Navy had been counting on the radar-evading A-12 to form the backbone of its carrier-based air fleet for the next 30 years.

McDonnell Douglas and General Dynamics, both of which denied they had defaulted on their contracts, said they would begin immediately laying off as many as 9,000 workers on the project, mostly at their plants in St. Louis, Fort Worth, Texas, and Tulsa, Okla.

The Navy had plans to build 620 of the bat-winged aircraft for a total of $57 billion. But congressional auditors reported last month that delays in the program and likely changes in the aircraft design would probably push the cost above $62 billion, or more than $100 million a plane.

The Pentagon scaled back the program from 858 planes to 620 early last year, in part because of rising costs and because the Navy's carrier fleet was being reduced from 15 ships to 12.

Mr. Cheney reached the decision to kill the airplane after five hours of meetings Saturday with Deputy Secretary of Defense Secretary Donald Atwood, chairman of the Joint Chiefs of Staff Gen. Colin L. Powell, representatives of General Dynamics and McDonnell Douglas and other senior aides.


He was told the program could be saved only by rewriting the contract and pumping in more money.

But Mr. Cheney was adamantly against any form of a bailout of the companies. They are the nation's two largest defense contractors, with more a total of more than $15 billion in Pentagon business in fiscal 1989, according to Pentagon spokesman Pete Williams.

[The Pentagon's announcement came after the stock market closed. General Dynamics stock closed at $25, down 62.5 cents. McDonnell Douglas stock closed at $38.75, down $1.

[Yesterday's cancellation surpasses the Army's cancellation several years ago of the Divad, or Sergeant York, anti-aircraft gun, a $39 billion program that the Pentagon had spent $1.8 billion developing. Sixty-five of the weapons were built, only to be dismantled and sold for scrap.

[The problems plaguing the A-12 program, one of the Pentagon's most highly classified projects, led to the early retirement and transfer of two admirals last month and of another officer responsible for managing the plane's development.

[An internal Navy inquiry found that the officers had failed to inform top Defense Department officials of extensive delays and cost overruns in the development of the attack plane.


[Mr. Cheney was deeply embarrassed last April, five weeks after he told Congress that development of the plane was on schedule, when the contractors told the Navy about the delays and cost overruns.]