WASHINGTON -- A U.S. appeals court overturned a $1.2 billion damage award to Boeing Co. and General Dynamics Corp. yesterday and ordered a new set of hearings into the Navy's cancellation of a contract for the A-12 stealth attack aircraft.

A three-judge panel in Washington unanimously ruled that a trial judge should not have awarded the damages -- the most ever against the U.S. government -- without first deciding whether company delays and cost overruns justified the Pentagon's decision to scrap the program.

The appellate judges told U.S. Claims Judge Robert Hodges to hold further proceedings on that issue. The companies still can pursue other legal theories, and the judge ultimately might issue an equally large award -- plus interest accruing at $200,000 a day. Still, the ruling marks a setback for the two defense contractors and could add several years to a courthouse fight that dates to 1991.

A Justice Department spokesman said the government was "gratified" by the ruling. A spokesman for General Dynamics had no comment.

Ultimately, as much as $4 billion is at stake in the case, with the Justice Department arguing that the two companies should return some of the $2.68 billion they already received on the contract, plus interest.

Pub Date: 7/02/99